Take Two: The President’s Proposal to Stimulate the Economy and Create Jobs

Testimony Before the House Committee on Oversight and Government Reform

SOURCE: Center for American Progress

CAP Senior Economist Heather Boushey testifies before the House Committee on Oversight and Government Reform. Read the testimony (CAP Action).

Thank you Chairman Jordan and Ranking Member Kucinich for inviting me to testify today. My name is Heather Boushey and I’m Senior Economist at the Center for American Progress Action Fund.

The American Jobs Act will create jobs, which is exactly what America needs Congress to prioritize. The American Jobs Act includes a number of key proposals that have recently had bipartisan support, including infrastructure investments, putting teachers back in schools, tax cuts targeted for small businesses, and help for the unemployed.

Presidents and Congresses of all political stripes—including the Bush administration—have embraced short-term, temporary fiscal expansion to create jobs in times of labor market weakness. Each time, they worked as intended. We know this from an empirically grounded body of literature documenting the effectiveness of fiscal expansion and the importance of economic multipliers in creating jobs above and beyond those directly created by one firm or one government project. And this isn’t just the experience of the United States. Economies around the world reflecting a wide range of economic ideologies understand the importance of government action in the face of economic crises.

Independent economic forecasters are already weighing in and they agree that the plan will boost growth and employment:

  • Mark Zandi, chief economist at Moody’s Analytics, estimates that the plan will add 2 percentage points to U.S. economic growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.
  • Macroadvisors, a prominent financial planning firm, says the plans will boost the level of U.S. gross domestic product by 1.3 percent in 2012 and 0.2 percent in 2013 and will create 1.3 million jobs in 2012 and 0.8 million in 2013, relative to baseline.
  • Goldman Sachs economists estimate that it will bring a 1.5 percent increase in U.S. gross domestic product in 2012.

The plan will address the fundamental issues facing the U.S. economy. The lingering consequences of the Great Recession—the housing crisis, the jobs crisis, the fear among businesses to invest their earnings despite record profits—continue to push against faster economic growth and job creation. In short, the economy continues to suffer from a lack of demand. Monetary authorities have already pushed interest rates down to zero and fiscal policy is a critical policy tool for fighting unemployment. As Federal Reserve Chairman Ben Bernanke said in Jackson Hole in August, “Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.”

CAP Senior Economist Heather Boushey testifies before the House Committee on Oversight and Government Reform. Read the testimony (CAP Action).