What Should President Obama Do to Create Jobs?

President Obama will pivot to job creation in a speech tomorrow, so there’s lots of speculation on what he should prescribe to boost the economy.  His task is urgent, but he’s also facing threat of a double dip recession along with stagnant job growth. Because he is coming up against an intransigent Republican Congress though, the President might have to compromise on some of his goals, there is still a lot of uncertainty about what Obama will propose.

What Obama Should Do

Many are looking back at the Great Depression as a model for the Great Recession. In the Depression, the small stimulus enacted by FDR was only enough to stop the tide of job losses and financial havoc. It was not until after World War Two started and the federal government financed its war effort through substantial debt that the economy began to recover.

Economists and politicos are therefore calling for across the board spending increases financed by increased levels of short term debt. Kevin Drum of Mother Jones, for example, calls for a trillion dollars in infrastructure investment. Given that American infrastructure is literally falling apart at every level, this is a perfect time to invest in its improvement. This timing is especially perfect because short term interest rates are essentially zero, meaning that (unlike any other time in history) America can finance these projects at very low long-term cost.

Drum continues, pointing out  that in World War Two, “spending was for war materiel [sic] that was completely useless to the U.S. economy. If we repeated this today, we could do better than that even if half the stimulus spending was meaningless makework.” In other words, guns and bullets — though useful in a war effort — cannot be reinvested into the economy. Things like better infrastructure, though, do help the economy as a whole, making infrastructure investment something that helps not just those who get jobs, but anyone who uses a highway or uses electricity. And because of low interest rates, this would be of little cost to future generations.

Economists are urging a big bill — even bigger than the 2009 stimulus. Bradford DeLong, Berkeley economist, recently said in a speech that the “risks of doing too little now appear to be much larger than the risks of doing too much as far as gap-closing is concerned.” Likewise, Nobel Prize winning Princeton professor Paul Krugman argued that the 2009 stimulus was much too small and further efforts to boost jobs should be substantially larger.

Though increased debt has become a popular Republican talking point, this kind of policy has an inherent appeal to broad constituencies. Indeed, it is not just the favorite of economists, but also is supported by most Americans and even the bond marketsNPR reports that “even the U.S. Chamber of Commerce, which has attacked most of Obama’s economic policies, supports such plans for “rebuilding our economic platform.” These projects are politically popular outside Washington because they create jobs at the state and local levels, in both the public and private sectors.”

What Is More Likely To Pass

Unfortunately, because of the public backlash against the (ironically) tax-cut-heavy and light-on-direct-spending 2009 stimulus, Obama’s hands are tied against a huge spending push. A few policy remedies have been floated as politically salable and effective.

Avoiding the debt battle

At The New Republic, Robert Shiller comes up with a way to avoid the toxic political issue of increasing debt while still increasing spending: increase taxes on those who are already working and use the extra money to fund government jobs. This will increase consumption because “the unemployed who now get jobs will likely quickly spend all the money they earn on new consumption, since they have been strapped and now have jobs. The currently employed, who will see their taxes go up, will likely not cut their expenditures as much because they are habituated to their current level of consumption.” This kind of plan might be more salable to moderate Democrats, who are afraid of increasing the national debt.

Obama’s plan will therefore likely revolve around tax incentives and reducing regulation. NPR reports that these programs include tax cuts for employers, extending the payroll tax holiday, extending unemployment benefits, and reducing regulations on businesses. Unfortunately, many of these policies are unlikely to work.

Bruce Bartlett (a former Ronald Reagan and Ron Paul economic advisor) argues that a payroll tax holiday is less likely to help the jobless than direct spending, as argued above. In terms of increasing employment, “public works would be the best way of doing that. Under current economic conditions, all tax cuts are essentially passive and do almost nothing to increase aggregate demand or economic output.” This argument therefore holds for all kinds of tax cuts, even those for employers.

This leaves Obama with reducing regulations on businesses. Though many conservatives argue that unnecessary regulations are keeping Americans jobless, this does not really seem to hold water. It turns out that business investment has actually gone up since Barack Obama became president, returning to pre-recession levels. It is therefore difficult to argue that the reason why so many Americans remain unemployed is because businesses are too regulated to invest in new workers. Also, in recessionary times sometimes regulations can actually increase consumption, creating jobs as opposed to killing them.

Hopefully, when Obama presents his jobs plan this Thursday, it will include much more of the former — direct spending — and far less of the latter — ineffective tax cuts. Some are already saying, though, that the President has more tools in his box than he lets on, and that if Congress cannot pass anything meaningful on the jobs front, Obama can find other remedies to the current unemployment crisis.

Related Stories:

Morning Mix: Jobs, Jobs, Jobs

President Barack Obama’s 2011 Labor Day Speech [Transcript]

College Students Back To School But Will They Find Jobs

Photo from Bytemarks via flickr.

Love This? Never Miss Another Story.

99 comments

Grace Adams
Grace Adams4 years ago

It might help to substitute excise taxes on pollution designed to capture external costs for non-tariff regulatory burden to control pollution. Most firms would consider it a lesser evil, and it would bring in some federal revenue to spend on rebuilding crumbling infrastructure. We also need an employer of last resort program--subsidized private enterprise sector jobs (two weeks free trial followed by federal government paying the make-up between workers' measured production and federal minimum wage) AND community service jobs hosted by state and local governments and non-profit organizations for those who can be placed there but not in private enterprise jobs. Yes. it will take LARGE federal deficits at least long enough to get the economy moving again with enough momentum to go an moving. And most of the deficits need to be spending on public works--rebuilding crumbling infrastructure especially big city sewage systems, increasing the replacement of fossil fuel with sustainable energy, fixing the health care system so everyone from the poor on Medicaid on up through those with subsidies to buy regular basic health insurance on up can afford decent health care--NOT tax breaks, especially NOT tax breaks for the rich.

Michael C.
Cynthia C.4 years ago

Continued from Below:

Personally, I have the answer for America's ill's, Obummer proposes a $450 Bi$$ion infusion into the US economy. Do you realize how long it will take to feel the effect?

I have the perfect solution, and it won't take as long to see an effect, just don't use snail mail.



Ok, you have been patient, here it is the answer. Divide 450 billion by 300 million, what did you get, Yes, 15.



Now, all we have to do is give every American $15 Mi$$ion and the problem is solved.


Bye, See ya all, at the Mall. I don't know about you, but I'm dying to go shopping for all that Chinese junk, made in American owned factories. God bless the Chinese, you had better get on board, they already own us, if you can't speak Canton Chinese, might I suggest Arabic.

‎أنا أسف نيابة عن المسلميين مع انكم اخذتم حققم من المسلمين فأرجوا أن ننسى كل هذا ونبدأ من جديد لأن ألعالم أجمع بما ف

Michael C.
Cynthia C.4 years ago

My thanks to Anne C... She is the only one that seems to understand that Obummers economic plan, is no plan at all. Hey, I am not an Obummer basher, just a realist, if it smells like spoiled fish, well, you get the picture. Personally, America is somewhat retarded, no President of colour, until 2008. For those of you who missed the final solution, NO, I am not talking about those jew squatters in occupied Palestine. Please read the following:

It is senseless to create more jobs when no one wants to buy the finished product. How many guns can one own. How many gas guggling suvs can one drive.



Possibly, we could cease to treat Corporations as though they were living, breathy person, with a pulse. Imagine, if they, these Corps had to actually pay the correct amount of their tax burden.

Just as Obummer spoke last night of his vision, my suggestion, Stop eating those mushrooms.



Personally, I have the answer for America's ill's, Obummer proposes a $450 Bi$$ion infusion into the US economy. Do you realize how long it will take to feel the effect?

I have the perfect solution, and it won't take as long to see an effect, just don't use snail mail.



Ok, you have been patient, here it is the answer. Divide 450 billion by 300 million, what did you get, Yes, 15.



Now, all we have to do is give every American $15 Mi$$ion and the problem is solved.


Bye, See ya all, at the Mall. I don't know about

Charles Temm JR
Charles Temm JR4 years ago

Amazing how progs like to rewrite history...only someone totally ignorant of US history or economics could say that FDR only undertook a small stimulus early in the Depression. Given he led the Keynesian spending/regulation effort that drove us deep into debt, undertook to control virtually every facet of the economy, and tried to redo our actual government into a system more friendly to his desires...that says a lot. Never mind his efforts gave us the longest economic fall that the country has ever seen.

No, the best thing this President could do is a) acknowledge the damage and failure of his 3 years of economic meddling, b) renounce further attempts to use government to shape the economy, c) acknowledge his own Administration has been the chief reason for uncertainty among business/consumers and d) follow through with his promise to strip at least some of the cumbersome, strangling regulations imposed by decades of bi-partisan attempts at social policy.

More of the same failed policies isn't going to help much, neither is the circular argument that we need to spend more money on policies that have already failed while giving those screwed over by my failures something to survive on...wake up Mr President.

Craig C.
Craig C.4 years ago

James in your world please explain to me where my money for taxes on gas go now? Do you know how much it really cost to bring a gallon of gas to market? These taxes were put on to do what should have been done with in the first place I want to know where the money goes in all forms of city,state and federal taxes?

Patrick F.
Patrick f.4 years ago

to all the people who have commented with the ever so witty RESIGN, that would only create ONE job...his, and then you would just criticize him for only creating ONE job.

Elizabeth K.
Elizabeth K.4 years ago

doris, what the hell is the matter with you that you want horses to die horribly?

And how would that save the horse industry?

What a moronic statement.

doris kelsey
Past Member 4 years ago

He could start by opening equine processing plants and save the horse industry that is in total collapse.

Michael C.
Cynthia C.4 years ago

It is senseless to create more jobs when no one wants to buy the finished product. How many guns can one own. How many gas guggling suvs can one drive.

Possibly, we could cease to treat Corporations as though they were living, breathy person, with a pulse. Imagine, if they, these Corps had to actually pay the correct amount of their tax burden.

Just as Obummer spoke last night of his vision, my suggestion, Stop eating those mushrooms.

Personally, I have the answer for America's ill's, Obummer proposes a $450 Bi$$ion infusion into the US economy. Do you realize how long it will take to feel the effect?

Ok, you have been patient, here it is the answer. Divide 450 billion by 300 million, what did you get, Yes, 15.

Now, all we have to do is give every American $15 Mi$$ion and the problem is solved.
Bye, See ya, at the Mall.

Michael C.
Cynthia C.4 years ago

It is senseless to create more jobs when no one whats to buy the finished product.

Possibly, we could cease to treat Corporations as though they were living, breathy person, with a pulse. Imagine, if they, these Corps had to actually pay the correct amount of their tax burden.

Just as Obummer spoke last night of his vision, my suggestion, Stop eating those mushrooms.

Personally, I have the answer for America's ill's, Obummer proposes a $450 Bi$$ion infusion into the US economy. Do you realize how long it will take to feel the effect?

Ok, you have been patient, here it is the answer. Divide 450 billion by 300 million, what did you get, Yes, 15.

Now, all we have to do is give every American $15 Mi$$ion and the problem is solved.
Bye, See ya, at the Mall.