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Obama Stimulus Plan May Not Save, Create Jobs

 
     

    If history is a guide, President-elect Obama’s new stimulus plan may not save or create the millions of jobs his economic team claims -- at least not quickly. But that isn’t stopping states, cities and even zoos from lining up for the billions in expected government cash for infrastructure projects.

    According to FOX News, the President-elect’s economic team is considering sending Congress a stimulus plan that would spend $675 billion to $775 billion over two years. Congress is also expected to add spending for its projects and priorities – perhaps another $100 billion or so. Within that, the Obama team wants to allocate about $350 billion on infrastructure projects and on energy efficient “green” projects and programs.

    The goal: to create and/or preserve 3 million jobs over the next two years.

    “We need desperately to get this economy moving. We've got to create more jobs now,” said Vice President-elect Joe Biden at a meeting with the Obama economic team on Tuesday. “These jobs that we are going to be creating are designed for not only the immediate impact of the creation of that job, but for the future prosperity of the country.”

    But some economists, citing government and other studies on job creation through stimulus plans, are skeptical.

    “This is something that sounds great on paper,” said Douglas Holtz-Eakin, founder of DHE Consulting, an economics firm in Washington, D.C. “You make the economy grow faster, you bring down the unemployment rate, you get three million jobs, The difficulty is actually getting the money out and spending it sensibly.” Holtz-Eakin is a former director of the Congressional Budget Office and was an economic advisor to the presidential campaign of Sen. John McCain (R-AZ).

    One study of government stimulus plans and job creation suggests they don’t succeed in part because they can come too late in an economic cycle to make a difference; also, the money spent on public works programs can move slowly. In 1986, the Government Accountability Office [GAO] studied the Emergency Jobs Creation Act of 1983, which budgeted $9 billion (about $20 billion in current spending, adjusted for inflation) on 77 federal programs to bring down unemployment in the 1981-82 recession—the unemployment rate hit 10.7% during that economic downturn. The GAO found that the legislation ended up creating just 34,000 jobs, mainly because it was too late.

    “Most funds were not spent and few jobs were created before June 1984, when the act would have been most effective in creating jobs and when jobs were most needed in the economy,” the GAO reported. “Studies have suggested that a job creation program…enacted in response to a recession is most effective if fully implemented during or shortly after a recessionary period. Although the Congress had considered other job creation legislation during the 17 months of the 1981-82 recession, the Emergency Jobs Act did not become law until 4 months after the recession had ended.”

    “We estimated that, had the $9 billion made available by the Emergency Jobs Act been spent within 1 year,” the GAO added, “about four times the number of jobs…would have been created.”

    A copy of the GAO report can be found here.

    “The typical recession is under a year. We’re a year into this one,” Holtz-Eakin said. “Even if we have a pretty prolonged downturn, it could be the case that the recession is over by the time a lot of this money gets spent.” He also noted delays in spending on infrastructure projects caused by regulatory reviews and contractor hiring, which can take lengthy periods.

    Holtz-Eakin said he supports a stimulus package to pull the economy out of recession, but that he prefers a one-year suspension of federal collection of employee Social Security taxes as a way to stimulate the economy – a $400 billion savings for workers, he says. He also believes the government could stabilize the housing market by purchasing and refinancing up to $350 billion in problem mortgages, a plan proposed by Sen. McCain is his presidential campaign.

    A spokesperson for the Obama transition team did not respond to request for comment on the timing of the president-elect’s stimulus plan or offer details of the plan. But a spokesperson for the National Governors Association, which supports a large stimulus package that includes funding for state infrastructure projects, said, “We are looking at ways to cut red-tape and speed up the processes. Nothing specific yet, though.” More information on the president-elect’s economic proposals can be found at his campaign Web site at http://www.barackobama.com/issues/ and at his transition Web site, http://change.gov/. Analysis of the issue from both sides of the political spectrum can be found at the Web sites for the Center for American Progress, http://www.americanprogress.org/, and the Heritage Foundation, www.heritage.org.

    The U.S. Conference of Mayors, www.usmayors.org, is among the organizations lining up for infrastructure and stimulus funding. Mayors in 641 cities have identified 15,221 “ready to go” projects (also called “shovel ready”) that they say would create 1.2 million jobs in 2009 and 2010. Their total cost: $96.6 billion. The 1,557 page project list can be found here.

    "This report contains examples of the kinds of projects that, if funded through existing channels, would contribute significantly to the President-elect's stated goals for infrastructure revitalization and job creation," said U.S. Conference of Mayors President Miami Mayor Manny Diaz. "However, Mayors recognize that this list must go through a review process through which Congress and the new Administration will identify projects eligible for funding."

    Many of the projects are typical for cities – building or repairing streets, bridges and playgrounds. The mayors have also identified more than 750,000 potential “green” jobs in wind-, solar- and hydropower, among other alternative energy industries. Their October report on “green” jobs is here.

    But the Heritage Foundation scrubbed the mayors’ latest project list and questioned the value of a number of them, including $35 million for the Music Hall of Fame in Florissant, Mo.; $35 million for the Scottsdale Museum of the West in Arizona and $20 million for the Virginia Key Beach Museum in Miami, Fla. Details on the foundation’s review can be found here. A spokesperson for the U.S. Conference of Mayors referred questions about the projects to the mayor’s press release on their latest project list, which is here.

    The Obama team vows its stimulus plan will exclude funding for so-called “pork barrel” spending often added into stimulus and appropriations bills by members of Congress. “There will be no earmarks in this economic recovery plan,” Vice President-elect Biden said in his economic team meeting Tuesday. “I know it’s Christmas…But President-elect Obama and I are absolutely determined that this economic recovery package will not become a Christmas tree.”

    Still, some federal infrastructure money could end up renovating – maybe not the Pig House at the local zoo—but perhaps a Monkey House or two. On Friday, the Association of Zoos and Aquariums called for “shovel-ready” zoo and aquarium infrastructure projects to be eligible for Federal stimulus funding, http://www.aza.org/Newsroom/IntrastructureImportant/.

    “Zoos and aquariums are woven into the fabric of American life," said AZA President and CEO Jim Maddy. "They are viewed by the public as important to the quality of life in their communities."

    The association went on to note that “many zoos have their roots in the Great Depression, when the Federal Work Projects Administration (WPA) helped build many zoos across America. In more recent times, aquariums have been successful anchors of waterfront renewal and development.” The AZA added that local zoos and aquariums help local and regional economies, “collectively generating $7.6 billion in annual economic activity and supporting more than 100,000 jobs.”

    AZA spokesman Steve Feldman said some of the zoos' projects could include water and sewer infrastructure but acknowledged “there may be other projects that others would argue are more important” to helping stabilize the economy.

    “We’re not going to argue with that,” he said. He also said “we’re not hiding” the zoos' request to be considered for federal infrastructure funding in the stimulus plan.

     

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