Taking Sides Over Need for Jobs Bill

From the Wall Street Journal | Nov 19, 2009

By DAVID WESSEL

With
the unemployment rate at 10.2% and rising, pressure to do something --
anything -- to create jobs is mounting. The question is what the U.S.
government can, should and will do about it.

One camp says: Just wait. They argue the economy is growing again,
albeit slowly, along the following lines: first, employers stop firing
workers; second, employers extend the hours of their workers; third,
employers, confident of recovery and unable to meet demand without more
labor, start hiring.

Unemployment
is shaping up as a key battleground in the midterm elections. WSJ's
Economics Editor David Wessel says the Obama administration is keenly
aware, and looking at smaller stimulus follow-ups to generate jobs
growth.

"Given the large dose of monetary and fiscal
stimulus we already have pumped into the patient, and the signs of a
beginning recovery, it is probably better at this point to take a
wait-and-see approach," advises Gregory Mankiw, the Harvard University
economist who was among President George W. Bush's advisers.

Another camp -- which include politicians from both parties and
several Obama economic and political advisers -- wants government to
speed the arrival of the recovery's hiring stage. "What we're seeing
now is businesses are starting to invest again, they are starting to be
profitable again, but they haven't started hiring again," President
Barack Obama told NBC News. He said his administration was trying to
"figure out if there are ways of us accelerating that hiring."

After all, unemployment creates misery for families, weakens demand
for businesses, wastes human potential and can have long-lasting ill
effects on economic growth. It also breeds hostility to business,
politics and global trade.

"I have never seen anything like this," Sen. John McCain, the
Arizona Republican, told The Wall Street Journal CEO Council conference
this week. "The level of anger and frustration...at what we do in
Washington and what you do on Wall Street."

He warned that, absent change, rising unemployment and
credit-starved small business could yield a cadre of populist,
protectionist, pro-regulation Republicans to Congress next year.

But the do-something camp is divided. The options fall roughly into two categories.

One set, with a distinctly Keynesian flavor, would aim at employment
indirectly -- by increasing overall demand so employers hire more
people. Consumers are in the dumps, their ability to spend is
constrained by lack of income and an urge to reduce debt. Business is
in a funk, shaken by the deep recession, distressed by uncertainty
about health, tax and energy policy. State and local governments are
struggling. The Federal Reserve already has cut interest rates to zero.
So the federal government should step up, the argument goes.

That was the rationale for the much-maligned fiscal stimulus, and
the rationale for another round. Lawrence Katz, a Democratic-leaning
Harvard labor economist, for instance, advocates more no-strings aid to
state and local governments "to ease their budget situation, prevent
layoffs and furloughs and cuts in local services." He calls it the
"most effective and quick fiscal stimulus out there."

"Increasing overall demand in the economy is important for jobs,"
says Lawrence Summers, Mr. Obama's economic adviser. "We're looking at
a variety of job creation measures. Some would require spending. Others
would increase demand with little or no impact on the deficit."

But Mr. Obama shows little political stomach for pushing Stimulus
II, resorting instead to a more stealthy approach -- such little
dollops as the $250-per-senior checks he got Congress to approve
recently. More big stimulus, of course, means more government
borrowing. That makes some Obama advisers, already facing a massive
deficit and doubts about the stability of the dollar, very uneasy.

So look for the administration to promote cheap ways to spur demand
-- attempts to increase the flow of credit to business, speed approvals
for the new electricity grid and promote exports. Each will be marketed
as creating jobs. In fact, everything the administration does from now
on will be marketed as creating jobs.

The other set of options aims at increasing employment directly. The
government could cut the payroll tax temporarily, for instance, to make
it cheaper for employers to hire. Or it could offer a tax credit to
spur hiring -- presumably designed to reward hiring that wouldn't
otherwise occur, which is difficult -- or simply tying a tax credit to
the expansion in an employer's total work force.

Or it could push more states to offer jobless benefits to workers
who are forced to work part-time, essentially making up some of the
lost wages as Germany's Kurzarbeit -- "short work" -- program does.
Seventeen states do this now, including California.

Proponents of a jobs tax credit or payroll-tax holiday, both inside
the administration and in Congress, say the government should nudge
reluctant private employers to hire, and that the benefits -- to
workers and those who sell to them -- will be significantly greater
than the costs and abuse.

Detractors say that pushing more jobs without more output is unwise,
a deliberate attempt to reduce productivity that sounds appealing but
isn't. It's like taking away shovels and giving ditch-diggers teaspoons
so more will have jobs.

Few in the Obama administration are in the just-wait camp. But the
do-something crowd is divided between those who favor a
headline-grabbing jobs tax credit, and others looking for cheaper ways
to boost demand.

The latter group, for now, appears to have the upper hand.

Write to David Wessel at capital@wsj.com