Wednesday, February 03, 2010

The Obama jobs plan

President Obama visited neighboring New Hampshire yesterday, announcing a plan that provides $30 billion in loans for small businesses designed to stimulate hiring and create jobs.

The political event, staged at Nashua North High School, played on a theme, one that has become a chosen vehicle for politicians--the faux town hall.

Mr. Obama told the crowd that creating jobs is his number one priority. He also made it clear he was not backing away from health care. The crowd gave him several standing ovations when he talked about the importance of passing health care reform.

[Mandel Ngan / AFP/Getty Images / February 2, 2010 ]

Here's the interesting thing about all this rhetoric about jobs, healthcare, and whatever else the politician of the day is sputtering on about. Rarely does talk translate into action. Campaigning and electioneering is vastly different than governing. Regardless of how skilled someone is on the campaign side of things--and Mr. Obama is certainly a persuasive and charismatic campaigner--getting Congress and the opposition to buy into your plans, and putting together programs that actually work are a horse of a different color.

Not everyone is convinced that the President's jobs plan will work. Even among progressives, generally sympathetic to Mr. Obama and his policies, there are doubts about the efficacy of this recent loan plan.

John Schmitt, an economist for the Center for Economic and Policy Research (CEPR), said that extending more loans to small businesses may not have as big an impact as some might hope. While a lack of credit is clearly a problem for small businesses, he said, a much bigger problem they face is a lack of customer demand.

"Without demand in the economy for the goods and services of small business, the availability of credit is just not sufficient," he said.

Dean Baker, co-director of CEPR echoed Schmitt's concern about the demand side affecting small businesses in the U.S. Baker indicates that studies show that demand for labor isn't affected much by lowering the cost to employers, which is what the $5,000 tax credit for each new hire essentially does.

Former Treasury Secretary Paul O'Neill says many questions remain about how the government could actually measure an increase in credit availability to small businesses.

In an email to, O'Neill posed the following questions about the plan.

"How will we be able to see and measure incremental credit availability to small businesses? How much credit availability currently exists for small businesses? Are there credit worthy businesses that are being turned down?"

O'Neill also cited additional concerns he had.

"Credit worthy means there is a high probability the borrower will pay back the loan in the agreed time with the agreed interest payment. How will the community banks be selected to receive the incremental money? How long will it take to get this money into the system?"

The urgency is great for the president to be able to show something tangible to the American people. Eight million jobs have been lost in this current recession. With 27 million either unemployed or working in jobs with too few hours, there is a need to add about 10 million new jobs just to return to the prerecession unemployment levels of 4.9 percent. As the Economic Policy Institute explained, "Each month we need to create 127,000 jobs just to keep unemployment from rising. Therefore, we actually need 10.9 million new jobs to get us back to 4.9 percent unemployment."

Politics is one thing, but our current predicament and excessive unemployment calls for much more from the President.

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