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Obama’s $400 Billion For Jobs And Counting.

  • Written by Syndicated Publisher No Comments Comments
    September 12, 2011

    foodline_depression350It started out as a $300 Billion jobs package, however, by latest count we are now at $400 billion.  I figure by the time we get through with the speech tonight we could be well over $500 billion.   Obama’s job plan already seems to be spiraling higher faster than the U.S. debt but that is something that the average American is now not only used to but desensitized to as well.

    This Administration has gotten into a nasty habit of tossing around billions and trillions of dollars as if it was leftover pocket change.  This cavalier approach to spending is one reason why President Barack Obama’s popularity has fallen to new lows amid fears the American economy could be headed for another recession.

    This drop in ratings going into an election year campaign has not gone unnoticed by the President and he will hope to stabilize his position as he unveils his jobs package in a speech to Congress.

    Here are elements, according to Reuters, likely to be part of the speech and our quick take on each:

    Extensions of Payroll Tax Cuts

    Extending a payroll tax cut for workers first enacted last December is the centerpiece of Obama’s plan. Continuing the tax cut by another year would cost about $112 billion, according to the non-partisan Congressional Budget Office.

    The problem with temporary payroll tax cuts are twofold.  First, producers are aware that the cut is temporary so they will not respond to a temporary increase in spending by making long term hiring decisions.   Secondly, with consumers deleveraging excess debt, unemployed or struggling to make ends meet they are more likely to pay down debt with excess dollars rather than spending them on consumption.

    While extension of temporary tax cuts may provide a boost to temporary hires it is unlikely to create a significant amount of long term employment.  Temporary tax cuts are temporary and therefore do not spur long term hiring decisions.   Furthermore, it pulls forward future consumption which leads to a resumption of weakness in the future when the credit is removed.

    Infrastructure Spending

    Obama has said public-works projects, such as the repair of highways and school buildings, would be one way of putting unemployed construction workers back on the job while upgrading the country’s infrastructure.

    The problem with infrastructure projects is that they do not help the economy as evidenced by the current economic weakness despite the $800 billion stimulus package enacted in 2009.  “Shovel Ready” construction projects require years of planning and preparation and many road, bridge and sewer projects financed by the 2009 stimulus got bogged down in red tape and took a year or more to start construction.

    Aid to States to Prevent Teacher Layoffs

    Obama is likely to propose federal help to states to prevent layoffs of teachers and first responders.

    Sending money to states that already have a budget problem will not create jobs.   First, and no offense to any public servant intended, government jobs have a zero multiplier effect in the economy.  Secondly, these states need to deal with their bloated budgets and massive deficits and putting a band-aid over the problem with another bailout only prolongs the process that must ultimately be completed.   This is a “feel good” expenditure that increases debt without a return on investment.

    Tax Breaks for Businesses

    Obama is likely to propose extending the payroll tax cut to employers as a means of boosting hiring.   Another approach might be to reserve that tax cut for businesses that hire unemployed workers. Congress passed a similar measure last year that cost about $13 billion.

    Temporary tax cuts have temporary effects.   Give a business a payroll tax cut and they will save it.  This Administration has to learn that the government cannot create jobs.  Only businesses can create jobs and they will ONLY create jobs when aggregate demand on their business requires them to do so.  Businesses, as surveyed by the NFIB, state that “poor sales” is their biggest concern and there expectations of hiring or expanding are at some of the lowest levels of the survey.

    Extending Unemployment Aid

    Congress has extended jobless aid several times to help people unemployed for more than six months. The extensions are due to lapse at the end of this year and Obama will call for their renewal, which would cost about $57 billion.

    Extending unemployment only keeps those individuals from actively seeking a full time position, taking a lesser paying position (because they make more not to work) or from creating their own employment.   The longer that you keep feeding the unemployed the longer they will be encouraged to remain unemployed losing necessary skills to compete in an ever changing marketplace.

    Training for the Long-Term Unemployed

    Obama is expected to unveil a training program targeted toward those who have been unemployed six months or more.  Modeled after a program in Georgia, called George Work$, it would provide on-the-job training for the unemployed at no cost to companies.

    Sixty percent of the participants in Georgia Work$, which started in 2003, have found jobs, although reportedly the program has not dented the state’s unemployment rate.   This is actually the one good idea that is being brought out and should be followed through with.  Instead of providing extended unemployment benefits provide payment to attend a “trade” or “technical” school to retrain workers with a viable skill or trade for employment.   Manufacturers have expressed that they cannot find enough “skilled” workers to fill domestic positions.   The “blue collar” is back.

    Help for Struggling Homeowners

    The administration has been working for weeks on a mortgage relief program to meet the needs of troubled borrowers which could include efforts to allow more homeowners to refinance at the current low interest rates.

    This is a rehash of the already failed “Make Home Affordable Program”.   It failed the first time and it is destined to fail again because many of the homeowners could not then, and cannot now, afford to own the home in the first place.  Instead of trying to bailout homeowners it would be more advantageous to help homeowners that can’t afford there home to go through a government assisted foreclosure process to get them out from under the note entirely and into an apartment.   The lender can then liquidate the property at a reduced cost and get it off their books.   Yes, this will dramatically drop home prices but it is a process that will happen any way over time and lower prices will attract real estate investors back into the market.

    Not Getting It

    The Administration is trotting around a rehash of already failed policy that is destined to fail before it even starts.   The Republican Congress will kill the bill on arrival and the Democrats will blame the Republicans.   The reality is that the economic cleansing process needs to be completed so that consumers and businesses can go back to a more normal operating environment.  The longer we postpone the inevitable cleansing the worse that it will become when the cleansing occurs.

    This proposal is a waste of taxpayer dollars that will not change the inevitable outcome of the economic “end game”.   However, like I said, it is a speech of hope that will lead to little change and is already dead on arrival.

    From  Obama’s $400 Billion For Jobs And Counting.

    Images: Flickr (licence attribution)

    About The Author

    Lance Roberts – Host of Streettalk Live

    lance robertsAfter having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.