Obama’s Jobs Speech—Posner

The President’s “Jobs” speech to a joint session of Congress on September 8 was notably forceful and, I am guessing, politically adroit. It may help to save at least one job—his own. But the question I want to address is, assuming that all his recommendations were enacted by Congress, would they do enough for the economy to justify their estimated (doubtless underestimated) cost of almost $450 billion? 

The principal recommendations and their estimated cost are as follows: cut in payroll taxes, both the share paid for by the employee and the share paid for by the employer ($240 billion); extension of unemployment benefits ($49 billion); subsidies for construction and related projects (highways, airports, school renovation, low-interest loans for private projects (“infrastructure bank”)) ($90 billion); aid to state and local governments ($35 billion); financial assistance to homeowners to refinance their mortgages ($15 billion); tax credits for employers who hire persons who have been unemployed for at least six months ($8 billion). The aim would be to spend most of the $450 billion between now and the end of 2012. The cost would be recouped by a combination of unspecified spending cuts and unspecified tax increases for upper-income taxpayers—but not immediately, since the aim is to inject money into the depressed economy in order to increase private spending in the hope that this will stimulate production and so employment, in a virtuous circle. So initially the cost of the jobds program would be defrayed by the Treasury with borrowed money, and thus would add to the national debt except insofar as the program caused an immediate rise in incomes and hence in federal tax collections. 

I can set to one side three of the components of the program: extension of unemployment benefits, tax credits for employers who hire the unemployed, and financial assistance in refinancing home mortgages—the estimated cost of these three programs is $72 billion. They are losers. Extending unemployment benefits, while it will increase the income of the recipients, and in that respect have an effect similar that a tax credit or refund could be expected to have on people who pay income taxes, will actually reduce the hiring of the unemployed by reducing the cost to them of remaining unemployed; generally, the intensity of job search by unemployed persons surges when unemployment benefits are about to run out, and that date will be postponed for the recipient of the extended benefits. 

Tax credits for hiring the unemployed are likely to have no net effect on unemployment at all, because there is no labor shortage. Employers have all the employees they want to have, which is why there is such a rate of un- and underemployment and discouraged workers; employers lured by the tax credit to hire an unemployed worker are likely to lay off one of their existing employees to make room for the new employee. And finally, financial assistance in refinancing home mortgages has been tried, and is a proven failure because of restrictions in mortgage instruments on refinancing and the poor credit of the homeowners who need refinancing the most. 

What is left in the jobs bill are the payroll tax cuts, the financial assistance to state and local government, and the construction subsidies. 

Whether the cut is in the employee’s share of the payroll tax, in the employer’s share, or (as in Obama’s proposal) in both, is of no economic consequence. Payroll taxes are a labor cost to the employer in either event; he either pays the government directly, or he pays a higher wage because the employee’s share of the payroll tax makes the employee’s net wage lower than it would be if the tax were lower. Reducing labor costs should increase the demand for labor, but probably not when the reduction is temporary, as it is likely to be. Reducing labor costs makes labor cheaper relative to capital as an input into production, but a company is unlikely to change the labor-capital proportions in its mode of production in response to a short-term fall in labor costs. Nor will he hire more workers just because they will settle for a lower pre-tax wage, if he has all the workers he needs. Still, presumably the benefits of the payroll tax reduction will be divided between workers and business in some proportion and the result should be some increase in consumer spending and business investment, but it may be small, as the tendency of business and consumers alike is to save rather than spend a high proportion of transitory (windfall) income. This tendency is likely to be especially pronounced at present, because the collapse of the housing bubble and the accompanying fall in stock prices increased the amount of debt in family budgets and thus spurred an increase in the savings rate. 

The effect on stimulus of the save/spend division is exacerbated in the case of the financial assistance to the states and local governments. They have been busy laying off workers in response to mounting deficits in state and local government government, but it doesn’t follow that they will use the $35 billion that President Obama wants to give them to hire back these workers, rather than, for example, pay down debt, which have no, or very little, immediate effect on consumption or business spending. 

That leaves construction. The $90 billion earmarked for construction projects is the most promising part of the Obama plan. Unemployment in construction and related trades is very high, and when the government finances construction projects the contractors have to go out and hire workers to do the projects; the effect on employment is immediate, and a fall in unemployment both boosts incomes and consumption and creates greater optimism about economic prospects. Increased consumption, and increased confidence about the future, have positive psychological effects on the propensity of consumers and businessmen to consumer and invest, respectively. This is an essential insight of Keynes: uncertainty about the future tends to make consumers and businessmen alike freeze; in his famous phrase it dampens people’s “animal spirits.” 

The problem with government-financed construction projects as a method of stimulating employment and the good things that come with higher employment is delay, which we saw with the original (February 2009) $787 billion stimulus program, a significant portion of which was earmarked for construction and related projects. Modern American government is smothered in red tape, and the result was long delay in beginning the projects. The danger of such delay is that the public spending will be deferred to a future period in which the economy is growing, in which event the public projects will be competing for capital with private ones, in which event interest rates will rise, which will slow down the recovery. 

Belatedly the Administration has recognized the problem: the President promised in his speech to cut the red tape that might impede the projects he wishes to finance. Good luck! The Administration is not noted for good management. Putting Vice President Biden in charge of the original stimulus program, rather than an experienced manager, was a serious mistake, but perhaps the Administration has learned from its mistakes and really will cut the red tape that might otherwise smother the most promising part of the President’s new program.

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The energy efccniefiy tax credit is technically non-refundable which means at the end of the year, you can't get back more in credits than you paid to the government in taxes throughout the year.The home improvement energy tax credit is a nonrefundable income tax credit so if you do not have any federal income tax liability on your 1040 tax form page 2 line 44 you would not get any of the credit amount back as a refund.If you have a federal income liability on the Line 44 the nonrefundable credit amount that you qualify for would be used to reduce your income tax liability amount.If the federal income tax liability amount is less than your qualified home improvement project is less than your qualified energy credit amount it would reduce your tax liability amount to -0- on the page 2 Line 55.

[Crystal]

Everybody is different, of crusoe. However, as an unemployed person myself, I can say that finding a job, any job, right now is extremely difficult. I live in a big city where one would think that jobs are abundant. Not the case. I have been doing temporary jobs when they are given me while searching for something permanent and full time. Let me tell you how exhausting and frustrating this has been. I am currently working a temporary job that was supposed to have the potential of turning permanent. What's happening now is that the company I am working at is interviewing candidates for the job I am currently doing and just keeping me around until they find the right one. They refuse to hire me permanently because my man is in the military and they don't believe me when I say we are here permanently. On top of that, they think that because the economy is bad and people are desperate for jobs they can treat the people they hire like garbage. I get sworn at and degraded by this company every single day, but I still go because I want to make money while I am looking for a job. I send at least 10 resumes a day to potential employers. I email, fax, mail, and Fed Ex these resumes to no avail. There have been jobs I have applied for that I am qualified for only to be told that they have chosen to hire from within. I have applied for survival jobs such as Walgreens, Wal-Mart, Target, McDonald's, and various retail stores at the malls only to be told I am overqualified or that there are no openings. I have looked into delivering pizzas, only to be told that the pizza places are fully staffed with other people who have been laid off and are trying to feed their families. I have looked into working as a housekeeper for a hotel only to be told I am overqualified. I have sent resumes to four other temp agencies besides the one I currently work for. They keep looking for potential openings for me, and they get me interviews, but then the job openings become tabled. I tried to get into the tax school thing so that I can work doing taxes this season, only to be told that they will not be providing the class in my area and that they will not be hiring any new employees this season. Currently I am considering bartending school, but I don't have the time to go right now because of the temp job I am working at, plus I cannot afford the tuition. I have looked into going back to school and learning how to do medical billing/coding, but I don't have money for tuition and I am told I don't qualify for financial aid because of me being single without children, plus they look at what my salary was in 2008 (before I was laid off! They don't stop to think that perhaps that money went towards paying rent and staying alive!). My unemployment ran out two weeks ago, and I am scared to death of what is going to happen when this assignment is over (if I even knew when that was because I keep getting strung along). I am trying really hard to save as much money as I can, but things like car trouble keep popping up and there are days when I just sit down and cry. Basically, there may be people out there who are comfortable eating up the unemployment and holding out for their dream job . It's just like there may be people out there who keep having babies so that they can continue to collect food stamps and not work. However, speaking on behalf of myself and the thousands of other people, who include family members and friends who have also lost their jobs through no fault of their own, who lose sleep every night and are being kicked out of their homes because they are experiencing the same job search dead ends that I am, the unemployment extension is a necessity. It is not our faults that we keep trying and trying and trying, while no employer wants or is in a position to give us a chance. To some degree, it is not the job seekers who are being picky. It's the employers.My Opinion

[Lukman]

This just proves to me that they will do ablosutely anything, ANYTHING, A-N-Y-T-H-I-N-G!, to make the economy worse.How they think raising taxes on the middle class is a winning argument is beyond me.But I'm sure that Luntz and the Think Tanks will find a way.-Then Drudge will be given it.-The Right-wing bloggers will support it, and the commenters will tell everyone how Liberals suck, and need to die or be killed if they oppose this! And die or be killed even if they do support it! JUST DIE!!!-Rush and the RW radio yappers will bellow it, loud and proud.-FOX News will spin and spin.-The RW Pundits will chime in.Then the RW Wurlitzer will echo and re-echo the message.And in 2013, we'll have President Perry, with VP Rubio by his side, proudly announcing that the new Republican House and Senate have just passed the largest Middle Class TAX INCREASES IN HISTORY!, and that he'll sign them, to the HUZZAH'S! of the morons in the middle class who voted for them.HA!TAKE THAT!!!THAT'LL TEACH THEM LIBERALS!!!!!!!!!!!!!!! Fucking imbecile voters

[Jorge]

If we think things are bad now it is still nonthig to compare to the 1920s and 30s. Things were bad, real bad, during the great depression. There was an individual that fought for the cause of the Laboring man in Louisiana and the country. His name was Harvey G. Fields and he fought the Bankhead act and called for the replacement of Hugh Johnson as the head of the NRA. Both of these actions happened. He also fought tirelessly for the individual in the courts while at the same time taking down the Governor Leche political system in Louisiana. He was a member of the Huey Long Law Firm, Chairman of the La Public Service Commission, Chairman of the Louisiana Democratic Central Committee and was the Federal Prosecutor of the Western Region of Louisiana. His floor fights at the Democratic National Conventions led to the seating of several controversial delegations. To read more about life during the great depression and several failed federal attempts go to Google Books and search for “I Called Him Grand Dad”. Eventually Fields was not reappointed as Federal Prosecutor following his work to dismember the totally Roosevelt dedicated Richard Leche organization in Louisiana. He was known best for his integrity, honesty and dedication to his causes. Fields was identified three times on Who's Who in American Politics and his home town of Farmerville presented him with the award for 50 years of practicing law in Union Parish.

[Gisele]

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[Anna]

I live in Mich. and Our Governor is sending a bill to Congress to etnxed Mich. Unemployment Benefits to increase to 99wks. Almost 2 yrs. That tells you how much we are in really bad condition. My husband is getting laid off again. He is in construction and works out of Mich. I see him 2-4 days a month. I look forward to him getting laid off as we never see each other. But the unemployment doesn't cover our living expenses. Our mortgage is 1,000 mo. Not including all the other bills that need to be paid. For Mich. and other states that face high unemployment, I think it is needed. I can't even get a job and I went to college. I have been unemployed for 4 yrs now. If you disagree, move up here to Mich,., and see how our economy is. People are pawning things, just to put 10 dollars in their gas tank. That's about a 1/4 of a tank. WOW!! My husband is one of those that has to be doing something all the time. He can't sit and watch t.v. That bores him. If he were to go get a job that he had in the past;which their all probably out of business, we would be homeless. Jobs don't exist here anymore. So we have alot of sex. LOLMy Opinion

[Dhia]

The Republicans have a lot of nerve complaining about this, codninerisg the recession began during Bush's regime.And, as the spouse of a man who worked in publishing for 40 years, whose small, moderately successful business collapsed over 2 years ago and who was not eligible for unemployment because he was the company President (of a staff of 3 people), I can tell you that most unemployed people were making far more when they were working than they would get on unemployment. It's not welfare, you know, and it's pretty cold to think that these unfortunate people are sitting around waiting for better jobs while are living the high life on what they get from unemployment. In most cases, I'm sure it doesn't even cover their basic needs.You and your husband should count yourselves lucky that you have jobs instead of sitting around passing judgment on others who haven't been as fortunate.I guess you people are no longer even pretending to be compassionate conservatives but then again, that term always was an oxymoron, anyway.

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