Thursday, September 8, 2011

A Layman’s Guide to the President’s Jobs Speech

A Layman’s Guide to the President’s Jobs Speech: Caroline Baum

About Caroline Baum

Caroline Baum, a columnist for Bloomberg News since 1998, is the author of "Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets and Bubbles."

More about Caroline Baum

Let’s face it: If the president had a plan to create jobs, he wouldn’t have kept it under wraps until now. Why take flak from Republicans and heat from the public if you have what it takes to turn the economy and labor market around?

Barack Obama doesn’t have a plan to create jobs. Nor is that his job. The government’s role is to provide an environment in which the private sector will create them. That should be his goal.

For weeks, the White House has been hyping the president’s speech to a joint session of Congress. I suspect it will be full of pomp and circumstance signifying nothing (with apologies to Will Shakespeare). Obama will offer some warmed-over “stimulus,” including aid to the states, extended unemployment benefits, temporary tax breaks and infrastructure spending; mortgage relief for homeowners; and perhaps regulatory relief for business. The price tag, according to those briefed on the speech: $300 billion.

For those of you who don’t follow the Washington play-by- play, here are some things to watch for this evening to help you determine whether the president is offering more of the same or has discovered an elixir for job growth.

1. A temporary solution, a permanently bad idea

The president is expected to ask Congress to extend the payroll tax holiday for employees beyond Jan. 1 and include employers in the game. Other temporary incentives to encourage hiring are also on the table.

Why would any company respond to a one-time tax credit for adding employees when it has to assume a long-term expense -- salary and benefits -- in the process? Answer: It wouldn’t, unless that company were planning to hire anyway.

Sure, if there’s an incentive with no cost attached people will jump on it. Take a look at a graph of auto sales and home sales to see how consumers responded when Cash for Clunkers and the homebuyers’ tax credit were introduced in 2009.

The two programs pulled demand forward. It collapsed when the programs ended. Both new and existing home sales plumbed new depths after the credit expired.

If Obama’s jobs speech is filled with more temporary measures, you can hit the mute button and take a quick nap before the NFL kickoff.

2. The ghost of George W. Bush

We know it’s Bush’s fault: the housing bubble, the bust, the financial crisis, the recession, the anemic recovery, the trillion-dollar annual deficits, everything. Almost three years into his first term, Obama needs to move on. Unless he accepts responsibility for something, anything, you’ll know that this is just another campaign speech.

The same goes for his chronic finger-pointing at the Republican Party. The Obama-appointed National Commission on Fiscal Responsibility and Reform (aka the Simpson-Bowles Commission) issued a full report in December 2010 with recommendations to reduce the deficit, stabilize the debt and put Social Security on sound footing. The commission proposed spending cuts and real tax reform that would raise revenue by eliminating loopholes and tax breaks: the kind of “balanced” approach Obama now touts.

When the report came out, the president thanked the commission for its effort and filed it in the bottom drawer. If he had any thoughts about a grand bargain on deficit reduction, he kept them to himself until the debt-ceiling debate last month.

If Obama starts pointing fingers this evening, you’ll know he’s going for theatrics. For my money, there’s greater entertainment value in listening to John McEnroe and Mary Carillo chat it up at the U.S. Open tennis tournament.

3. No entitlements, no beef

The White House, in an attempt to lower expectations for tonight’s address after fanning them for three weeks, said Obama would unveil a separate deficit-reduction plan sometime after the jobs speech. No doubt the president wants to avoid being seen as an advocate for spending money to save money.

The problem is, the U.S. keeps spending and spending while the saving is elusive. At some point -- and we are fast approaching it -- repeated short-run attempts to alleviate unemployment will result in bigger long-run problems and higher unemployment via the ballooning debt.

The president has to demonstrate this evening that he’s serious about deficit reduction, even if he plays hide-and-seek with his plan. If he advocates short-term fixes and avoids mentioning the need to reform programs like Medicare and Social Security before they go broke, pour yourself a glass of wine. Maybe you won’t remember what he said in the morning.

4. Banking on infrastructure

No one would deny that the nation’s roads, bridges, transit systems and schools are in bad shape. The American Society of Civil Engineers gave the U.S. a “D” on its 2009 infrastructure report card and estimated that it would take a $2.2 trillion investment over five years to address the state of disrepair.

The concept of an infrastructure bank has been kicking around for a while. It’s an idea whose time has come, is long overdue or is another one of those public-private partnerships that sounds better on paper than in practice.

The problem with infrastructure spending isn’t the policy. It’s the politics and red tape. When asked about the lackluster results of the $830 billion stimulus enacted in 2009, Obama was forced to admit that “shovel-ready was not as shovel-ready as we expected.”

Before you bank on public-works projects absorbing all those unemployed construction workers ahead of the 2012 election, pay attention to what the president says about the permitting process and execution. The devil is always in the details.

5. Class warfare

Although economic growth is a prerequisite for employment, jobs start with employers. It’s axiomatic that if you want businesses to hire, you can’t vilify them.

The same goes for entrepreneurs, those “millionaires and billionaires” Obama loves to dis. It turns out that business startups are the sole source of job creation in the U.S., according to a 2010 study by the Kauffman Foundation in Kansas City, Mo., based on the Census Bureau’s Business Dynamics Statistics.

Obama has yet to grasp this concept. If he continues to portray business as an enemy of the people, he’ll be a hero to the labor unions. But they aren’t about to vote Republican anyway.

Last week, the federal government sued 17 big banks for mortgage fraud: Many of the same banks it rescued with the Troubled Asset Relief Program in 2008. Actions speak louder than words.

Obama isn’t the only one touting an economic plan this week. On Tuesday, Republican presidential candidate Mitt Romney unveiled his 59 points in a 160-page book. The other candidates are sure to follow.

I confess I’m a less-is-more kind of gal. I’d settle for one big idea, as long as it’s a good one.

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