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Alec MacGillis -- Why aren't President Obama's job-creation efforts more direct?

By Alec MacGillis
Washington Post Staff Writer
Sunday, November 8, 2009; B01

To hear President Obama tell it, he's been busy creating jobs since taking office. The $787 billion stimulus package, he said last winter, would "save or create 3.5 million jobs." The White House is touting reports from recipients of stimulus funds asserting that they have created or saved 640,000 jobs so far.

Yet the national unemployment rate has now hit 10.2 percent, helping explain why Republicans won the governors' races in Virginia and New Jersey last week, just a year after the party's 2008 drubbing. And Obama declared Friday that more action is needed.

"History tells us that job growth always lags behind economic growth, which is why we have to continue to pursue measures that will create new jobs," he said. "And I can promise you that I won't let up until the Americans who want to find work can find work."

It was a strong vow, but it raises a question: Why has a White House that talks so much about boosting employment steered clear of the most direct strategy that could keep Americans on the job?

Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers' private-sector employment or by creating new government-paid jobs. There are programs in a handful of states that financially compensate employees who cut their hours to prevent broader layoffs at their companies -- an approach that costs relatively little, since it results in lower payouts of unemployment benefits, and that has helped Germany keep unemployment under 8 percent despite the deep slowdown there. But the Obama administration has so far opted not to expand this initiative. And aside from a small summer employment program for young people, it has not sought to create jobs on the public payroll, something the country did in the 1930s and 1970s.

Instead Obama's team has taken a more indirect approach, a prudence that critics on the left say is misplaced. If you're spending hundreds of billions of dollars on stimulus, why not do it with conviction? Engaging in more forthright job creation could invite some political pitfalls (such as those constant accusations of socialism), but is double-digit unemployment any less a political risk?

The administration is "scared of [any plans] seeming like old-fashioned make-work, but that's what it is: You're giving [people] jobs because they have nothing left to do," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think thank. "Giving people a shot at a job has to be worth a little bad publicity . . . but as in a lot of areas, they proved more cautious."

White House officials express confidence in the steps taken, saying the stimulus is spending money and creating jobs ahead of schedule, and forestalling far higher unemployment. They say they opted against direct jobs programs not for political reasons but because they thought such efforts would not produce long-term value. And they have not pushed the private-sector job-sharing idea -- being promoted by Sen. Jack Reed (D-R.I.) -- because they want to build real demand for workers, not just spread work among more people.

"I think we got the Recovery Act right," Larry Summers, the president's chief economic adviser, said in an interview. "The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work."

Two-thirds of the stimulus went toward tax cuts, fiscal aid to states, and expanded unemployment benefits and food stamps. These efforts helped cushion the recession's blow, saved public jobs and, by injecting demand into the economy, bolstered employment indirectly. On Thursday, Congress buttressed these efforts with an extension of unemployment benefits and an expansion of the tax credit for homebuyers.

The remaining third of the stimulus, however, was expected to be the real jobs generator: $250 billion for infrastructure -- roads, transit, water treatment -- and for investments in energy efficiency, broadband access and other areas. But it is becoming clear that much of that spending is not producing many new jobs. Highway funds have put repaving crews to work, but $6.5 billion flowing to states and cities for energy projects has only just arrived and has created virtually no private-sector jobs yet.

The jobs impact is also paltry so far for the $3 billion in National Science Foundation grants and the $10 billion for the National Institutes of Health. And much of the $19 billion for health information technology will not be spent until 2011.

Administration officials argue that these investments, if done right, will lay the groundwork for growth for years to come. And they say that given the depth of the recession, it's hardly a bad thing for the stimulus to deliver some punch a year or two from now. "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly," Summers said. "We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."

In addition, public-works programs take longer to get started than people realize, officials say. At a recent event at American University, White House economic adviser Jared Bernstein was challenged by economics professor Robert Lerman about direct job creation. Bernstein responded that there weren't enough public works projects ready to be launched: "What [governors] were describing as shovel-ready wasn't really shovel-ready."

None of this persuades the critics, who also argue that the White House, facing a skeptical Senate, settled on too small a stimulus package to begin with. Long as the downturn may be, the need is greatest now, and they have difficulty accepting that a new jobs program would not move faster than the money now percolating through the system. "The administration might have put a higher priority on more labor-intensive spending and spending that had a more immediate employment effect," said former labor secretary Robert Reich. "Basic research into photovoltaic cells is an important public investment, but it doesn't have many jobs attached to it, or certainly not anytime soon."

Others question the claim that more infrastructure spending would have been too slow. U.S. Steel chief executive John Surma noted recently that China is rapidly spending $586 billion on its own stimulus, much of it for big public works projects. The United States has plenty of infrastructure demands and should be able to get such projects going quickly, he said, and the inability to do so is an "indictment" of America's lack of a strategy for public investment.

"It's a defeatist policy to say that we don't know how to spend money on infrastructure," he said. "Stimulus is great, but we have far too little going into projects that actually put people to work."

Still others argue that there is plenty of direct job creation that could be done, short of heavy infrastructure, that could have lasting value. The liberal Economic Policy Institute has drafted a plan that, along with a new business tax credit for hiring that the White House is already considering, includes a pure public jobs proposal: giving money to states and cities to hire people to paint schools, board up vacant homes, staff child-care centers and reopen library branches. Workers would be paid the market wage. It would cost $35 billion for a year, not much more than the combined price tag for the homebuyers' tax credit and the $250 checks that Obama has proposed sending to Social Security recipients.

Lerman offers a variation: Pay people lower-than-market wages, maybe $8 an hour, and reserve the jobs for those who really can't find better work. Instead of extending unemployment benefits over and over, the government would help people develop job skills and would get something in return. He estimates the cost of 1 million jobs (including supervisors) at $30 million, or about $30,000 for each job created, compared with the $92,000 per job that the White House estimates its approach is costing.

And taxpayers would be able to see clearly that the spending was putting people to work -- instead of questioning, as many are now doing, the reliability of the job totals that the White House is attributing to the stimulus.

The country has a history with this sort of thing. Public investment in the New Deal got off to an underwhelming start. But the Works Progress Administration, launched in 1935, had a bigger impact, partly because it spent more freely -- drawing plenty of derision along the way. Less controversial was the Civilian Conservation Corps, which put men to work building trails, fighting forest fires and so on.

President Richard Nixon gave jobs programs another go in the doldrums of 1973-74 with the Comprehensive Employment and Training Act. But critics said states were just using the money to top off their budgets, and there were tales of abuse in some cities. President Jimmy Carter lowered the pay to make the jobs less likely to be doled out to friends and relatives. His assistant labor secretary, Arnie Packer, recalled last week that "we were able to see it in the statistics, the change in the employment rates for black males -- that's the targeting capacity that exists."

The program withered under President Ronald Reagan, who added prohibitions against public service employment (except for summer programs and natural disasters) that endure today. That the Obama administration shows little indication of lifting this taboo is a sign of how free-market tenets persist even when financial turmoil has called them into doubt, said John Russo, co-director of Youngstown State University's Center for Working-Class Studies.

"Neo-liberalism continues apace even though it's been thoroughly discredited," he said. The White House "has held back, and it has hurt. People were looking for a more aggressive approach; they did a political calculation and said, 'This is all we can do.' "

Conservative economists stand steadfast against any movement toward direct job creation. They concur with part of the liberal critique of the stimulus -- that much of the spending is going out too gradually, and in the wrong places, to be of use. But they strongly disagree that the government should have tried more direct efforts to create or retain jobs.

Jobs programs "sound so good in theory, but it just doesn't work that way," said Larry Lindsey, director of the National Economic Council under President George W. Bush. It would be better to stick with safety-net benefits for those most in need and to enact new tax cuts, such as a suspension of the payroll tax to encourage hiring. The New Deal jobs programs were less effective than memory holds, he said, a misperception he attributes to the government-funded writers and artists who depicted the work.

"A lot of what they did was a propaganda campaign," Lindsey said. "They hired the photographers to take the pictures and writers to write the story."

As it happens, an exhibit of New Deal-funded paintings is on display at the Smithsonian's Museum of American Art, with striking images of government-paid men shoveling snow and industrial machinery revving up. But don't expect to see any exhibits portraying the government's response to the Great Recession: The National Endowment for the Arts distributed its $50 million in stimulus funds to hundreds of arts groups and has no plans for direct payments to artists.

"It wasn't for any new programs," said NEA spokeswoman Victoria Hutter. "It's being spent, it's just not as visible" as the New Deal's programs.

But with unemployment into double digits, might not pictures of people heading to work have been a welcome sight?

Alec MacGillis is a reporter on the national staff of The Washington Post. He will be online to chat with readers Monday at 11 a.m. Submit your questions and comments before or during the discussion.

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