For the next several weeks, the nation's pundits will be blowing hot air about the $450 billion jobs proposal President Obama unveiled last night. Passing the torch to the people who specialize in this type of thing, we've rounded up the views of economists assessing the package in its present form (keep in mind, the Republicans will likely try to chip away at parts of the plan as Congress deliberates the legislation). We've divided the economists into two camps, pro and con. Many, as you would imagine, agree and disagree with the proposal for different reasons:
It's a good proposal Mark Zandi, chief economist at Moody's Analytics, is absolutely bullish about the Obama package (though he was also quite bullish on the president's first stimulus package). He tells the Associated Press, he expects the plan to increase economic growth by 2 percentage points, drop unemployment by 1 percent by next year and add 2 million jobs. One of his favorite parts is the administration's decision to reduce Social Security taxes for businesses with payrolls of $5 million or less.
Zandi calls this a "creative" way to help small companies, which have struggled more than larger ones to recover from the Great Recession of 2007-2009. During recoveries, small businesses normally drive job creation. "Something like this is much needed" for an economy grappling with 9.1 percent unemployment, Zandi said. "The economy is on the edge of recession."
Also a fan of the Social Security tax reduction, Susan Wachter,, a finance professor at the University of Pennsylvania, tells the AP the move would increase economic growth by 1 percent and add 1 million jobs by next year.
Princeton University professor and New York Times columnist Paul Krugman wishes the package would be bigger but still supports it. "The plan would be a lot better than nothing, and some of its measures, which are specifically aimed at providing incentives for hiring, might produce relatively a large employment bang for the buck."
It's a weak proposal On the other side of the argument, Nigel Gault, the chief U.S. economist at IHS Global Insight, said the Obama package won't be able to beat down unemployment. “The kick to growth is going to be pretty small. It will add substantially less than 1% to GDP growth in 2012,” he tells CNN Money. Gary Burtless, a labor economist at the Brookings Institution, adds "If we’re talking about whether the package is big enough to … start making a dent, it’s probably going to fall short of that goal.” Additionally, Michael Mandel, chief economic strategist for the Progressive Policy Institute, says that the package's efforts to boost consumer spending don't have a big effect on U.S. employment because of the country's open economy. "If the payroll tax cut encourages consumers to buy more (imported) clothing, that's likely to create more jobs overseas than in the U.S.," he said. Also lessening the package's effect, Paul Ashworth, chief U.S. economist at Capital Economics says many of the taxpayers will likely save the extra money. "In an environment where economic confidence has been almost completely destroyed, there is a risk that both households and small businesses will save a greater proportion of any windfall, particularly if they know the reduction is only temporary," he tells the AP.
Coming down even harder on it, Len Burman, an economist at Syracuse University, tells The Wall Street Journal the package is a big waste of money:
The payroll tax cut for employers sounds remarkably inefficient to me. It’s a 50% reduction in the employer’s portion of the Social Security payroll tax up to $5 million per employer. While most employers probably pay their employees less than $5 million, I’d guess that a large share of employment is at large firms that have payrolls much bigger than that. For those employers, there is no incentive to hire more. Just a nice windfall of $155,000 (3.1% of $5 million) that they can pile on top of their already large stashes of cash. This is a waste of money.