Pro & Con: Does President Obama have the right strategy for job creation?

YES: Targeted jobs programs will boost employment.

By Christina D. Romer

There is no question that the U.S. faces a severe jobs deficit. We have lost 7.2 million jobs since the recession began more than two years ago and the unemployment rate is currently near 10 percent. The Recovery Act and other rescue actions have played a key role in greatly improving the trajectory of the economy. But even so, forecasts indicate that unemployment is likely to remain high for an extended period.

It is for this reason that the president has called for action on jobs legislation. Jump-starting private-sector job creation has to be everyone’s top priority. This commitment is shown in the president’s budget released last week. At the same time that the president is committed to reining in the budget deficit over the medium and long run, he is committed to taking further emergency actions to help put unemployed Americans back to work. The budget includes $100 billion for targeted jobs initiatives. It includes another $167 billion for additional temporary relief measures to aid those directly harmed by the recession.

The president has made a number of concrete proposals. He’s announced the Small Business Jobs and Wages Tax Cut. This proposal gives firms a substantial tax cut if they increase their number of employees and payrolls. This is the right policy for this point in the recovery. Real GDP grew strongly in the fourth quarter of 2009. When output and demand are growing, firms surely expect to be hiring again in the next year or two. A targeted tax cut may be just what they need to take the plunge and hire right now. We believe this will be a cost-effective policy with potentially big job creation benefits.

The president has also discussed some concrete proposals for encouraging the transition to cleaner energy. One involves incentives for homeowners to retrofit their homes for energy efficiency. Such a program could save homeowners money over the long run, improve the environment and generate jobs in both construction and manufacturing, two industries that have been particularly hit hard by the recession.

A third priority for targeted job creation is infrastructure investment. The experience of the Recovery Act suggests that spending on infrastructure is an effective way to put people back to work while creating lasting investments that raise future productivity. The administration is supporting an additional investment in roads, bridges, airports, transit, rail and water projects. Funneling some of these funds through programs such as the Transportation Investment Generating Economic Recovery (TIGER) program at the Department of Transportation, which is a competitive grant program, could offer a way to ensure that the projects with the highest returns receive top priority.

The president welcomes input and new ideas from Congress. But what is not acceptable is inaction on further jobs legislation or a weakening of the key priorities that should be included. Unemployed Americans need an effective targeted jobs bill — now.

It is critical to maintain our support for those most affected by the recession by extending the emergency funding for such programs as unemployment insurance and health insurance subsidies for the unemployed. This support not only cushions the worst effects of the downturn, but also boosts spending and so spurs job creation. Continuing the state fiscal relief will help to keep teachers, firefighters and police employed, and help maintain vital public services.

And the Making Work Pay Tax Credit, which has put as much as $800 into the pockets of 95 percent of working families, needs to be continued to help families make ends meet and enable them to buy the goods and services that support employment in the economy.

Christina D. Romer chairs the President’s Council of Economic Advisers.

NO: Policies that alter after-tax incentives for business kill jobs.

By Don Sabbarese

President Obama was right on target when he said in the State of the Union address in late January that “jobs must be our number one focus in 2010.”

But the Obama administration has got it all wrong when it comes to how. Raising taxes on banks and other big businesses, as Obama proposes in his new $3.8 trillion budget, may help with the budget deficit, but is not going to result in the creation of many new private-sector jobs or induce companies to invest.

If the government wants to use fiscal policy to help the economy, then the most effective approach is implementing permanent tax cuts.

In fact, what we need is for the government to stay out of the business of regulating the private sector and creating jobs. Increased spending by the government, including the administration’s new jobs bill, will not lead to sustainable job creation.

These well-intentioned measures will ultimately increase the cost of doing business for the private sector by eating into their after-tax profits.

What the private sector lacks and needs more than anything is renewed confidence in the economy. Businesses need as clear a view as possible of an economy that is on the mend and that is not changing the rules.

Policymakers must resist the temptation to pass any policy changes that may impair the willingness of businesses to invest in more capital and labor. At this moment, businesses would welcome less uncertainty.

Once the economy reaches a sustainable level of growth, then policymakers could revisit the more drastic policies the administration proposes — such as the EPA proposal on taxing carbon, cap-and-trade, health insurance reform and a new tax on large banks. Delaying these policies would prove to be less destabilizing.

For the time being, the federal government should concentrate on fiscal and monetary policy solutions that enhance long-term economic growth.

One necessary condition for a recession to end, and for a recovery to take hold, is for businesses to have renewed confidence in the economy. And right now we do not have that.

As long as consumers and businesses have any lingering doubts about the sustainability of economic growth, they will remain cautious toward increased spending on capital and labor.

In tough economic times, as businesses switch to a “survival mode” of cutting capital and labor costs, an inertia sets in that is hard to reverse when things start to improve. The same holds true for consumers.

Although GDP growth is a positive sign that the worst is behind us, it is still far removed from the everyday decisions that small and large businesses make. Businesses are constantly monitoring and weighing the signals from their particular markets against the distant signals of the overall economy.

As a consequence, increased spending on their part will only come when they are convinced that the improvement in the broader economy is synchronized with their particular markets.

So the message to policymakers is to minimize policy changes that complicate business and consumer decision making. The economy will be better served by policymakers simplifying the regulatory and tax environment that the private sector must navigate through.

Massive stimulus spending financed with debt creates the expectations of higher taxes in the long term, which also begs the question of who is going to pay for this debt.

Major policy changes should remain on the back burner until they can be fully debated on their merits and when their passage will not prolong an already long recession and slow recovery.

Don Sabbarese directs the Econometric Center at the Coles College of Business at Kennesaw State University.