Barack Obama will unveil his plan for US jobs on Thursday evening. Some of the president’s advisors have been urging what might be termed Plan A. Others insist on Plan B. We will soon know which prevails – but my betting, unfortunately, is on B.
Plan A would be big enough to restart the economy and reduce unemployment. That means the government should spend another $1,000bn over the next two years – rebuilding the nation’s worn out infrastructure, creating a Works Progress Administration and Civilian Conservation Corps (modelled after the Depression-era agencies that put jobless Americans directly to work), lending money to cash-starved states and cities, and exchanging mortgage debt for equity stakes in people’s homes when they are eventually resold.
Republicans will oppose such a plan, of course. They will say the original stimulus didn’t work. They are wrong about this: it saved 3m jobs. But it was far too small given the drop in consumer spending and the substantial budget cuts by states and cities.
Republicans will also argue that the nation cannot afford Plan A. They’re wrong again. The yield on 10-year Treasury bills is now 2 per cent, making this an excellent time to borrow. Moreover, if growth is not restored soon, the ratio of public debt to gross domestic product will balloon.
A cynic would suspect the real motivation of Republicans was to keep the economy anaemic up to election day 2012 so voters send Mr Obama home. Whatever their motive, the result is the same: if the president presents Plan A he will have to fight for it. He will have to barnstorm the country, demanding Republican votes. And if he fails to attract enough votes, he will have to build his 2012 presidential campaign around it, attacking the Republican “do nothing” Congress, as did “Give ‘em hell” Harry Truman in the election of 1948.
Plan B would be a bunch of policy miniatures. They would all be worthy initiatives: they would include extending unemployment benefits and last year’s Social Security tax cut, reauthorising the highway building trust fund, giving employers a small tax incentive to hire the long-term unemployed, and ratifying trade agreements that are languishing.
The president would present each of his policy miniatures as a separate piece of legislation hoping to attract enough Republican votes to get something – anything – enacted and declare a victory. He would then campaign as a leader who can “get things done,” even though the US economy is still a basket case.
These small-bore initiatives would not revive the economy, however, because they would not come close to making up for the shortfall in demand. The latest official data show that the US economy generated no net new jobs in August, and fewer than previously thought in June and July. At least 125,000 are needed each month merely to match population growth. So the hole continues to deepen.
Since the jobs depression began at the end of 2007, the nation’s potential labour force – working-age people who want jobs – has grown by over 7m but the number of Americans with jobs has shrunk by more than 300,000. The problem is clearly on the demand side.
Republicans claim businesses are not hiring because they are uncertain about regulatory costs or cannot find the skilled workers they need. Yet, if these were the reasons – and if demand were growing – we would expect companies to make more use of their current employees, with average working hours increasing. In fact, the opposite has been occurring. In August, the length of the average working week declined for the third month in a row, to 34.2 hours – barely longer than at its shortest point two years ago, in June 2009.
Plan B is not even wise politics. The night before Mr Obama lays out his jobs plan Republican presidential hopefuls were holding their first big debate. The winner this week will be the one who comes off as the toughest fighter for average Americans, almost regardless of the soundness of his or her economic plans. Similarly, the winner of the 2012 presidential election will almost certainly be the person who comes off as the toughest fighter for average Americans.
The writer is a professor of public policy at the University of California at Berkeley, and former US secretary of labour under president Bill Clinton. His latest book is ‘Aftershock: The Next Economy and America’s Future’