The latest polls indicate that if the mid-term elections were held today, Democrats would lose seats in Congress because of dissatisfaction about the economy, particularly high rates of unemployment. Over the next six months, what should the Obama Administration do to solve the jobs problem?
For several months, the unemployment rate has lingered around ten percent. Sadly, the last report noted, "44.1 percent of unemployed persons were jobless for 27 weeks or more." In addition to 15 million unemployed there are 9.1 million "involuntary part-time workers" plus another 1 million "discouraged workers, who have given up looking; in other words, 1 out of every six US workers that wants a full-time job does not have one.
While most voters blame former President Bush for the collapse of the economy, President Obama has borne the brunt of anger over unemployment. Fortunately, there are many indications the economy is getting better. The GDP forecast is positive for the first quarter and the year. And widely watched economic indicators such as the Bloomberg Personal Finance Index and the TED spread are positive. But it's unclear how quickly employment will follow.
Recently, Vice President Biden predicted accelerated job growth, "Some time in the next couple of months we're going to be creating between 250,000 jobs a month and 500,000 jobs a month." And there are several indications of improving employment conditions. If true, this will indicate the US economy is beginning a U shaped recovery rather than the dreaded "inverted L" shape - a rapid descent following by a painfully slow employment rebound.
President Obama's January 27th State of the Union address emphasized job creation: "jobs must be our number-one focus in 2010, and that's why I'm calling for a new jobs bill tonight." "I'm proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat... I'm also proposing a new small business tax credit -- one that will go to over one million small businesses who hire new workers or raise wages... While we're at it, let's also eliminate all capital gains taxes on small business investment, and provide a tax incentive for all large businesses and all small businesses to invest in new plants and equipment..."
A recent SBA report observed, "Over the past 15 years, small businesses have accounted for about 65 percent of the private-sector net job creation." 64 percent of the jobs lost in 2008 were due to cuts at small firms.
Early in February, the White House gave Congress small-business-oriented job-creation initiatives. On February 26th, a House committee considered the $30 Billion community-bank proposal. Unfortunately, Republicans painted it as another "bail-out," claiming lenders aren't lending because they "are uncertain about the changing regulatory environment." Since then the proposal has languished in Congress. (Although, on April 16th, the Small Business Administration got an $80 million extension of its popular small business loan program.) In his April 27th town-hall Meeting in Ottumwa, Iowa President Obama said, "One of our proposals is to have some of [the repaid bailout] money used to help get small business loans out... this is really a top priority for our administration."
On April 18th, President Obama signed a $38 billion jobs bill with multiple job-creation provisions: "businesses that hire anyone who has been out of work for at least 60 days would be exempt from paying the 6.2% Social Security payroll tax on that employee through December... Employers would get an additional $1,000 credit for each new worker remaining on the job for a full year."
In his 2011 budget the President proposed to eliminate capital gains taxes for small businesses under common-sense conditions.
There's divided opinion about whether additional Federal action is necessary. While most observers believe a "credit crunch" is inhibiting banks from the small business lending essential for robust job-creation, some feel the general market recovery will resolve this problem. Writing in a recent KIPLINGER LETTER, economist Richard DeKaser predicts the end of the credit crunch: "Business access to bank loans is poised to improve as lenders get losses under control and upgrade their economic outlook."
Other observers disagree. They believe the Federal Government needs to pass a massive jobs bill. Economist Robert Reich calls for "At least another $300 billion in stimulus money... Some should go to the states and cities to restore cuts; some should be applied to the nation's crumbling infrastructure; a portion should go to direct hiring (a new WPA)."
At this writing, it appears that the Obama Administration is about to score an impressive victory with the passage of meaningful financial reform. To solve the jobs problem the White House should seize on this momentum and cajole Congress to pass the $30 Billion community-bank initiative.