Tuesday, December 1, 2009

The Spending vs. Jobs Dilemma

Summary: How Spending and Jobs have become both economic and political trade-offs.

The Congressional Budget Office released a report last night revealing that the American Recovery and Reinvestment Act (better known as the stimulus package) has thus far saved as many as 1.6 million jobs.

That should be good news for President Obama, but there are some problems associated with that figure.

The first is that a job saved is very different than a job created. No one knows for sure if they’re job stability over the past year has been the result of an Obama policy – but those who have been laid off without finding new work still have every reason to assume the stimulus isn’t working.

The second problem is much more political – the stimulus has everybody talking about a familiar topic: “out-of-control government spending” – a favorite complaint from the right. In fact, a Gallup poll taken back in September found that the majority of Americans believed about 50% of government spending was wasteful – a figure that has no doubt increased – and the dissatisfaction over the deficit has contributed to a decline in support for Obama and the Democrats.

In fact, the number one thing Obama doesn’t want people saying about him is that “he thinks he’s playing with monopoly money” according to an article in Politico from yesterday.

Spending issues don’t seem to be going away either. On Sunday, House Appropriations Committee Chairman Dave Obey (D-WI) suggested a war-tax be implemented to pay for the surge in Afghanistan. House Majority Leader Steny Hoyer (D-MD), however, is saying that notion may have it’s own negative economic implications.

Meanwhile, the jobs issue is becoming a greater and greater concern to Democrats – and it should. An interesting analysis by Nate Silver finds that if the job situation hasn’t improved by 2012, Obama would be in serious risk of losing Florida, Ohio, North Carolina, and Indiana in his re-election – dropping his electoral votes to 279. My guess is he’d be at risk of losing Pennsylvania as well, losing him the election.

Of course, if additional resources are put towards job creation, that decision will carry it’s own burden. States upset about spending could drop off as well, such as Virginia, Colorado, and others.

Now, as Silver admits, 2012 is a long way off and probably not worth the worry at this point.

But 2010 is coming fast – so what to do?

According to his column in the New York Times, liberal economist Paul Krugman suggests a job-focused bill that increases state aid, initiates public works programs like the ones seen during the New Deal, and gives tax incentives to employers who increase their payrolls.

“Our best hope now is for a somewhat cheaper program that generates more jobs for the buck. Such a program should shy away from measures, like general tax cuts, that at best lead only indirectly to job creation, with many possible disconnects along the way. Instead, it should consist of measures that more or less directly save or add jobs.”

Otherwise, say some analysts, the unemployment rate could peak as late as next summer, and – according to the Federal Reserve – stay above 8% nationally until 2012.

Again, that costs money. The only way to try to have a win-win situation on both deficit reduction and jobs is to hope that a job-creation bill will increase revenues enough in the future.

Now, currently there are about the same or even more jobs being created as jobs being eliminated – in other words, more people are beginning to get hired these days than being laid-off. And funds from the stimulus bill have not all been spent. In fact, only about a quarter of all money allocated for the stimulus has gone out so far. As that picks up and the non-lagging economic indicators improve, it’s possible that jobs will follow as previously expected.

These issues will be discussed more in the news at the end of the week when President Obama holds his Jobs Summit in Washington. Regardless of whether or not Congress and the president focus on cutting spending, creating jobs, or holding back and waiting to see if current legislation takes care of the problems, each option is essentially a political gamble they’ll have to live with.

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