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Obama plan may not be enough to fix jobs market

Even if President Barack Obama can win political support for a sweeping new government program to create jobs, he may have a tougher time providing more than a temporary, quick fix, say economists.

The real problem, they say, is that households and governments are still recovering from the widespread damage done by a historic borrowing binge that will take years to repair.

The details of the White House's jobs proposal, to be laid out in a much-anticipated speech Thursday night, are still being finalized. The plan is expected to call for increased federal spending to rebuild roads, bridges and other infrastructure across the country. Republicans, who control the House of Representatives, so far have rejected the idea as wasteful spending.

"We need to do things that will have a direct impact in the short-term to grow the economy and create jobs and the president will put forward proposals that will do just that," White House spokesman Jay Carney told a news briefing on Tuesday afternoon.

In any case, more fiscal stimulus may not be enough to fix what ails the U.S. job market, say some economists. A decade of unsustainable borrowing by consumers and governments artificially boosted economic demand. The resulting debt hangover has sharply curtailed spending.

"You can't manufacture demand if you're going to look at demand from the same place as we always have gained demand, which is through the consumer sector," said Steven Blitz, senior economist at ITG Investment Research. "That's because the consumer is tapped out."

There is no mystery why Obama feels a need to act for both political and economic reasons.

On Friday, the government reported a net gain of zero new jobs in August, leaving the national jobless rate stuck at 9.1 percent. Weak job growth in the private sector was entirely offset by government layoffs, mostly at the state and local levels. In the past three years, state and local governments have eliminated 671,000 jobs in an effort to balance their budgets.

Even before that report, Obama's popularity was falling to the lowest levels of his presidency. An NBC News/Wall Street Journal poll conducted in late August showed Obama's overall job approval rating at a low of 44 percent, down 3 percentage points from July, while only 37 percent approve of his handling of the economy. Two separate, independent polls showed similar results.

The renewed weakness in the job market has raised fears that the U.S. economy could slide back into recession, prompting the president to strike an urgent tone as he lays the groundwork for his proposals.  At a speech Monday in Detroit, he came out swinging hard for the plan.

"We're going to see if congressional Republicans will put country before party," he told a group of auto workers. "The time for action is now; no more manufactured crises, no more games. Now is not the time for the people you sent to Washington to worry about their jobs. Now is the time for them to worry about your jobs."

Story: Obama says Congress must pass jobs program

It remains to be seen how much, if any, of the president's plan will make it through a deeply divided Congress that is still smoldering over this summer's bitter fight over the federal budget.

"This is just the president's first salvo of his re-election campaign," said Blitz. "The Republicans are going to fire back with programs and counterprograms. But at the end of the day we're not really get anything accomplished."

Government job-creation programs have a poor track record. Many economists maintain, for example, that tax credits for new jobs often go to companies that would have hired without them. Infrastructure jobs are only temporary.

And some business leaders argue that increased federal spending won't create long-term employment gains. The government, they argue, rarely invests as wisely as the private sector.

"If you invest poorly, you can't create as many jobs as if you invest most efficiently," said T.J. Rodgers, CEO Cypress Semiconductor. "And the government simply can't do it."

Allowing existing stimulus spending to expire, though, could send the economy back into recession. The White House is expected to propose an extension of last year's payroll tax cuts, which have added much-needed spending money to workers' stretched budgets, and a continuation of extended unemployment benefits for the long-term jobless.

Eliminating those two programs would likely cut roughly 1.7 percent from the annual growth in gross domestic product, according to Goldman Sachs economists. With GDP growing at less than 1 percent, that could mean the difference between an economy growing very slowly and one headed in reverse.

Judging from previous congressional battles, the proposal to extend jobless benefits could prove to be the most controversial. Economists are divided over the politically sensitive question of whether extended jobless benefits are a disincentive for unemployed people to find work.

"Extending unemployment benefits does give them a cushion, and it might stop them taking that lower-paying job," said Diana Furchtgott-Roth, who was chief economist at the Labor Department in the George W. Bush administration. "They might continue to look for a job the same wage that he had before when what they really need to be doing in this environment is taking a lower-paying job."

But with more than four job applicants for every opening — more than double the ratio of a strong economy — other economists say there simply aren't enough jobs to go around. That won't change until the economy recovers from an extended debt hangover that could take years to recede.

Until then, extending jobless benefits would provide a much-needed lifeline to millions of households, according to Allen Sinai, chief economist at Decision Economics.

"When you have people out of work, the role of the government is to support them through the transitional period," he said. "Yeah, there will be people who are lazy and don't want to work, But the bulk of them of them have a terrible problem with income, with spending and with maintaining their family's way of life."