Economists weigh Obama's jobs options

AFP - Barack Obama

WASHINGTON, Sept 4, 2011 (AFP) - When President Barack Obama delivers his much-anticipated jobs plan to Congress this week, economists of all stripes will have piled on their prescriptions for healing the sick economy.

Though no details of Obama's jobs package have been announced, speculation about the best way to create jobs was given a new sense of urgency after August labor data Friday showed zero job growth.

With the jobless rate at 9.0 percent or higher for most of the past 28 months, "where are the jobs?" is the burning question for Obama's Democrats and opposition Republicans as the 2012 election season gears up.

More than two years after the Great Recession officially ended, 14 million people are unemployed in the United States, and millions more no longer are trying to find work.

But how to fire up jobs creation without digging the country's finances deeper into the red? After a midnight deal in early August that saved the country from a debt default, Democrats and Republicans remain miles apart on how to reduce the yawning public deficit.

Obama's speech Thursday to a joint session of Congress, which will be nationally televised, is certain to be parsed down to the comma by political analysts for how it plays to the Democrat-controlled Senate and the Republican-led House of Representatives, as well as to the public.

Consumer and business confidence is shot, the economy is limping and recession fears are multiplying. The massive wipe-out of household wealth with the collapse of the housing market, as well as high indebtedness, has made Americans more cautious about spending.

Job creation appears most likely to be pivotal in determining whether Obama gets reelected.

While pundits guess at whether Obama will deliver big measures, small measures, a mix of both or merely hot air Thursday night, economists are outlining steps they say will be the most effective and cost-friendly.

Most agree the president should target small and medium-sized businesses, arguing that big US corporations, which are sitting on huge cash piles, are not creating jobs in the country, but overseas.

And a number support the creation of an infrastructure bank, an extension of unemployment benefits, tax reform, and help for distressed homeowners.

Here is a sample of the ideas proposed by a range of economists to boost job growth:

- Infrastructure spending: The country needs "more seed corn than hand-to-mouth stimulus," said Robert Brusca at FAO Economics. Brusca favors funding clean-up projects in cities, such as Detroit where swaths of foreclosed homes are left to deteriorate. The projects would not cost much money and would be labor-intensive, putting people to work, he said.

- Creation of an infrastructure bank: An idea backed Obama, this could take at least a year to set up, making it a longer-range tool for job creation, economists said.

"The biggest job generator is infrastructure," said Donna Cooper at the Center for American Progress.

She said the United States needs a counterpart to the European Investment Bank. "For large-scale projects and multi-state projects we need a financing entity that can take the lead."

An infrastructure bank could finance repair roads and bridges, deepen ports and improve airports, she said, estimating that a government investment of $65 billion over the next two years would mobilize $135 billion in state and private match-ups.

- Extension of the payroll-tax holiday and unemployment insurance benefits: For Mark Zandi, chief economist at Moody's Analytics, simply extending the two measures would be a quick way to add nine-tenths of a point to gross domestic product in 2012 and add 800,000 jobs. The cost could be paid by increasing the amount the deficit must be reduced over the next 10 years by $150-160 billion, he said.

- Business investment. The Obama administration should evaluate any proposal to increase investment in plants and equipment which has fallen to a nearly 40-year low, said Howard Rosen at the Institute for International Economics (IIE). "The more we invest, the more jobs we create," said Rosen.

- Mortgage relief: Brusca called for a federal credit enhancement, similar to the TARP banking bailout, in which the government would offer some guarantee for homebuyers with low credit scores. He pointed out that credit scores have fallen because of the economic downturn, and lenders that once played loose with lending, fueling the housing bubble, now have tightened credit too much.

Moody's Zandi suggested that government-controlled lenders, like Fannie Mae and Freddie Mac, stop tacking on interest rates when mortgages are refinanced.

Martin Regalia, chief economist at the US Chamber of Commerce, underscored that housing was the most crucial asset to the economy.

Sixty-one percent of Americans own homes, and the housing industry and household wealth affects 70 percent of the economy, he said.

The economy will not recover its potential "until we see the housing market bottom out and start to come back," he said.

Regalia pointed to the difficulty of "picking winners and losers" to benefit from taxpayer dollars, noting some distressed homeowners continue to pay their mortgages even though they have negative equity, while others walk away.

"Unfortunately this is a hard market to fix."

"We used to say in this economy that what was good for GM (General Motors) was good for America," said IIE economist Rosen. "It's now looking like what's good for housing is good for America."

- Energy investments. CAP's Cooper said the federal government should encourage energy efficiency by absorbing some of the risk incurred in retrofitting buildings. Much of the work involved can be done by "entry-level" workers, she added, giving newly trained workers a job.

- Direct federal hiring: Economists at the Economic Policy Institute called for a direct job creation program to put up to 2.2 million people to work "repairing schools, rebuilding communities, improving national parks, and rehiring police officers, firefighters, and teachers."

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