Saturday, September 10, 2011

Economists say Obama plan would create jobs, but ...

Seems like the housing crisis is currently the driving influence behind our economic woes. The sub-prime loans started in the Clinton years and, under Democrats Barney Frank and Chris Dodd, and Fannie and Freddie, escalated into a major crisis. Now we have Obama, a Democrat, trying to spend our way to prosperity. It's interesting that he has selected the remedy that economists say is definitely "short term". I guess it is enough to demonize Republicans for standing in its way, and if , by some miracle, it is passed, will get him through next years election. It is all political.

Mark Zandi, the chief economist for forecaster Moody's Analytics, envisioned 1.9 million jobs created if the plan passes as proposed, something he considers unlikely. However, about 40 percent of the jobs_ 750,000_ would come from the payroll tax holiday provisions alone.

Zandi noted that benefits from the Obama plan wouldn't be lasting ones.

"The plan also results in weaker growth in 2013, as most of the tax cuts and spending increases are temporary and fade during the year," he said. "Presumably the economy will be strong enough to handle it by then, but that is far from certain."

That's important, because there's no guarantee that hiring and growth associated with the plan would be permanent. In fact, it's one reason for the negative public view on prior federal stimulus efforts, various programs such as "Cash for Clunkers" to stimulate auto purchases, and a first-time homebuyer tax credit. All these efforts provided a spark, but the spark proved temporary.

"Businesses repeatedly see that, so they respond to it in a temporary way," said Martin Regalia, chief economist for the U.S. Chamber of Commerce, which raps Obama for not seeking more-lasting job creation. "It does help temporarily maintain or boost demand because it puts more spendable money in people's pockets, and some of that will be spent. If all you want to do is boost the growth rates for next year, this will probably do that."

But that's not necessarily the best course, he said. The chamber wanted a focus on the energy sector, where relaxation of rules could put people to work immediately, and more support for international trade, including passage of pending free-trade agreements_ especially the long-delayed deal with South Korea.

"Trade agreements were kind of mentioned almost casually, but there was no plank. We think that's something that would be very, very important," Regalia said, noting that Obama wants to double exports yet yields opportunities to others. "To get in there first is important, and in fact we're ceding the playing field to competitors who have already established trade agreements with (South) Korea."

Another reason why support for Obama's plan is hedged among experts: There's little to fix the housing sector, a huge drag on the economy. Obama talked broadly about encouraging government-controlled mortgage lenders Fannie Mae and Freddie Mac to refinance home loans to lower interest rates, but he gave few details.

Read full Kansas City Star article here.

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