Why Obama's jobs plan will fall short
Hope for the president's speech on Thursday may be lifting the market now, but experts expect a limited approach that might not get the job done.
Viewers hoping for Hail-Mary passes and all-out blitzes to battle the renewed economic slowdown should be advised to stay tuned to the NFL game that follows President Barack Obama’s speech Thursday night.
“I don’t believe we are going to be slack-jawed by the speech,” said Larry Sabato, director of the Center of Politics at the University of Virginia.
Experts think Obama is likely to play small-ball in his highly anticipated jobs speech before Congress, constrained by political gridlock in Washington. House Republicans are not going to support a more dramatic approach to reducing the 9% unemployment rate.
“The Republican House is not going to do Barack Obama any favors,” Sabato said.
Obama will go before Congress to deliver his plan to combat the weak economy on Thursday night at 7:00 p.m ET to avoid conflicting with the NFL season’s opening game between the Green Bay Packers and the New Orleans Saints.
With the political environment “highly dysfunctional,” most of Obama’s initiatives “are likely to receive an unenthusiastic response,” agreed David Greenlaw, an economist at Morgan Stanley.
What’s in the plan?
Obama has already said he will propose an extension of the expiring payroll tax cuts and push for new spending on roads and bridges.
Reports suggest he will also propose a new jobs tax credit for business.
The price tag for the Obama jobs plan has been estimated at $300 billion. Stocks opened higher on Wednesday on the report, with the Dow Jones Industrial Average up nearly 200 points at midday.
Big ideas, like a sweeping plan to allow homeowners to refinance mortgages even if they are underwater, are likely to be left on the shelf.
“We don’t believe that the president is ready to implement a streamlined refi program,” Greenlaw wrote in a note to clients.
Obama also said he wants Congress to pass pending trade deals with South Korea, Columbia and Panama.
Economists generally were not impressed with what was being floated from the president’s speech.
“Hopefully, there is more to the President’s proposal than this. The public and the markets were hoping for a sumptuous steak dinner and if this is all there is, they are about to get a skimpy helping of 3-day-old tuna surprise,” said Stephen Stanley of Pierpont Securities.
Economy may be stalling out
Obama’s speech comes as the economy has shown clear signs of stalling, sparking fears of a double-dip recession.
Last Friday’s unemployment report was much weaker than expected, with no net new jobs created.
The sluggish performance has come as a surprise to White House officials. During the summer, top administration officials felt that the economy would rebound in the second half of the year once high gasoline prices and the after-effects of the Japan earthquake eased.
Obama is also trying to repair his standing with the public.
An NBC-Wall Street Journal poll earlier this week found that only 44% of those polled approved of Obama’s handling of the economy, while 51% disapproved. Support for Obama from independents has plunged to 26% from 52% in 2008. One bright spot for Obama is that 82% of individuals surveyed disapprove of Congress.
Economies are hard to heal
Martin Bailey, a former top economist under President Bill Clinton, said Obama administration made a serious mistake in underestimating how long it would take for the economy to heal.
Past recessions in the post-World War II era were typically followed by strong recoveries, he noted during a recent conference looking ahead to Obama’s remarks.
But in this recession, the housing crisis and high consumer debt levels have squelched a strong recovery, he said.
“In a different world, I would propose a major initiative to provide training to every unemployed worker just as some other countries do,” Bailey said.
But this is not politically feasible.
“I think realistically the only policy the House of Representatives would approve is for...tax cuts,” Bailey said.
White House officials have suggested that Obama will include new ideas that have not been leaked.
“I think that you will hear some new proposals that you have not heard us talk about or float,” said White House spokesman Jay Carney on Tuesday.
One possibility is an infrastructure bank to give incentives to private firms to build infrastructure projects, said William Galston, a senior fellow at The Brookings Institution.
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