Saturday, 10 September 2011

Obama's Jobs Act

There were signs before this speech that Obama was going to do a u-turn on the economy and recognise that his current policies haven't worked. He'd knocked away a couple of his Keynesian economic advisers and there had been rumblings of discontent from that he'd not been listening to them. This hasn't been entirely true, because it is mostly what we would expect from Obama, but there is evident compromise and some sensible suggestions put forward here.

It's difficult to comment upon the specifics because all we currently have to go on are the speech and the outline on the White House website. The legislation proper is not yet published and so the entire text and the small print cannot yet be read and analysed. However, what we do know can be categorised into three sections:

Tax and bureaucracy cuts

This is likely included as one of the main attempts to appeal to Republican lawmakers. First and foremost is the payroll tax cut, which alleviate taxation on small businesses by cutting the rate in half for the first $5 mill they pay in this tax. Coupled with this is the removal of the payroll tax for any business which takes on new employees, clearly designed to make hiring new staff less expensive and reward firms which do so. This will also be combined with red tape cuts. I'm always sceptical of claims that bureaucracy will be cut back, because it never seems to work out in practice. I suspect Republicans won't be willing to accept this without specific proposals for eliminating unnecessary regulation.

Whilst the business-side of the payroll tax will not fuss most voters too much, their own payroll tax cut is likely to impress them more, which - according to Administration figures - will leave the average family $1,500 better off.

The only opposition I envisage to these tax cuts will be from very liberal members of Congress and the public, who may suggest that there should be no taxes on business and that the revenue lost from the tax cut could be better spent on improving welfare or social security. This group will be an inconsequential minority, though, and their opposition will likely be limited by Obama's emphasis that the above changes will benefit small businesses, not large corporations. There will probably also be calls from some Republicans - particularly Tea Party elements like Michele Bachmann - to cut the tax by a greater amount, paid for by further cuts in spending.
Assistance for workers

One of the main policies outlined here are alterations to unemployment insurance. Moving away from a welfare-type focus more towards a work and training focus. For example, the unemployed may take on temporary unpaid work or training in return for unemployment insurance payments, and states will be given greater flexibility to instigate such uses of the funds. Essentially the intention is to ensure that even those who cannot find jobs are doing something productive and which gives them employment experience or skills.

There is also a carrot and stick approach being used to make employers take on the long-term unemployed. The carrot being a $4,000 tax credit for businesses which hire the long-term unemployed. The stick is likely more controversial, and is worded "prohibiting employers from discriminating against unemployed workers when hiring." If this stays in the bill when (if) it's passed, I'll eat my hat. There's no way Republicans will agree to the top-down federal mandate that forces businesses to employ the unemployed. The small government ideology is very strong amongst Republicans at the moment, and many businesses may also pressure their representatives in Congress to oppose this clause of the legislation. In a logistical context, it could be legal nightmare. Would employees go to a tribunal if they feel they've been turned down from a job because they've been unemployed for a long time. How would they prove it? Whilst the intentions are sensible and noble, it would create another layer of  complex bureaucracy and would likely be unenforceable. I suspect it may have been placed there as a bargaining chip, with Obama appearing to put up a fight for it, but eventually giving in and agreeing it to be removed, thus avoiding compromise on another more important area of the legislation.

To tackle the problem of youth unemployment, Obama proposes federal funding for employment opportunities which have a track-record of success, funding for short and long term youth jobs, and funding for training schemes to give youths skills which will be useful in employment. I suspect this is partly intended to massage the figures; the more young people in part-time employment, the fewer young people in the unemployment figures. Whilst it might be a bit political, it will be beneficial to the economy and the prospect of youths, so I cannot condemn it.

One of the least controversial parts of the bill is likely to be the $5,600 tax credit for employers who take on soldiers returning home and have been unsuccessfully looking for work for an extended period of time, and a similar scheme for those who take on injured or disabled former soldiers.

Linked to the public works outlined below is the plan to invest $30bn in retaining public sector workers. Essentially this means federal funding to states to prevent layoffs of public servants like teachers, police, and firefighters, and potential funding for hiring more teachers. On the whole, I would expect public support for this. Whilst there may be a great deal of discontent with the federal government and runaway spending, most people do not direct their ire at those who perform vital services, and preventing important workers like police being made redundant is something unlikely to be opposed by many. This would be one of the parts of the legislation that Obama and the Democrats can use to get the public on their side, with the rhetoric being about how education and the safety of the public will be put at risk if the legislation is not passed. Republicans risk looking callous and uncaring if they oppose this part of the legislation.
Public works schemes

You won't hear any politician referring to it as public works because it's a bit of a socialist-sounding title, especially in a nation so fearful of socialism like the USA. It's actually something which dates back at least as far as the Roman Empire, but it's still taboo. Much of the plan centres around the government funding infrastructure improvements; road and bridge repairs, rolling out more high-speed rail, and construction projects: fixing dilapidated homes and buildings, improving school buildings and their facilities.

One of the things I've been impressed by in this public works section is that it's pretty forward-thinking. Whilst the primary intention is to put people back into employment whilst the economy is still struggling, such things as rebuilding roads and improving school facilities by fitting science labs and upgrading computer technology also pave the way for long-term economic growth through laying the foundations for a more educated and versatile workforce in future. For this part of the jobs plan, Obama seems to have stuck mostly to the Keynesian policies which he's largely been pursuing so far through such efforts as the stimulus. This economic view means that putting people into work - even at cost to the state and in a potentially inefficient and partly unproductive way - will benefit the economy because those workers will be earning money, therefore buying things and stimulating growth through their purchases. Whilst the merits of such a view can be debated and are vehemently disagreed with by those with diverging economic views, the basic principle makes sense; the American economy will grow faster if there are more people with enough disposable incomes to spend money. If they're unemployed and living on welfare, they lack the disposable income to make many purchases outside the essentials and therefore less profit is taken by businesses, which means fewer new jobs, potential, lay-offs, and some businesses going under. Putting the  dull issue of economic theory aside and returning to politics, I suspect that most Americans would be in support of such things as improving the facilities of state schools, particularly the large chunk of society with children of grandchildren. Few but the most hardline small-statists like Ron Paul would oppose improving schools.

Fixing vacant and foreclosed homes is a good example of how many of the policies outlined by Obama could have long-term positive impact.  Revamping communities blighted by vacancies could potentially transform declining and abandoned areas into fresher, more appealing locations with growing and vibrant economies, naturally having a positive knock-on effect on the economy and the number of jobs.

However, combining this with road and bridge construction may potentially be more controversial, as it does smack a little of seeking to massage the unemployment figures by putting people into state-led construction jobs. Whilst I have no doubt this played a part in the thinking behind the plan, it is also true that an economy relies upon good infrastructure to grow; a working traffic network is necessary to transport goods and people, and the easier consumers can get to shops and business, the less time is wasted and the more likely they are to get out and spend their money. The efficiency of an economy is improved by having more efficient, faster, more reliable transport. Despite this, I think it would be fair to be skeptical of this aspect; at a time when the USA's debt is over 100% of its GDP and the deficit is at its largest peacetime value, it's reasonable to suggest that it would be better not to spending the money necessary to revamp transport until such as time as the government has more stable finances. I suspect a strong way of selling it would be getting state Democrat parties to emphasise how the funds would be used in their area. There's good scope for leaflets like 'x jobs will be provided in Boston' in New England or 'No more queues on Route 281', or 'faster journeys with high-speed trains in Fargo'. When it's a general concept it's harder to get the public to support, but if it can be pointed out to them on a locale-by-locale basis how they will directly benefit, then it may create greater public support and therefore more pressure on Republican members of Congress to support the legislation with less opposition and by demanding fewer amendments.
How would improve local.

Still, though, there may be continued scepticism of state-led employment initiatives. The stimulus formed the key plank of Obama's economic strategy, and it's been largely ineffective, certainly not living up to what was hoped for it. With continued job losses and limited growth, the public are right to be sceptical and Republicans have a lot of evidence behind them if they condemn the plan.

I am keen here to point out, though, that whilst public works schemes will succeed in getting people into work, laying the foundations for continuing economic growth, and stimulating the economy, the US economy will not recover without a strong and growing private sector. At the moment, the private sector is quite stagnant; particularly with the recent concerning figure of zero jobs growth in August. Whilst the tax cuts go some way to addressing this problem, it seems to me that faster growth will be seen if such departments as the EPA are reigned in, as continuing regulations and restrictions on 'dirty' sources of power are causing job losses in the energy sector. Thankfully there has recently been a trend towards this, with the administration surprising green nutcases with a few its recent decisions, such as reversing the decision to step up legal limits on smog which were instigated during the G.W. Bush years. Such decisions ensure fewer restrictions on business and industry, and only lose support amongst fringes of extreme green activists who are seldom listened to and whom the mainstream does not care about, particularly with increasing scepticism about man-made climate change. Putting economic growth first is the sensible position at the moment; restricting industry with more pollution and environment standards at this time is the wrong thing to do and should be left until consistent growth returns.

 This speech, in part, focused upon putting partisanship aside to ensure progress, as many of the President's speeches have done of late. It was ironic, therefore, to see Congress dividing along party lines during the speech. It was clear in the reactions of members that Democrats were generally supportive with regular applause, whilst Republicans sat mostly unamused and unimpressed. Particularly telling was John Boehner's stony face and half-hearted occasional applause. This makes it evident already that Obama is going to have a very difficult time getting this proposal passed in the Republican-controlled House. Already, Republicans have come out against the speech and its proposals, with Rand Paul even doing a video response to it. John Boehner, the House Speaker who could perhaps have been expected to be a little more diplomatic, appeared to be unimpressed, responding that it "merit[s] consideration", which is as about a lukewarm response as possible. Therefore, whilst I think Congress will pass a job-creation bill, I don't think it will be this jobs creation bill. It will likely make very sweeping changes to the legislation, perhaps implementing areas such as more tax cuts, more regulation removal, a demand for spending cuts larger than the expenditure on the job projects, and more specific commitments to ensuring the money is used in an efficient and fraud-free way.

Obama's pleas for putting partisanship aside are also ironic given that the speech was originally scheduled for not only the same day as the recent Republican debate, but also the same time. They claim was a coincidence and wasn't done intentionally, but you'd have to be quite naive to believe that. So the tone was set for a partisan and hostile set of events. It's was petty and childish move from a President who can do better.

Conspicuous by its absence was the topic of immigration and illegal immigration. I would like to have seen a tougher stance against businesses which knowingly employ illegal immigrants, as they are driving down wages, potentially avoiding paying tax, and depriving American citizens and legal immigrants of employment. I suspect Obama is afraid of denting his support amongst Hispanic voters, but he needs to put the country before his own poll numbers on this topic. He's failed at securing the border and doesn't appear to care; the least he could do is propose harsher penalties for businesses which illegally employ foreign workers.

More positively, he has stated that his plan will not have an additional cost, as it will be paid for by further cuts in spending. Where these cuts are planned to come from remains to be seen, as the President's recommendations for cuts will not come out for a few more days. After that, it will be up to the bipartisan Joint Select Committee on Deficit Reduction to agree to - or more likely, not agree to - his spending plan. It's very likely that we will see a repeat of the squabbles witnessed during the debt ceiling issue, with Republicans and Democrats unable to agree to a way to cut spending. It's certain to take the committee quite a while to agree on how to put in place further cuts, and then there will be yet more disagreement in the Congress proper. It is interesting that whilst I've become increasingly disappointed in Obama recently, to the extent of outright opposing him, his proposal is - on the whole - impressive, even if it does miss out some key aspects which would beneficial, such as the aforementioned regulation reductions. I will be interested to see if the Republicans come out with a counter proposal, because there are certainly things which could do with being added to Obama's proposed bill.

I also felt that the larger issue of America's potentially declining place in the world was highlighted by this speech, albeit unintentionally. Obama spoke of not wanting a "race to the bottom", with wage cuts, declining standards for workers, etc. This highlights the wider issue of the global economy and the decline of the West. Is it still possible for us to remain competitive when businesses can find cheaper labour, fewer regulations, and lower costs in developing nations? Whilst few would advocate us all accepting a massive decline in living standards in order to compete with emerging economic superpowers like China and India, the question is raised of whether the West, with its taxation, regulation, and worker welfare requirements, can ever continue to experience the growth it had in the past when its power was largely unchallenged. For this reason, I believe it is right that Obama put the emphasis on improving infrastructure and education. America and the West can't compete in terms of cheap labour and lax standards, but what it does have to offer is a well-established transport network and educated workers. Perhaps it is only through continuing to improve those unique features that the USA and other western nations can remain relevant in a time of outsourcing.

I need to stop now. My wrist sounds like a cement mixer. Here's the video of the speech if you're interested:

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