Small dent in jobless rate seen from Obama's plan
Saturday, September 24, 2011
Small dent in jobless rate seen from Obama's
plan
By: Tom Raum, Associated Press
Even if Congress heeds President Barack Obama's demands to "pass
this bill right away" and enacts his jobs and tax plan in its
entirety, the unemployment rate probably still would hover in
nosebleed territory for at least three more years.
Why? Because the 1.9 million new jobs the White House says the
bill would produce in 2012 falls short of what'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.
Obama promoted his package anew in his Saturday radio and
internet address, saying the mix of tax cuts and direct spending
would put tens of thousands of teachers back to work and modernize
at least 35,000 schools. He again called on lawmakers to pass the
bill "right now."
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."