President Obama's Jobs Plan Has Three Major Problems

The first problem is that $300 billion is much too small to stimulate an economy the size of the United States. The federal government bailed out AIG, one company, for approximately $150 billion.

The second problem is ignoring the fact that small businesses are the engine of job creation in America. The latest data from the U.S. Census Bureau shows small businesses create more than 90 percent of net new jobs in America. Moreover, small businesses are responsible for half of GDP, employ more than half of the private sector workforce and produce more than 90 percent of all U.S. exports. Additionally, small businesses generate 13 times more patents per employee than large businesses.

Conversely, large businesses haven't created one net new job in nearly thirty years. The infrastructure spending that the President proposes will almost surely focus on large scale projects like building roads and bridges, projects almost exclusively done by large businesses. Directing infrastructure spending to large businesses will not create new jobs.

Congress realized the economic potential of American small businesses when it passed the Small Business Act of 1953. The Small Business Act established the Small Business Administration (SBA) and small business reporting goals for federal agencies and prime contractors to ensure that a fair portion of contracts and sub-contracts were awarded to small businesses. Today the law requires that 23 percent of all federal contracts go to small businesses.

It appears that the actual annual federal acquisition budget for all classified and non-classified government contracts is in the neighborhood of $1 trillion. Twenty-three percent of $1 trillion would be $230 billion per year in federal contracts going to small businesses and the middle class.

Unfortunately, since 2003 a series of federal investigations have found that the majority of federal small business contracts go to some of the largest companies in the U.S. and Europe, including General Electric, Northrop Grumman, Lockheed Martin, AT&T, Finmeccanica in Italy, and Rolls-Royce and British Aerospace (BAE) in the U.K.

During the 2008 presidential campaign Barack Obama acknowledged the magnitude of the issue when he stated, "It is time to end the diversion of federal small business contracts to corporate giants." So far he has done nothing to address the problem. The latest data released by the Obama Administration indicates that 61 of the top 100 small business contractors in 2010 were actually large businesses.

The third problem is simply this: it has never been proven that tax cuts create jobs. When President Bush's tax cuts were first proposed and later passed by Congress between 2001-03, over a dozen Nobel Laureate Economists openly disagreed that the tax cuts would create jobs. Among these Nobel winning economists were George Akerlof of UC Berkeley, Franco Modigliani from MIT, Paul Krugman of Princeton, Kenneth Arrow of Stanford, and Joseph Stiglitz of Columbia. Janet Yellen, former Chair of the White House Council of Economic Advisors under President Clinton, Peter Orsazg, former director of the Office of Budget and Management, and Laura D'Andrea Tyson, former director of the National Economic Council, all concurred that the Bush tax cuts would not create jobs.

Eight years after the second round of President Bush's tax cuts and eight months after they were extended under President Obama, unemployment remains above nine percent. Even worse, U-6 unemployment, a more accurate description including partially employed and chronically unemployed, is over 16 percent.

During the past three years our economy lost nearly nine million jobs, while the top tax bracket continued to receive generous tax cuts. From 1993 to 2001, when the top marginal tax rates were merely four percent higher, nearly 23 million jobs were added in America.

It seems the only option the Obama administration has not yet tried in its efforts to create jobs is to take advantage of existing federal programs designed to direct infrastructure spending to small businesses.

The Small Business Act defines a small business as being independently owned, which would exclude publicly traded companies. I wrote a bill that was introduced in the House of Representatives titled the Fairness and Transparency in Contracting Act that simply stated this: the federal government will no longer report contracts awarded to publicly traded companies as small business contracts. If President Obama issued an executive order along these lines, it would redirect more existing federal infrastructure spending to the middle class and create more jobs than anything he has ever proposed. It's deficit neutral, requiring no new spending or new taxes. Moreover, it would end a ten-year contracting scandal and keep at least one campaign promise.

It doesn't make sense to allow America to slip into a depression while the Obama Administration continues to divert federal small business contracts to the largest companies in the U.S. and around the world.

 

Follow Lloyd Chapman on Twitter: www.twitter.com/LloydChapman

Comments

[John Di Saia]

02:49 PM on 09/17/2011

It is not really meant to stimulate much except his re-election campaign.

[TheBodySacred]

08:24 AM on 09/10/2011

Human beings by nature are very industrious and creative. We really do not need a stimulus to work or create work. What we need is the government to reign in on unfair business practices and level the playing field. Stop awarding government contracts to companies that ship jobs overseas!!!!! Stop offering bail outs to millionaires who destroy the livelihood and retirements of the poor and middle class! Stop! Stop! Stop these atrocities! How can the government allow banks to foreclose on home, and then turn around and give these same banks bail out money????? Are we all blind and so brainwashed to believe unfair policies like these stimulate the economy and produces growth????

[johnthehat904]

07:37 AM on 09/10/2011

Give President Obama a break. All he has to do is this:

1st - As long as 20 million illegal immigrants are in the country nothing changes- ENFORCE OUR IMMIGRATION LAWS - this protects and creates US jobs.

2nd - END Outsourcing of US JOBS - Tax Corporations at a higher rate that Outsource US JOBS; reward companies that In Source with a TAX BREAK... Bring the real Jobs we lost BACK TO AMERICA>

3rd - Fix Medicaid Waste - There are private and public sector companies working on solutions. DHS is one of them www.datahealthsystems.com .
These are the issues of the day to get our economy back on track.

But I think it may be to late for him. It is a shame to see any President fail but that is the way it is.

[memememeeeee]

07:43 PM on 09/13/2011

1st: Are you willing to do their jobs that they do so well for us?

2nd: TAX CUTS DON"T CREATE JOBS!!!!!!!!!!!!!

3rd: can't argue on that one...

I think Obama has a very full plate, and the more he tried to eat off the top, the more crap gets scooped on. If the Congress will do their jobs, and gets stuff passed, wecan startto see the change!

[429freckles]

11:49 PM on 09/09/2011

Doesn't matter. The Republicans plan is to ravage the legislation to nothing anyway. They will NEVER allow Obama to do anything constructive for this country. 2010 was an election year that has consequences America will feel for a generation. It can't be undone quick enough for me.

[cruisedoc]

12:16 AM on 09/10/2011

I hope you are young.

[memememeeeee]

07:44 PM on 09/13/2011

i do too, because all the bass ackward oldf art politicians are so stuck in their old ways, and old ways of thinking, we need new young blood and ideas to get this country moving forward.

[GetRealView]

11:13 PM on 09/09/2011

"The third problem is simply this; it has never been proven that tax cuts create jobs." If true then the biggest lie ever told to the American people is the lie that "tax cuts create jobs and spending cuts create jobs" which the Republicans have been overwhelmingly foisting on the American people for the thirty past years.

[sallychap72]

04:47 PM on 09/09/2011

The mistake is in thinking Obama's priority is job creation. His priority is getting re-elected and last night's speech was targeted at votes, not jobs. Even though small business generates the jobs, it's giving away money and propping up unions that will provide Obama a chance for a second term. Today's stock market drop of 300 points on heavy volume exhibits the confidence business has in our president. The only hope for the economy and jobs is in denying Obama the second term he so desperately craves.

[Brian Reeder]

05:41 PM on 09/09/2011

Indeed. That said, do you see anything better in the repub hopefuls? Frankly, the GOP candidates are disappointing to say the least. Both parties are guilty of kicking around small business. It's a cat's game and the corporate giants are feeding the cat's; to them, we're just germs living on the claws and teeth.

[mmfiore]

12:04 AM on 09/10/2011

All very good points Sally!

[atlmil]

03:51 PM on 09/09/2011

Small business is the way ahead, but getting a small business going is very risky when those of middle incomes who usually would start have seen their savings destroyed in the stock market, lack of being able to compete with the Walmart's and everything made in China. Sure a small construction sounds great but where are they going to get the capital for the equipment? Their house equity? Any chance small business creation had went down when the middle class was destroyed. The middle class where the ones who took the risk of running their own business because they were sick of making others profit and had the ability to go several months without an income as their business was starting up. While I don't have any proof, I would bet most small business fail due to lack of capital when started or when needed for crucial expansion.

[LeftCoastEng]

03:10 PM on 09/08/2011

9% unemployment is the new normal because of our failed trade policies. Let's do something about that!

[Radar423]

02:59 PM on 09/08/2011

Every policy that ever comes from a politicians mouth is never designed to help the American people. It's designed to help the American people who can purchase an election.
The defense industry and large corporations run Washington.
Look at it this way, if your business wanted to increase profits, would you spend 250 million for a minute of advertising in the Super Bowl? Or would you buy 10 Senators who control where a trillion dollars a year goes?
I haven't seen many ads for Goldman Sachs and Halliburton on any of the Super Bowls for the last 12 years. I wonder where their advertising budgets are going?

[Raccoon1]

02:29 PM on 09/08/2011

"Directing infrastructure spending to large businesses will not create new jobs."

Who do you think will do the work? The CEO's?

[Brian Reeder]

04:13 PM on 09/08/2011

There are a couple ways to look at this. If you direct infrastructure spending to a company like Lockheed Martin, they might rehire a handful of the thousands of employees they fired this year. This generates 0 net new jobs. They might have the staff and not need to hire any new employees to do the work. Again, generating 0 net new jobs. Small businesses would need to expand to do the work. The job creating potential is huge.

[Synthmatrix]

08:14 AM on 09/09/2011

Good point!

[Lloyd Chapman]

01:27 PM on 09/09/2011

Thanks very much for your comment. The reason directing infrastructure spending to large companies won't create new jobs on the scale of directing the same spending to small companies is simply due to labor statistics: small businesses create 90 percent of net new jobs, and large businesses have created virtually no net new jobs in three decades. Check out the Kauffman Foundation study, its hyperlinked in the blog and explains the lack of net new job creation by large businesses.

[DefunctRepublic]

12:03 PM on 09/08/2011

It's difficult for me to foresee anything tangible coming out of tonight's speech. While conventional wisdom says that no president necessarily has the power to create jobs, most people do not understand this. Furthermore, in the rare instances that federal policy does create NEW jobs, that measurable job creation takes a couple of years to gain steam, because the legislative and policy implementing processes, on both the state and federal levels, are simply inefficient and bogged down by bureaucracy.

[jmpurser]

02:07 PM on 09/08/2011

That's standard GOP dogma but we spent the last 30 years proving that's all one big lie.

[DefunctRepublic]

02:58 PM on 09/08/2011

Uhh, want to point to my "GOP dogma" please? The last thing I am is conservative. From liberal economists like Paul Krugman, George Akerlof, etc. comes the point about the practical power of the Executive to create jobs (which is relatively minute when compared with the public's expectations for a president to "create jobs"). So again, tell me what GOP lies I am espousing, and tell me how they have been disproven? You don't agree that the legislative process is slow and inefficient? Or do you not agree that it is difficult for the President to tangibly affect job creation? Please clarify.

[Raccoon1]

02:30 PM on 09/08/2011

Just another honest attempt to get something done about jobs. Sure, it may not work, but when the Republican blocking attempts are held before the voters before the next election...............

[Brian Reeder]

11:56 AM on 09/08/2011

The President is stuck. He has been sucked into the political quagmire and the looming election is pressing him further down. Republican­s won't swallow anything that will allow him to look good. If he wants to save his job and stick it to repubs, he'll come out with something bold. An executive order could suffice. What has he got to lose?

[jmpurser]

11:56 AM on 09/08/2011

The one main flaw with Obama's "Jobs program" is it spends $300 Billion to try to save ONE job.  His.  Without it he'll have to run with record of doing next to nothing for jobs while expanding wars and bailing out Wall Street.

Mr. Chapman is quite correct that there is nothing in Obama's "jobs plan" that will do anything for actual job creation.

[GHarry]

09:39 PM on 09/07/2011

It's too late to expect tax breaks or even federal contracts to stimulate substantial hiring. America desperately needs a direct-employment program such as the WPA to get those paychecks into the public's hands, so they can start spending again. Of course, Obama's team couldn't acknowledge this all-too-obvious reality because it would violate the new Democratic strategy of trying to slavishly copy Republican economic theory. It's all just posturing anyway -- early campaigning -- and nothing will be done. Indeed, nothing can be done, which is the key to our national emergency.

[jmpurser]

11:58 AM on 09/08/2011

Tax cuts were NEVER a serious option.  They're just a nifty way to give money to the wealthy without writing them a check directly.

I think you're quite correct about the desperate need for a WPA style jobs program.  Businesses are sitting on cash.  States are cutting employment even when they DON'T have to for political purposes.  Either the "Employer of Last Resort" steps in or game over.