Obama plan would make small dent in jobless rate
Why? Because the 1.9 million new jobs the White House says the bill would produce in 2012 falls short of what it's needed to put the economy back on track to return to pre-recession jobless levels of under 6 percent, from today's rate of 9.1 percent.
That's how deep the jobs hole is. The persistent weakness of the U.S. economy has left 14 million people unemployed and more than 25 million unable to find full-time work.
Economists of all stripes pretty much agree that it will be a long, hard road no matter what Congress does. Right now, the Republicans who run the House and the Democrats who lead the Senate aren't finding much common ground.
Obama estimates his American Jobs Act would lower unemployment by just a single percentage point by next year, to just over 8 percent, heading into the 2012 presidential election.
Burned before by making overly optimistic job-creation predictions, the White House turned to prominent outside economists to crunch the numbers.
The projection of 1.9 million new jobs, a 1 percentage point drop in the unemployment rate and a 2 percentage point increase in the gross domestic product under Obama's plan came from Mark Zandi, chief economist of Moody's Analytics.
But Zandi said in an interview his forecast also is based on an assumption that "the president's entire package is passed by the end of the year," a slim prospect given the current divided leadership in Congress, and that there are no other budgetary policy changes.
"I assumed that it would be paid for," Zandi said. "I didn't know when I did that simulation how the president proposed to pay for it."
Since then, Obama has said he would pay for his $447 billion package with permanent income tax increases of about $150 billion a year, mostly on wealthy individuals and corporations, in addition to spending cuts. That's drawn criticism from Republicans, who say any tax increases could further stall the fragile recovery.
Zandi, who has advised both Republican and Democratic lawmakers, said he's still sticking with his forecast, mainly because the stimulus in the plan, including a temporary reduction in Social Security taxes for both employees and employers and infrastructure spending, would come in 2012 and be paid for later.
But there is one feature Obama doesn't emphasize.
Zandi said his job-creation figure only applies to 2012.
"Beginning in 2013, and certainly into 2014, the plan is a drag on the economy because the stimulus starts fading away," he said. "So by 2015, the economy is in the same place as now, as if there were no jobs package."
Also, Zandi said, his forecast does not leave any room for a new recession. If that happens, all bets are off.
"So it's very important to get as many people working as fast as possible," he said. "If we go back into recession, it is going to be very difficult to get out. And it's going to cost taxpayers tremendously."
Job creation has ground to a virtual standstill. The economy produced a scant 20,000 net new jobs in June, 85,000 in July and none in August. Economic output, as measured by the GDP, has been growing this year at an anemic annual rate below 1 percent.
The global economy is showing no signs of strengthening. A divided Federal Reserve is nearly out of ammunition for additional stimulus. And the U.S. is once again facing the possibility of a government shutdown at the end of next week.
The Obama-Zandi target of 1.9 million new jobs next year, or 158,000 a month, is somewhat higher than private analyses that suggest the plan would create 100,000 to 150,000 jobs a month.
Heidi Shierholz, economist for the labor-leaning Economic Policy Institute, calculates it would take job growth of 400,000 every month for three years in a row to get back to the 5 percent jobless rate last seen in December 2007, at the recession's outset.
"To get down to 5 percent in five years, we need around 280,000 jobs every month," she added. "Right now, we're more than two years into the official recovery, and we're still bumping along at extremely low levels."
What if Obama gets none of what he requested? She said failure to renew some current anti-recessionary programs such as extended unemployment insurance and the existing Social Security tax break for employees "will be a big blow" both to the economy and to the employment picture.
More likely, Congress will probably produce a watered-down version.
As long as the GDP grows at an annual rate beneath 2.5 percent, it cannot create enough jobs for new entrants into the workforce, let alone to re-employ those laid off during the downturn, said Martin Regalia, chief economist for the U.S. Chamber of Commerce, the nation's biggest business lobby.
The chamber estimates it will take 20 million jobs over the next decade to get the economy back to pre-recession levels. It has its own jobs plan, which includes increased trade, greater oil drilling, quicker road and bridge construction and temporary corporate tax breaks.
"If you want to go from 9.1 percent down to 5.5 or 6 percent unemployment, you're going to have to grow roughly at 4.5 percent (GDP) for three years," Regalia said. "I don't see that in the forecast."
In the first six months of this year, the GDP grew at a scant 0.7 percent rate. Private forecasters see it growing about 2 percent in the final six months of 2011, about 2.5 percent throughout 2012, and increasing to about 3.2 percent in 2013.
Obama is quick to acknowledge a rocky road ahead.
"For a decade now, incomes and wages have flat-lined for the American people — for ordinary Americans, for working families," he says. "They are working harder, making less, with higher expenses. And that's been going on for a long, long time."