Obama’s Costly, Unaffordable, Harmful New Stimulus: The “American Jobs Act”

by Hans Bader on September 8, 2011 · 9 comments

in Deregulate to Stimulate, Economy, Labor, Mobility, Regulation, Stimulus to Nowhere

President Obama wants Congress to pass a $447 billion proposal called the “American Jobs Act,”  a costly set of recycled stimulus plans that contains no new ideas about how to fix the economy. It contains more money for the long-term unemployed, more infrastructure spending, and funds for hiring laid-off teachers. It also would extend a cut in the portion of payroll taxes paid by employees. The measures would be financed mostly by deficit spending, but partly, if Obama has his way, by raising taxes on the so-called “rich” — a category that includes most of the small business owners who actually hire people — and by eliminating what the administration refers to as “tax loopholes” — which are not really tax loopholes at all, but rather provisions that allow industries disfavored by the administration to benefit from the same tax code provisions as other industries. (What is a tax “loophole” to the Obama administration is actually evenhanded non-discriminatory treatment of different industries, according to The Washington Examiner‘s Tim Carney and other observers. For example, to Obama, letting the petroleum industry receive the benefits of tax code provisions that also apply to other energy or resource-extraction industries like mining qualifies a “loophole,” as does treating the oil companies the same as farmers or timber companies; while giving tax credits solely to a politically-favored industry or manufacturer, such as a politically-connected “green-jobs” firm, or a taxpayer-subsidized ethanol manufacturer, is not a tax loophole to Obama).

Even the least-bad of Obama’s proposals will not grow the economy. Aid for the long-term unemployed will reduce the size of the economy by encouraging some people to not accept jobs that pay far less than they were accustomed to, even when those are the only jobs available to them. Obama’s proposed infrastructure spending will not grow the economy either, as Veronique de Rugy and others note, since it will be accompanied by costly Davis-Bacon mandates designed to favor unions (which raise the cost of transportation projects and exclude many small non-union contractors), and some of it will be wasted on rail boondoggles and pork rather than roads and bridges, or on Obama Administration pet projects, like energy efficiency, that require specialized skills that most unemployed construction workers lack. (Ironically, Obama removed most transportation spending from the original $800 billion stimulus package for political reasons, replacing it with more harmful welfare and social spending.)

By requiring above-market wages for the jobs it funds due to laws like Davis-Bacon, the Obama administration’s proposal virtually guarantees that it will end up siphoning off people who are already employed from other employers, rather than just hiring the jobless, who are more likely to be willing to work for modest wages. Only 42 percent of the people hired under the stimulus package, for example, were previously unemployed, partly due to the above-market wages paid by many of the government jobs it subsidized, which resulted in some private employers losing employees and having to spend costly sums training their replacements. As a result of the stimulus, grant recipients “poached workers from their competitors,” financially injuring those companies.

Meanwhile, by sucking money out of the private-sector economy, the stimulus wiped out a million private-sector jobs, even as other stimulus provisions outsourced American energy jobs to foreign countries, and wiped out jobs in America’s export sector, resulting in a net loss to the economy of 550,000 jobs, according to two economists. The Obama administration’s use of taxpayer money to subsidize above-market wages for government employees is at odds with what economists like Lord Keynes (the father of the Keynesian school of economics) counseled in past recessions, and what Franklin Roosevelt did in the Great Depression, when he hired people to do construction and transportation projects in the WPA but paid them only very modest wages, providing opportunities to the unemployed without siphoning off useful talent from private-sector businesses.

Continuing unemployment benefits at current levels for the long-term unemployed is a mistake. Generous unemployment benefits discourage people from taking lower-paying jobs, and sometimes result in people gaming the system. Giving people unemployment benefits for years on end, without scaling down those benefits, encourages people not to relocate in search of work, and not to take productive jobs that they think are beneath them, even if those jobs are the only jobs that they will realistically find once their jobless benefits come to an end, because of the disappearance of the type of job they once performed.

As the Heritage Foundation notes, “The consequences of extended unemployment benefits are some of the most conclusively established results in labor economic research. Extending either the amount or the duration of UI benefits increases the length of time that workers remain unemployed. UI benefits subsidize unemployment. They reduce the incentive unemployed workers have to search for new work and to make difficult choices–such as moving or switching industries–to begin a new job.”

The President’s proposed subsidies for laid-off teachers discriminate in favor of one occupation, without any legitimate reason for doing so: the unemployment rate among teachers is vastly lower than for many occupations, and lower than for most.  It is best understood as the Administration pandering to the teachers’ unions.  The proposed payroll tax cut will increase the deficit (which will increase debt-service costs in the long run, thus crowding out private investment over the long haul) while creating relatively few jobs.  (The CBO similarly concluded that the $800 billion stimulus package would shrink the size of the economy over the long run by increasing the national debt and thus resulting in increased government spending on interest payments that will crowd out private investment).

captstuffy September 10, 2011 at 10:08 am

because of the disappearance of the type of job they once performed.

carpenters, electricians, bricklayers, plumbers, painters, sheetmetal, etc.
everyone who has a “soultion” has a job.
so we will not need these kind of jobs anymore.
retrain and work at WalMart.
call me a Rhino, but The Party Line is just as crazy as the Librals bullshit.
this country was not built by white collor suits alone.

Whitey Ford September 11, 2011 at 5:12 pm

Good Lord, Obummer is sooo incompetent.

Terry Hyche September 12, 2011 at 9:05 pm

Why is it that the most uneducated of people in this country, (including myself who has only a 10th grade education with a G.E.D.) can see through this ridiculous crap and yet we are suppose to believe that the cream of the crop educated people can’t. I for one (only one vote) believe we the people should walk into Congress with the simple minded police and the stupid firefighters and our soldiers who die for these crones everyday, and take our country away from them and start over by giving their jobs to people who care about our country. Why report about something you are not willing to do something about. You who report but set quietly by watching the world pass you by. It is sickening to know you paid so much for an Ivy League education and you can’t even see that you are next. If this country falls to these over educated money handlers and their proponents, where does that place you news men and your companies on the food chain. Instead of just reporting the news as your owners (I.E. the Government), why don’t you so called hot air buffs say what can be done. Join in on the fight for your Nation, seek some diligent truth and (press it) like you’ve never done in your life instead of pretending like your doing something by stirring the pot with your empty words.

Terry Hyche September 12, 2011 at 9:07 pm

I could write a book on what you so called reporters don’t SAY!

David L. Hoyle September 12, 2011 at 9:42 pm

To “OUR GOVERNMENT” (And they keep forgetting that part) I have this to say to you all; “KISS” (Keep It Simple Stupid) Start downsizing the Government by eliminating the useless over burdening Departments that you have introduced; Cancel all new and ongoing useless, only for the rich and under-privileged grants. Reduce all Government salaries by 20%. Re-support Social Security, Medicare, and Medicaid with all the money that was taken out of this fund (2 trillion) for other departments to squander in the past. This so called “JOBS PROGRAM” is only going to turn into another Money grabbing scheme by someone like Van Jones.

Steve Schlauch September 12, 2011 at 11:13 pm

I am a small business owner in rural Ohio. I was laid off and I started my own business, Leftys Car Care. I have been struggling to expand my business. I have found a nice vacant shop in the closest town to me (Wooster). I know it would benefit me to move but I can’t afford too. I would like to see some help for business owners like myself. I am fair and honest. I have a plan but lack the funds to follow it through at this time. I could easily hire 4-6 people if I could make this move. This is what the Gov’t should be doing instead of catering to BIG BUSINESS ! Help the little man in America and we will bring this Country back to it’s former glory.
We have too many rich politicians with their own agenda in office right now. I feel they need to be replaced with people who truly care about our Country and God and not just with making themselves more money at the cost of the taxpayer.
How about low or no interest loans to American small businesses to bring our towns back !! I’m sick of the rich not paying their fair share !! The tax breaks they are holding on to have not been put in use,by creating jobs ! Instead they are pocketing the funds ! they have had their chance to create jobs and they have blown it ! It’s time for the little man to have our chance !! I personally have pride in my Country and I may never be rich,but at least i’m honest and i’m actually helping my local economy !! I am tired of all the lifetime politicians !! We need term limits to stop this fleecing of America by these crooks !!! We also need to somehow cap the price of crude oil,to get gas prices back to a reasonable dollar per gallon ! You people say “stop extending benefits to the jobless” that way they will take much lower paying jobs. You need to try to live like this yourselves !! I personally wouldn’t like to spend 1/3 of my paycheck to drive back and forth to work 50-60 miles from my home every day !! It doesn’t make sense !! You would stay home too and collect benefits instead !! That’s the problem ! Too many rich people who have no idea what it’s really like in this Country for the middle-lower class families !! I encourage you to live a month in middle-lower class households,do their jobs and struggle like we do !!
The rich,greedy man has ruined this Country for the masses ! You have sent our jobs overseas ! Wait till no one has money to buy your product !! Then you will know what its like to live like the masses !! What the HELL were you thinking !! It should not be possible to have something made overseas,shipped to the U.S and be able to sell it cheaper than having made it here !!! That needs to stop !! Wake up you greedy politicians !!! You are ruining this Country !! It’s time to do what’s right for the masses instead of what’s right for your pocket book !!! All politicians should be required to pay for 20% of their healthcare like every other American who works !!
I could go on and on but unfortunately you will not get it till it’s too late !!

mike ryan September 13, 2011 at 2:06 pm

I argue his actions are carefully planned and are closer to subversive and treasonist than they are to incompetence.

mike ryan September 13, 2011 at 2:20 pm

1. Federal flat tax @ 15% for EVERY man, woman, and child that works
2. Use federal funds to build a border wall all the way across mexico 20′ deep and 40 feet high, electrify it, and arm it
2. Cut foreign aid and NATO funding
4. Repeal Obamacare and cripple the unions strangle hold on federal property jobs
5. Create a zero trace deficit policy that encourages build in and buy american
5. Make welfare contingent upon progressive educational goals
— That should sell some cars, boats, and trucks

— See if that doesn’t sell some cars and boats

MiserableOldFart September 15, 2011 at 8:36 pm

Wow.. amazing lack of basic economic literacy here. Flat tax might just be the best thing for the guillotine business since “let them eat cake..” Well done, righties, which is how most of you will spend eternity..

Comments on this entry are closed.

Previous post:

Next post: