Obama’s Right: Job Creation Is Paramount

Heather Boushey examines the specific public policy tools available to the president to ensure the economic recovery helps turn the unemployment tide.

President Barack Obama speaks on the economy at the Brookings Institution in Washington, DC, on December 8, 2009. (AP/Susan Walsh)
President Barack Obama speaks on the economy at the Brookings Institution in Washington, DC, on December 8, 2009. (AP/Susan Walsh)

President Barack Obama today explained why he is taking very seriously the very real risk that our economy’s nascent recovery from the Great Recession of 2007-2009 could stall once the immediate results of the $787 billion economic stimulus package begin to fade. In his speech at the Brookings Institution, the president noted that even though the economy is now growing and thus probably no longer technically in a recession, the pace of growth does not look like it will be sufficiently high enough to pull the 15.4 million unemployed workers back into a job.

Prolonged high unemployment is not only hard on families, but drags down economic growth by dampening consumption. The agenda the president presented this morning addresses directly these interconnected problems, building on the success of the American Recovery and Reinvestment Act. Economic growth in the third quarter was 2.8 percent and estimates are that most, if not all, of that growth was prompted by the $787 billion recovery package that Congress and the Obama administration put into law last February. The Congressional Budget Office estimates that the recovery package has created or saved between 600,000 to 1.6 million jobs.

Still, much more remains to be done to get those 15.4 million unemployed Americans back to work. The president detailed three areas of focus to create jobs:

  • Helping small businesses expand investment, hire workers, and access credit.
  • Investing in roads, bridges, and infrastructure.
  • Creating jobs through energy efficiency and clean energy investments.

The Center for American Progress called for many of these same proposals in our report released last week, “Meeting the Jobs Challenge: How to Avoid Another Jobless—or Job-Loss—Economic Recovery.”

In particular, we believe the president’s focus on promoting green jobs as a part of the overall recovery agenda is the right way to go. One way to enact this agenda is for Congress to establish a two-tiered program to jumpstart the market for residential home energy efficiency through a so called “cash for caulkers” program. The first tier would promote immediate investment in energy-efficiency through superefficient home appliances and simple home energy-efficiency improvements. The second tier implemented in parallel would encourage consumers to invest in comprehensive whole-home energy audits and retrofits, which would create substantial and sustained numbers of good jobs in the construction and manufacturing sectors.

There are other key steps that Congress should take now to help boost jobs in the short- to medium-term. President Obama voiced his support for two of the most urgent policy tools Congress could enact—continuing to help those hurt most by the recession and supporting state and local governments.

Congress should move quickly to ensure that the extended unemployment benefits and so-called COBRA health insurance subsidies for the unemployed—both of which were part of the Recovery act—do not expire as planned at the end of December. These benefits go to the long-term unemployed who now account for an historically high share—more than one-third—of unemployed workers. Extending the subsidies to help the unemployed purchase health insurance—or, better yet, allowing states the option to put unemployed workers on Medicaid—must also be done before the end of the year.

The president also voiced support for another funding boost to the states. State and local governments have shed almost 160,000 jobs over the past year—November to November—with nearly 80 percent of the job losses at the local level occurring in just the last four months. These lay-offs are working against economic recovery at the local level. All but two states had or still have shortfalls for fiscal year 2010, totaling $190 billion. The aid to states contained in the recovery package was clearly helpful, but it only addressed only about 30 percent to 40 percent of the gap faced by state governments.

The federal government also could spur the creation of millions of mostly private-sector jobs by directing additional federal money into youth and young adult employment programs such as AmeriCorps, VISTA, YouthBuild, and the youth service and conservation corps, as well as into child care, after-school programs, and in-home health services for the elderly and disabled. More funds for training those who serve America’s youngsters, oldsters and disabled also is necessary. Nonprofit groups and small businesses provide most of these jobs, although they are paid for by programs that are currently being cut by state and local governments. Funneling funds into these programs quickly gets people into jobs and supports families and communities by providing much-needed services. These programs often have long waiting lists and any new funds will be able to meet pressing needs.

To promote spending by those who have income, Congress could offer a partial tax moratorium to taxpayers with adjusted gross income below $150,000 for a married couple or $75,000 for an individual. Personal income taxpayers could be offered the opportunity to pay $2,000 less in their 2009 federal income taxes but would be required to pay the sum back over the next three years. This idea has the virtue of costing very little overall for federal budget purposes since it is simply deferred taxes and would be likely to be spent quickly by taxpayers who choose that option.

The president in his speech said he’s willing to spend some of the remaining Troubled Asset Relief Program funds that is now either unspent or being paid back to the government—with interest—for job creation. This is the right way to go. The American people should not let scare tactics about long-term federal budget deficits keep Congress from doing what we need to do now to keep the economy moving back on track in the short term. There will be time to deal with long-term deficit problems, as my colleagues Michael Ettlinger and Michael Linden make clear in their recent report, “Deal with It: A Guide to the Federal Deficit and Debt.”

The federal budget deficit will rise regardless of whether Congress approves additional spending; the question is whether we will make the investments today to get the economy back on track or whether we will allow the scourge of unemployment to linger. If we do nothing, we risk not only missing an opportunity to get the 15.4 million unemployed workers back to work quickly, but also harming our economy over the medium to long term.

Heather Boushey is a Senior Economist at the Center for American Progress. For more on this topic, please visit our Economy page.

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Heather Boushey

Former Former Senior Fellow