That’s the title of my most recent Fin column, over the fold
Responding to US President Obama’s announcement of his proposed American Jobs Act, Republican Presidential candidate Mitt Romney tartly observed that it was ‘960 days late’ (referring to Obama’s time in office so far). This was rather unfair – Obama introduced a major fiscal stimulus immediately after taking office, and followed up with a temporary payroll tax cut and extension of unemployment insurance benefits at the end of 2010. His new jobs plan is, in large measure an extension of these earlier initiatives.
Nevertheless, like all effective political rhetoric, Romney’s jibe had an element of truth. Having passed the stimulus bill, Obama’s political team made the judgement that there were no votes in talking about jobs. Instead, they decided to bet that the economy would recover in time for Obama’s re-election campaign, and to focus instead on health care reform.
This seemed like a bad call at the time, and with the benefit of hindsight it looks positively catastrophic. Obama had the chance to cast himself as Franklin D. Roosevelt with George W. Bush consigned to the role of Herbert Hoover. If additional effort on the jobs front had been rewarded with even a reduction of a few percentage points in unemployment, his first term could have gone down as one of the great successes in US Presidential histories.
Instead, the 2012 Presidential campaign has started with unemployment rates above 9 per cent, higher than when Obama took office in the midst of the Global Financial Crisis. Moreover, the strategy of waiting for recovery predictably entailed a Republican victory in the 2010 elections for the House of Representatives.
Obama and his team apparently believed they could fashion a ‘grand bargain’ with the Republicans. The core idea was that Democrats would accept unpalatable cuts in Social Security pensions and health care for the elderly and poor, while Republicans would allow some increases in tax revenue, thereby restoring the long-term sustainability of US fiscal policy.
These illusions were shattered in the recent debate over the debt ceiling. Not only did the Republicans line up solidly behind the threat to default on US government debt if they could not extract massive cuts in spending, but they showed no interest in any kind of grand bargain. Even when the terms were tilted massively in their favour, they insisted that any kind of tax increase was out of the question.
Ironically, while many Republicans want to allow the payroll tax cuts for low and middle income earners and their employers to expire, they resolutely oppose doing the same thing with the (supposedly temporary) tax cuts for top income earners introduced under Bush. Their commitment to low taxes only extends to the 1 per cent of the population who now command 25 per cent of all income in the US.
The debt ceiling fiasco finally awakened both the Obama Administration and significant sections of the US public to the extent to which the Republican party has solidified at a position well to the right of centre on the US political spectrum.
Rejecting those of his advisors who wanted a small-scale bill that Republicans would (or at least might) pass, Obama went for something much more substantial, although still modest relative to the scale of the problem. At around $450 billion in total, it is around half the size of the 2009 stimulus package, which has now largely expired.
In addition to extension of the payroll cuts and unemployment benefits, he proposed a range of measures including an initiative to repair decaying US infrastructure and to rehire teachers dismissed as a result of budget cuts at the state and local levels. These measures are unlikely to get even the handful of Republican votes they need to pass, but they help to set the terms of debate for the election campaign.
More striking than the policy measures announced in the speech was Obama’s abandonment of the rhetoric of austerity that has dominated the US debate, particularly since the 2010 election. Obama gave a powerful endorsement of the view that government has an important and positive role to play in the economy.
As the disastrous impact of austerity at the state and local level becomes more evident, Obama’s proposals will contrast ever more sharply with the contractionist policies proposed by the Republicans. Even so, winning re-election with unemployment rates near 9 per cent will be an uphill battle. But now, at least, he offers his supporters some hope of victory, and, more importantly, some hope that he will make good use of it.
John Quiggin is currently the Hinkley visiting professor at Johns Hopkins University, Baltimore.