Obama Lays Out Jobs Plan

President Obama addressed a joint session of congress last night to lay out The American Jobs Act: his vision for creating jobs and pulling America out of its ongoing economic slump. The plan the president presented spreads $447 billion between tax cuts, unemployment benefits, infrastructure projects and efforts to help states retain teachers. While the plan he laid out includes many good ideas, it may not go far enough to actually accomplish its goals, and the inclusion of the passage of new free trade agreements will actually have the opposite effect of what is intended.

A major portion of the plan is the extension of the current payroll tax cuts at a cost of $177 billion, along with an extension of unemployment insurance. The hope is that this will at least stem further job losses by putting money in people’s pockets that will spend it. One of the major problems cited by economists with the current recovery is a lack of aggregate demand, and given the high percentage of these funds that flow back into the economy it is seen as a fairly effective measure. Unfortunately, it is merely an extension, and will likely be more effective at maintaining the current level of job growth than creating many additional jobs.

The president’s plan also includes $50 billion for infrastructure repairs, and $10 billion to establish an infrastructure bank that will use private capital to finance infrastructure projects. The condition of our infrastructure is abysmal, and targeting infrastructure as part of a jobs package certainly makes sense, but the amount allocated is incredibly small given the scope of both our employment problem and our infrastructure problem.

The plan includes $30 billion for school modernization and repairs, along with $35 billion in aid to states to help them retain teachers and first responders. Once again this is an admirable goal, but the amount allocated pales in comparison to what the country needs. According to the Economic Policy Institute, there is a backlog in school maintenance alone of between $270 and $500 billion.

The president seems to have crafted these measures to be palatable to Republicans. The majority of the package is tax cuts, and Republicans would be on shaky political ground if they opposed tax cuts. However, past negotiations have shown that the Republican congress is quite adept at whittling away Democratic plans that include spending, so the final product may look far less robust than the current proposal.

Overall the plan seems inert. It addresses many of the right areas, but not in a big enough way to make a real impact. Economic theory supports the fact that the problem with the first stimulus package was that it wasn’t big enough. This package is even smaller at a time when the country needs a considerable amount of help. This plan may save some jobs, but it will not get us out of the slump we are in single-handedly.

Additionally, if we are going to be spending money on fixing our schools and infrastructure, we need to attach buy American clauses to the money we are spending. If we spend that money on projects, but the materials bought are from foreign suppliers, most of that money just goes overseas instead of staying and bolstering our economy.

The biggest improvement President Obama could make to his plan would be reversing his position on trade. Unfortunately, the President touted passage of new trade agreements as part of his plan. This is the wrong course of action. Our 2011 trade deficit is projected to be in the neighborhood of $600 billion. It is estimated that if that trade deficit were eliminated it would create 8.4 million new jobs in the U.S. There is no other policy option that could directly affect the amount of jobs as positively as fixing the trade deficit, and to eliminate our trade deficit we need to fix our trade policy. Trade agreements like NAFTA, CAFTA and our membership in the WTO have contributed greatly to our situation, and we must reform or rescind these agreements if we wish to truly better our economic situation.

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