Previewing Obama’s Speech (And Suggested Revisions)

President Obama is scheduled to address the nation tonight about proposals to jump-start job creation in the U.S. economy. According to the Financial Times:

According to Democratic officials familiar with the US president’s plans, Mr Obama will present himself as the defender of the nation’s struggling middle class and will make an urgent call for Congress to act on proposals that he will argue will immediately create jobs.

The plan is expected to include an extension of tax relief for workers, a short- and long-term infrastructure proposal that will centre on fixing schools and aid for the unemployed and cash-strapped states.

All fine and good, and targeted at areas that will support overall demand, but likely to continue in the old J. Wellington Wimpy vein of half-assed policy measures and incantations to the sacred cow, PAYGO:

The officials said the plan would be paid for with future savings and that the president would also address deficit reduction and the country’s long-term fiscal outlook…

Republicans have concerns about the measure, which costs $110bn a year, but it is unclear whether conservative lawmakers will mount strong opposition to a tax cut.

It’s also highly questionable what can be accomplished given the GOP’s 2012 election strategy and likely tactics, and the mandates of the recent debt ceiling agreement.

As economist Stephanie Kelton recently wrote, “what will we hear on Thursday?  Look mostly for carrots with small price tags.  Probably a lot of talk about confidence, (un)certainty and incentives.  (Don’t make a drinking game out of it, or you’re liable to miss the second half of the speech.)”

She then suggested that Obama instead follow a speech that Warren Mosler penned for him (adding pro bono presidential speech writer to his CV):

My fellow Americans, let me get right to the point.I have three bold new proposals to get back all the jobs we lost, and then some. In fact, we need at least 20 million new jobs to restore our lost prosperity and put America back on top.

First let me state that the reason private sector jobs are lost is always the same. Jobs are lost when business sales go down. Economists give that fancy words — they call it a lack of aggregate demand.

But it’s very simple:

• A restaurant doesn’t lay anyone off when it’s full of paying customers, no matter how much the owner might hate the government, the paper work, and the health regulations;

• A department store doesn’t lay off workers when it’s full of paying customers; and

• An engineering firm doesn’t lay anyone off when it has a backlog of orders.

Restaurants and other businesses lay people off when their customers stop buying, for any reason. So the reason we lost 8 million jobs almost all at once back in 2008 wasn’t because all of a sudden all those people decided they’d rather collect unemployment than work. The reason all those jobs were lost was because sales collapsed. Car sales, for example, collapsed from a rate of almost 17 million cars a year to just over 9 million cars a year. That’s a serious collapse that cost millions of jobs.

Let me repeat, and it’s very simple, when sales go down, jobs are lost, and when sales go up, jobs go up, as business hires to service all their new customers.

So my three proposals are specifically designed to get sales up to make sure business has a good paying job for anyone willing and able to work. That’s good for businesses and all the people who work for them. These proposals are bipartisan. They are supported by Americans ranging from Tea Party supporters to the Progressive left, and everyone in between…

My first proposal is for a full payroll tax suspension. That means no FICA taxes will be taken from both employees and employers. These taxes are punishing, regressive taxes that no progressive should ever support. The Tea Party, of course, is against any tax. So I expect full bipartisan support on this proposal. Suspending these taxes adds hundreds of dollars a month to the incomes of people working for a living.This is big money, not just a few pennies as in previous measures.

These are the people doing the real work. Allowing them to take home more of their pay supports their good efforts. Right now take home pay is barely enough to pay for food, rent, and gasoline, with not much left over. When government stops taking FICA taxes out of their pockets, they’ll be able to get back to more normal levels of spending.

Many will also be able to better make their mortgage payments and their car payments, which, by the way, is what the banks really want — people who can make their payments. That’s the bottom up way to fix the banks, and not the top down bailouts we’ve done in the past.

The payroll tax holiday is also for business,which reduces costs for business, which, through competition, helps keep prices down for all of us, which means our dollars buy more than otherwise.

So a full payroll tax holiday means more take home pay for people working for a living, and lower costs for business to help keep prices and inflation down, so sales can go up and we can finally create those 20 million private sector jobs we desperately need.

My second proposal is for a one time $150 billion Federal revenue distribution to the 50 state governments on a per capita basis with no strings attached. This will help the states to fill the financial hole created by the recession, and stay afloat while the sales and jobs recovery spurred by the payroll tax holiday restores their lost revenues.

Again, I expect bipartisan support. The progressives will support this as it helps the states sustain essential services, and the Tea Party believes money is better spent at the state level than the federal level.

My third proposal does not involve a lot of money, but it’s critical for the kind of recovery that fits our common vision of America. My third proposal is for a federally funded $8/hr transition job for anyone willing and able to work, to help the transition from unemployment to private sector employment. The problem is employers don’t like to hire the unemployed, and especially the long term unemployed. While at the same time, with the payroll tax holiday and the revenue distribution to the states, business is going to need to hire all the people it can get.The federally funded transition job allows the unemployed to get a transition job,and show that they are willing and able to go to work every day, which makes them good candidates for graduation to private sector employment.

Again, I expect this proposal to also get solid bipartisan support. Progressives have always known the value of full employment, while the Tea Party believes people should be able to work for a living, rather than collect unemployment…

In theory, the third one should be capable of garnering bipartisan support, as we’ve pointed out in the past. Nobel economist and occasional GOP advisor Ned Phelps has written about similar ideas, and GOP iconoclast David Frum has publicly endorsed the idea (it’s disconcerting when the sober and critical members of an institution’s ranks are the iconoclasts).

Today, Kelton and fellow economist Randy Wray expounded upon the employer-of-last-resort policy that Mosler proposed:

…reports suggest that [President Obama] is mulling a $300 billion jobs package that includes more of the same—a one-year extension of the payroll tax cut, a continuation of unemployment benefits, some additional spending on infrastructure and tax incentives to encourage businesses to hire and invest in new capital. Too little of what will work and too much of what won’t for an economy that’s teetering on the brink of a double-dip recession and a president who is running out of time to deliver jobs…The problem is that the president believes we can cure our jobless problem by providing the proper incentives to the business community. And here he is committing one of the few big policy blunders from Lyndon Johnson’s War on Poverty. Like Johnson, who focused on retraining the unemployed for jobs that did not exist, Obama has focused on incentivizing the businesses community to hire workers to produce for customers that do not exist. Time and again, Obama has shown that he will only tinker around the edges…

Economists and policymakers alike appear to believe that if we can only improve the outlook of our entrepreneurs, they will suddenly begin hiring. All the nation needs is a bit of Prozac slipped into the martinis of the captains of industry to turn this ship around…

When it comes to the health and welfare of a nation, there is no economic policy that is more important than job creation. And yet decades of experience, in nations across the globe, provide ample evidence that while the private sector plays an important role, it cannot by itself provide employment for all who want to work.

There is a way to do that: The government could serve as the “employer of last resort” under a job guarantee program modeled on the WPA (the Works Progress Administration, in existence from 1935 to 1943 after being renamed the Work Projects Administration in 1939) and the CCC (Civilian Conservation Corps, 1933-1942). The program would offer a job to any American who was ready and willing to work at the federal minimum wage, plus legislated benefits…

The program would operate like a buffer stock, absorbing and releasing workers during the economy’s natural boom-and-bust cycles…Unemployment offices could be converted to employment offices, to match workers with jobs in the program, and to help private and public employers recruit workers…

…the $300 billion the president might propose Thursday is more than enough to jump-start our economy if it is really targeted to job creation. We can estimate the total program cost at $20,000 per worker, times 15 million workers. That adds up to a $300 billion gross cost, less savings on unemployment compensation (roughly $150 billion), welfare and food stamps, as well as the social cost of depression, divorce, abuse and crime. A direct job creation program modeled on the New Deal’s WPA could create 15 million jobs for less than $300 billion net spending, while also providing the infrastructure and public services required to bring our nation into the 21st century.

And because the job guarantee is designed not to compete with other employment options, the program would not result in the bidding up of wages (and prices) as workers were absorbed into the buffer stock. This is because the job guarantee program would hire only those that the market was not yet ready to employ. Because the program would not intensity competition for workers, it would not lead to wage-push inflation. It would, however, help to stabilize output and employment by establishing a floor on wages.

The program should be permanent, offering a good job at a basic wage to anyone who wants to work. With recovery, the number of jobs required in the program would quickly shrink, as the private sector would ramp up hiring as sales to consumers rise.

By keeping the program in place even once the economy recovered, we’d ensure continuous full employment, with the job program acting as a “buffer stock” that absorbed workers laid off when the private sector contracted and as an employment recruitment pool when private sector hiring resumed. In this way, full employment is maintained through the thick and thin of the business cycle.

Only jobs will create the infrastructure we need to compete in the 21st century. Further, Americans have never embraced welfare. For better or worse, our nation has always preferred a more libertarian path: self-help, personal responsibility, individual initiative. As a result, our welfare programs have always been stingy, temporary and purposely demeaning. They are not designed to reduce insecurity—while they relieve the worst of the suffering, those receiving handouts are supposed to quickly get back into the workforce, to pull themselves up by their own bootstraps. But they cannot do that when the nation is 20 million jobs short.

And we cannot restore the security needed to turn around expectations, to get the sales the private sector needs, with anything less than a nationwide universal jobs program.

The $300 billion “investment” in a direct jobs program would be the best way to prove that President Obama is committed to resolving the jobs crisis.

L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. Stephanie Kelton is an associate professor at the University of Missouri-Kansas City and a research scholar at the Levy Economics Institute in New York.

It would be wonderful if the U.S. government actually started having some conversations around a policy like this. Unfortunately, there seem to be few adults in charge of Washington these days, and those who are there operate under the same defective macroeconomics as the rest of the world. We expect the speech to be little more than campaign positioning. The U.S. may have one of the most innovative political systems ever designed, but at times like these, it’s clearly far from perfect.

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