Washington Post staff writer
Monday, November 9, 2009 11:00 AM
Washington Post staff writer Alec MacGillis was online Monday, Nov. 9 at 11 a.m. ET to discuss his Outlook article titled "Why won't Obama give you a job?"
"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."
Alec MacGillis: Hello everyone, thanks for joining us today. I'm here to discuss a piece I did in Sunday's Outlook section, looking at why the Obama administration and Congress have not tried more direct attempts at job creation and retention, such as starting New Deal-style jobs programs or expanding programs used in 17 states under which workers who agree to work part-time to avoid layoffs at their companies are compensated by the government for part of their lost wages.
wasahingtonpost.com: Why won't Obama give you a job? (Post, Nov. 8)
Holly Springs, N.C.: What single consideration led Congress to structure the stimulus bill so that only a relatively small percentage of the money allocated (so far) went directly to job creation? Or, put another way, Congress could have decided simply to cut or even suspend payroll and other job-related taxes, or to provide directly offsetting tax credits for new private-sector hiring.
Alec MacGillis: A good question. Congress did consider a business tax credit for companies that hire workers, but decided against it, partly because there are doubts about the effectiveness of that tack -- for one thing, it's hard to know whether a company would have hired anyone without the credit. But there's talk now about trying that after all. The thinking on the package's makeup was that there should be several components -- money to help those most in need (food stamps, unemployment insurance), money for states that would lay off thousands of employees otherwise, and investments in infrastructure, energy efficiency, research, and other areas were the spending could produce jobs over time while also doing some good. The problem is that that last part is taking a while to work its way through the system. As for direct job creation: there's a real nervousness about setting up anything that looks like a WPA-style jobs program. It's that reluctance that my piece is calling into question -- after all, is it really more politically damaging to be seen as doing a jobs program than to be facing double-digit unemployment?
Washington, D.C.: I think you are assuming the government's ability to control the level of unemployment is much greater than it actually is. In your article you suggest government jobs programs and paying employers to keep employees on the payroll. Are these methods as good as you suggest? Historical evidence suggests maybe not. Rising unemployment leading up to an election is a severe threat to an incumbent president. In 1980 (Carter) and 1992 (George H.W. Bush) faced rising unemployment in the months leading up an election and didn't enact the program you are suggesting would have been a cure. Even if you accept some philosophical reticence (especially on the part of Bush the elder), the chance to win an election usually trumps ideology and yet neither came out with the type of program you are suggesting. If it would have worked so well, why didn't they?
Alec MacGillis: In fact, we had direct job creation programs in place throughout the '70s, as my article recounts. It was called CETA, and it ramped up under Nixon in '73-'74 recession. There were problems with it -- a lot of states and cities just used the money to supplement their own budgets, and there were reports of abuse and patronage in some cities. But Carter tightened the program up, lowering the wages it was paying to make it more susceptible to abuse, and his labor officials say there was a clear impact in lowering the unemployment rate for the targeted populations. Reagan ended the program, and implemented a new federal restriction against federal jobs programs, with exception for summer youth programs and national emergencies.
And as for government's ability to control unemployment -- sure, government can only do so much to affect the economy. BUT, the fact is that the job-sharing program I describe in the above answer has helped Germany keep unemployment below 8 percent -- even though the blow to their economy this year has been at least as deep as ours.
Washington, D.C.: While your article was an interesting discussion of policy, I think you (or whoever wrote the title for the the article) may have helped feed a truly misguided, but widely held, perception. Many people assume the president has immense control over the economy when in fact their power is relatively limited.
I'm surprised that you would cite German economic policy as some sort of model. It is true that Germany's unemployment rate is below the U.S. rate right now but that is only because the recession hit this country so much harder. For the last three decades the German unemployment rate has been much higher than the U.S. rate and job growth in Germany and indeed across the entire Eurozone has been much lower than U.S. job growth. Across Europe the heavy regulation of labor markets has guaranteed stability for those who happen to have jobs but has stifled job creation. Whatever we do, we don't want to copy the Europeans.
Alec MacGillis: Sorry, but the numbers don't bear this out. Germany's suffered a bigger percentage hit to its GDP than we have, because its export-based economy was so hurt by the falloff in global trade. Germany's unemployment has been hire than ours for the past decade, but in this recession, their jobless rate has barely budged. And there's no question that this is large part because the government there is literally paying to subsidize the paychecks of hundreds of thousands of workers who agree to work shorter weeks to avoid layoffs at their companies. It's no mystery that doing that on a large scale would keep the jobless rate down.
Arlington, Va.: The problem I have with Obama's calculations is he claims the stimulus prevented the loss of X number of jobs. While there may be a slimmer of truth to this, it doesn't sound like that would be something that is really quantifiable. Would you agree with that statement?
Alec MacGillis: This is an excellent point. The White House put itself in a tough spot right off the bat by naming a specific number of jobs that would be created or saved. It opened itself to instant ridicule because of its inclusion of "saved" jobs in that estimate -- skeptics rightly asked, how do you determine whether a job has truly been saved from elimination? And it meant that they would have to then embark on the arduous and very ambiguous task of actually counting new jobs, a very tricky thing to do, since the stimulus is supporting some jobs for only a temporary basis (road crews, etc.) and because it's very hard to quantify just who is helped as the money trickles through the economy. They would have been far better off, it seems, if they had simply said, "We're spending this money to inject demand into the economy, which will as a rule of economics created many jobs down the line." As it is, it's just way too easy for the critics to poke holes in the specific tallies and use that to claim that the whole effort is flawed.
Washington, DC: I think you missed a big problem with CETA (1970s employment program), by the time it really kicked in private sector employment growth had turned around and made CETA essentially a boondoggle for the states.
Alec MacGillis: A good point. You're right, the program did not start working better until after the doldrums of '73-'74 had passed. One of the whole arguments for doing direct jobs programs is that they can be turned on and off as the economy requires, and that wasn't observed in CETA's case.
Largo, Fla.: What do you suppose the unemployment figure would have been if the stimulus bill HAD NOT been approved?
Alec MacGillis: Much higher, no doubt, which is what the administration keeps trying to say. But that is a difficult or rather dispiriting argument to make -- hey, if it weren't for us, things would be even worse. It is true, though.
Harrisburg, Pa.: It is interesting, to me, how the Obama stimulus plan resembled the "trickle down" philosophy that Democrats used to use to criticize the Reagan economic plans. It would have been interesting to see how the economy would be if we had invested $800 billion directly into jobs creation and let consumer spending trickle up towards saving financial institutions. Do you have any thoughts on what this difference might have looked like?
Alec MacGillis: An interesting point, though I think it blurs the distinction between the stimulus program and the TARP bailout for the banks. I would definitely agree that when it came to stimulus, the government relied too much on a trickle-down approach -- giving money to the state and federal bureaucracies in hopes that it would trickle out to various contractors who would eventually hire. And one could certainly make the case that the financial bailout should have been handled in a more bottom-up way, by focusing on foreclosed homeowners or businesses having trouble getting credit instead of the big banks at the top. But I think each of those problems had to be addressed separately, because TARP and stimulus really had two related but separate goals, helping a teetering financial and credit system and injecting money and demand into the overall economy.
D.C.: The biggest problem with the first stimulus was the fact that it was direct government spending, but rather was contracted out. Middle men in the equation between federal dollars and jobs IS the problem. They take a cut and tax dollars got their overhead and well as their pockets.
We have plenty of need for public and federal infrastructure. Creating a corps of construction workers trained to build our antiquated sewers and wastewater treatment plants would create thousands of jobs. Same with upgrading the North East corridor.
Those jobs running through the contracting process dilutes the effect of federal spending.
We should be staffing up. Infrastructure development is what sustains long term economic growth. It's time we abandon our misperceptions of capitalism and do not only what is expedient, but also the most effective.
Alec MacGillis: A good point, related to my last answer on trickle-down. The privatization, contractor-reliant approach is so ascendant in Washington -- even in a time of Democratic rule -- that it's seen as preferable to have money filter out from the bureaucracy to contractors in the hopes that the private sector will eventually create the jobs on its own. But the money has been flowing out so slowly -- the fault of both bureaucrats and contractors -- that very little of that indirect job creation has been occurring.
New York, N.Y.: Alec MacGillis, Do you know anyone who manages to pay for their housing, food, med. ins., and other necessities while making only $8 an hour? You wrote in your article that Lerman proposes, "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." I do know people who entered this type of "make-work" jobs-training program, and after 3 years they are still stuck making just barely more than minimum wage, while executives of the companies that hire them are making the real money (and getting quite a bit extra from the gov't to educate and hire them). This is ivory-tower theorizing, not a real-world proposal.
Alec MacGillis: A valid point. But the thinking behind such an approach is that such a program would be temporary, at most a year or so in duration. The pay could be supplemented by the government, or it could be raised by prevailing wage levels for the work in question, as the Economic Policy Institute proposal I mention would have it be done. The basic idea, though, is that it makes more sense to have the government paying people to do useful work that has a social benefit and gets them some experience and skills (this is especially true for the millions of jobless young people), instead of paying for endless unemployment benefit extensions.
Fairfax County, Va.: I think the important question is, why won't such a jobs program ever in a million years be proposed, passed, and executed by next spring (that's the timing required to affect the 2010 elections, so politicians would be most motivated to get the program started by then)?
It's just obvious that it won't happen and it would help me if you or someone else would spell out the two or three political/institutional reasons why it's a non-starter. Unless you genuinely think our current Congress and administration could possibly do this, soon enough to have any impact.
Alec MacGillis: You're right, it's getting late for this to have its desired impact, though some would argue that we seem to be facing such a slow jobs recovery that it would be useful to have a million new jobs created this way even next spring. My article was both suggesting this as a way forward while also asking, retrospectively, why it had been considered from the outset last winter. And one big overriding reason for that is that there is just a real allergic feeling in the White House and Congress toward this approach, a worry that it smacks of socialism. Keynesianism has experienced a rebirth, but there's still enough Reaganism in the air that this as seen as a step too far.
Washington, D.C.: Are there cost estimates on the job sharing model if it were applied in the U.S.? Say, for example it was designed to lower unemployment 2 percent (a rate comparable to Germany's), how much would it cost?
Alec MacGillis: It would not cost much at all because you're basically using unemployment insurance funds to supplement people's paychecks instead of paying their unemployment benefits when they're laid off. That's why it's such a common-sense approach. Senator Jack Reed of Rhode Island has a bill in to make this a national program -- he's seen how popular it's been in the states that have it, including his. It would require some startup funding because states' unemployment funds are running so low -- they would need some money at the outset to pay for the paycheck supplements; their savings would come later, from the reduced demand on their unemployment funds. Reed's asking for a few billion to get it going.
Louisville, Ky.: Isn't it too soon to expect a great increase in the number of jobs produced or saved? I would expect to see results after at least two years in office.
Alec MacGillis: Sure, people are being impatient and overlooking the fact that job growth lags as recessions end. And in fact, the job losses are slowing, even as the unemployment rate ticks up. But I don't think it's going too far to argue that there are ways the stimulus could have been crafted to be packing more of a punch at this point in the game. Larry Summers told me that the stimulus was crated deliberately to spread its kick out over the next two years because it was clear the downturn was going to last a while, but still, might it not have been better to have more punch now, even at the expense of money being spent in 2011?
California: Wouldn't it be better to stimulate the economy so that the private sector hires people? Why would it be good for the government to create make- work jobs? That would just add to taxpayer burdens, since we'd be paying those salaries. A bit part of California's economic trouble is the huge size of its public sector.
Alec MacGillis: Again, the idea is that these jobs would be temporary, like the make-work jobs created in the New Deal. And sure, it's ideal to have the stimulus stimulate private sector jobs -- but what if there are signs that that is not happening, that the money is just taking too darn long to percolate through the government contracting system? In that case, maybe it would have been better to take a more direct, forthright approach to job creation with at least some of the money.
Alexandria, Va.: In your answer to a question you stated that road crew jobs were short-term. However, for the state of Virginia, a current estimate is that our basic road needs are such that we should be spending two billion dollars a year for the next ten years, giving road crews jobs for those ten years, certainly not a short-term proposition. But the state currently has only enough money mostly for road maintenance and a couple of major projects.
Alec MacGillis: What I meant by that was just that the way the stimulus works, it is many cases paying for projects that employ a given person or company for a couple days or couple weeks -- say, a repaving project that last two weeks before the company moves on to other non-stimulus work. Counting those jobs gets tricky.
Leesburg, Va.: President Regan faced similar unemployment numbers at a similar point in his first term. What was his strategy for job creation and how successful was it? It obviously was good enough to warrant re-election. How does the Obama administration's strategy thus far compare?
Alec MacGillis: In fact, unemployment remained high through much of the first half of Reagan's first term, which is one reason why the Republicans lost seats in the 1982 midterms. The rebound of the business cycle came in the second half of his first term, and he then won big in 1984. It's quite possible the same thing will happen here -- the rebound won't come in time to save the Democrats in next year's midterms, but will be underway in time for Obama's reelection.
Alexandria, Va.: Is the Obama administration aware that if they cannot deliver a significant number of jobs during the next ten months, there will be a significant loss of Democratic seats in the House and Senate in the 2010 elections because for many of the voters, especially the younger ones, in the 2008 elections "change" meant jobs soon, not several years from now?
Alec MacGillis: They are very aware of this. But they are also aware that a party holding the White House loses some seats in the midterms, no matter what. And they really seemed to believe that in addition to jolting the economy in the short term, it was important to use some of the stimulus for longer-term investments that would support their policy agenda in education, energy, health care, etc. It's easy to understand why they did this -- they realized this was their bite at the apple, and that there might not be many other chances for big investments in these areas. But that long-term approach did have a downside.
Hyattsville, Md.: The number one thing that is needed in this country is jobs for people. How could there be a recovery when so many people lack jobs? People without jobs are not going to buy stuff.
Alec MacGillis: That's exactly the argument for taking a more direct approach. Larry Summers told me that the administration didn't try the job-sharing approach because they thought it better to focus on boosting the economy to produce more jobs for everyone than to share the existing work among more people. But if more people are sharing the existing jobs, then more people are getting paychecks and spending money. Better to have 20 people at a company making 85 percent of their original pay than have 10 of those people laid off collecting unemployment.
Livermore, Calif.: Appreciate your article and historical insights on the challenge of balancing competing interests and the relative effectiveness of this stimulus approach. I am wondering if you might provide your insights as to where things break down politically, logistically, and financially for the likelihood of another stimulus bill. Would such a bill tilt toward more direct jobs creation? My father was a beneficiary of the CCC for a year in 1935-36. It was a simpler time but the small town in Minnesota where he lived sent a contingent of young men to work clearing forest roads and building fire lookouts. Effectively giving them something to do and money to send home. There must be creative regional solutions 'shovel ready' to do manual labor and other unskilled jobs that have the additional effect of pumping money into local economies. Is a second-stimulus a non-starter?
Alec MacGillis: Thanks for the personal account, very interesting. So far, there is little official talk of a true second stimulus because the Democrats worry that the public would balk at more spending. So instead there is talk of separate smaller initiatives that would not be pulled together into a broader stimulus package. But there are plenty of proposals out there, like the Economic Policy Institute one I mention in the piece, for a more explicit second stimulus, complete with temporary public jobs programs.
Washington, D.C.: Isn't the preference for indirect hires based on the fact that direct government jobs are very difficult to terminate, even when their original purpose is no longer valid?
Alec MacGillis: Sure, it gets sticky, but if you make clear at the outset that it's temporary, and if the economy gets going so that there are other opportunities when the program runs out, then you can end it and send people off, in much better shape than if they'd been jobless for two years.
Washington, D.C.: Why doesn't the Labor Department use some of the Recovery Act funds it received for partnerships with employers to hire unemployed workers and provide on-the-job training? Workers gain new skills, a job, and income.
Alec MacGillis: The Labor Department does have various job training programs in place, such as Job Corps. But the federal government is prohibited against doing direct jobs-program style hiring a ban that Reagan put in place and that the Democrats so far have balked at trying to lift.
Arlington, Va.: Beyond new "stimulus" money for jobs programs, what are your thoughts about increased congressional appropriations for existing programs such as WIA and SCSEP to put people back to work? And would Congress and the administration buy that approach as a viable alternative to federal job creation?
Alec MacGillis: The Workforce Investment Act is actually the law that replaced the CETA jobs program that existed in the '70s. But I've been told that there the Obama administration has real doubts about the effectiveness of our existing job training structure for unemployed workers, so they might be hesitant to go this route.
Florissant Valley, Mo.: G'morning, Alec. Wouldn't you agree that Obama is in a tough spot? Are the American people really perceptive enough to credit him for those 640k "created jobs" and not blame him for the unemployed spike to 10.2 percent. I would insist that the latter is not his fault and would be worse without the stimulus, but it is very hard to prove a negative. Well, maybe in 12 months it will all be academic and we will have turned the corner? Thanks
Alec MacGillis: You can definitely make the argument that it's not all his fault -- things fell apart before his watch. But I don't think that Americans are willing to buy the White House's claims that the stimulus is working because of the 640,000 jobs tally. That number simply does not seem credible or reliable when the far more statistically solid figure of the unemployment rate keeps climbing.
Virginia Beach, Va.: I just lost my job last week to cutbacks in the telecommunications industry and feel somewhat overwhelmed and discouraged with the process that I will have to endure to find a job. Receiving unemployment is not the direction I would like to pursue. However, it may be my only option due to my age. I am 52 years old.
What signs of optimism does our economy offer me at this time?
Alec MacGillis: The economy is growing again, as of the last quarter. More and more of the stimulus money is gradually trickling down. Employers are hiring more and more temporary workers, suggesting that demand for work is increasing and that they may soon start hiring full time workers. Other indicators suggest the rebound is underway. But the jobs picture is going to improve very very gradually. I wish you look.
Alec MacGillis: Well, time's up, everyone. But thank you for all the good questions and sorry I couldn't get to even more of them. This is obviously a complex subject, and I hardly pretend to have the answers, but I do hope you found the article and discussion useful. Join us again soon.
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