Obama to push stimulus-lite as employment lags

WASHINGTON Thu Jan 7, 2010 12:14pm EST

WASHINGTON (Reuters) - President Barack Obama's top domestic test this year is to cut unemployment, but his push for more spending on jobs reflects political need more than economic necessity and any new stimulus is likely to be small.

Obama's first week back in the White House after his year-end holiday, already overshadowed by the fallout from a botched Christmas Day plane attack, will be punctuated on Friday with a jobs report that may underscore the size of the task ahead.

December payrolls are forecast to show that unemployment rose to 10.1 percent from 10 percent the month before, and that the economy shed 8,000 more jobs versus 11,000 in November.

That would be a much slower pace of job losses than earlier in the year and would tell economists the recovery is widening after the country's worst recession in 70 years.

But that might be scant comfort to millions of Americans without work, and congressional Democrats seeking re-election in November know that they must boost job growth or pay the political price.

Obama, who signed a $787 billion emergency economic stimulus package in February, hosted a White House summit last month to encourage hiring.

In addition, the House of Representatives passed another $155 billion jobs package on December 16, although the Senate has yet to take up its version of the legislation.

"Congress is running (for office) sooner than (Obama) and so they need to say that they've taken action," said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a progressive Washington think-tank.

The next U.S. presidential election is in 2012, but the entire House and one third of the Senate will be elected in November.

"We're in a big hole. The economy could benefit from some additional demand from some well-designed stimulus," said Stone, who favored extending unemployment benefits plus aid to states, which would help them avoid laying off workers like teachers, firefighters and police officers.

MORE HARM THAN GOOD

Other analysts argue any new stimulus that goes much beyond additional unemployment aid is not warranted and would do more harm than good by adding to a record $1.4 trillion U.S. budget deficit for Fiscal 2009 and potentially scaring off investors.

"Given the size of the deficit, you really cannot go much further than that," said former Federal Reserve Governor Lyle Gramley.

"You could begin to have adverse effects on interest rates and it is not at all clear that it is really necessary," he said, adding that anything that got signed into law would be pure "window dressing" to provide Obama political cover.

Investors who fear the government will issue more debt to finance a second round of stimulus spending might demand a higher return from this additional supply, pushing up bond yields and raising the cost of borrowing across the economy.

The White House has consistently said it is premature to talk about a second stimulus while money from the first package is still being spent.

But with job growth predicted to lag any economic recovery, lawmakers now want to do more.

Among other things, the House jobs proposal would direct $28 billion to improve U.S. highways and $41 billion to extend unemployment insurance payments for another six months.

However, the Senate has not fleshed out its version of the jobs bill, and already has its work cut out to complete Obama's signature healthcare reforms after both chambers of Congress approved legislation that must now be woven together before he signs it into law.

"I am dubious that they will come up with enough support or money to really do a big second stimulus package," said Dan Amundson, research director at the Center for Media and Public Affairs at George Mason University in Fairfax, Virginia.

"It is going to be more on Congress to do something than on Obama because of the congressional election," he said.

Congressional sources say a jobs package is being readied for when the Senate resumes business in two weeks' time.

But analysts doubt it will seek as much money as the House, and some think the object is to give politicians something to talk about to voters rather than to actually spend more money. They believe Obama is abetting this election-year tactic.

"I don't think this is something that is actually going to be enacted into law," said Alex Brill, a former adviser to Republican President George W. Bush and research fellow at the American Enterprise Institute.

"My suspicion is that he (Obama) is being pulled by the congressional leadership to look at and talk about some of these ideas, ... I think Nancy Pelosi is telling (Obama chief of staff) Rahm Emanuel: 'Work with us. Give us something we can take home and talk about,'" he said, referring to the Democratic Speaker of the House.

(Editing by David Alexander and Philip Barbara)

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Comments (1)
Pete_Murphy wrote:
Unemployment, both in the U.S. and the world as a whole, marches ever higher because the field of economics doesn’t account for the relationship between population density and per capita consumption.

Following the beating the field of economics took over the seeming failure of Malthus’ theory, economists adamantly refuse to ever again consider the effects of population growth. If they did, they might come to understand that once an optimum population density is breached, further over-crowding begins to erode per capita consumption and, consequently, per capita employment.

And these effects of an excessive population density are actually imported when a nation like the U.S. attempts to trade freely with other nations much more densely populated – nations like China, Japan, Germany, Korea and a host of others. The result is an automatic trade deficit and loss of jobs – tantamount to economic suicide.

Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Pete Murphy
Author, “Five Short Blasts”

Jan 07, 2010 1:04pm EST  --  Report as abuse
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