Friday, September 09, 2011

Jobs Speech or Campaign Speech?

Last night President Obama gave his long-awaited speech to the joint houses of Congress. This was billed as his "pivot to jobs" and he claimed that passing his proposals would add or save millions of jobs. He learned from his first stimulus not to give any hard numbers that could be used against him. Remember that the original stimulus was supposed to keep unemployment below 8%.

What was offered was similar to Obama's previous stimulus. It has tax breaks for workers. These are small in the hope that people will spend the extra few dollars rather than save them. There is also infrastructure spending, what he called "shovel ready" last time. The first stimulus included bailouts for states and cities so that they would not have to lay off (union) workers. Stimulus 2 will only prevent teacher layoffs.

The total sum proposed just over half of the original stimulus - $450 billion instead of $800 billion.

So, was this a real proposal or simply a campaign plank designed to insulate Obama from charges of mismanaging the economy? There are a lot of signs that it was the second, a campaign point with little chance of passing.

While the President has insisted that the first stimulus saved the economy from becoming a depression, there is no evidence for this. The economy hit bottom and began its slow recovery before any stimulus money was spent. If the first stimulus didn't help the recovery noticeably then why would a second, smaller one? It should be noted that Christina Romer who chaired Obama's team of economic advisers for two years had previously written a paper showing that government stimulus packages never worked.

Obama's proposal is incomplete. He said multiple times that it would be fully paid for but he did not propose how this would happen. He kicked this can over to the super-committee already charged with defining $1.5 trillion in deficit reduction. Raising a half-trillion is going to upset people. By passing the hard part to the committee, Obama hopes to take all of the credit but escape the inevitable blame. This argues that he is more interested in campaigning than stimulating.

Even before the speech, Obama was already criticizing Congress for failing to pass the bill (which they had not seen). As a follow-up, Obama is giving speeches in Top Republicans' districts to try to pressure them.

Congress's reaction to the speech is illuminating. The Republicans didn't bother to offer a rebuttal. They listened in silence broken only by a few snickers. Many Democrats failed to even show up and those who did looked bored. The press failed to fill the press box.

I have said before that the worst thing that could happen to Obama is to have Congress pass his package. It will fail. Even if government stimulus packages could succeed, this one is flawed. But that is irrelevant. The Eurozone is failing anf threatens to take the rest of the world's economy down with it. A half-trillion in new spending cannot offset the impact of a European recession.

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