U.S. Markets closed

Why the Obama Jobs Plan Is a Loser


The President's long-awaited address to Congress and the voting public wasn't a matter of a "style over substance." Obama delivered on the former, but there was little, if any, substance to chew on. The headlines were "$450 billion" and the phrase "pass this bill." The dollar figure was largely meaningless and as Matt Nesto noted, the President's call to pass the bill sounded more like the request of a salesman, not the mandate of a strong President.

Every aspect of the vague program was short-term in nature. The much reviled Wall Street is constantly criticized for focusing on the short-term, yet the same President, placing himself on the frontline of class warfare, offered tax cuts running only through 2013. If you're currently planning or expanding a business you most likely are doing so with more than the next 5 quarters in mind. A major plant started today would be completed roughly at the same time as the proposed tax cuts expire. These tax breaks will do nothing to create jobs today.

The bill is "$450 billion on the ask" as Nesto put it. For those unfamiliar with trading parlance, the ask is what the seller wants, the bid is what the buyers offer. In this case the would-be buyers are ultimately the voters. It seems unlikely Americans are going to surrender the nearly half a trillion without some evidence that the money will be better spent than what was dumped into stimulus efforts undertaken in 2009.

Estimates on what the "American Jobs Act" would do for the economy range from our rather conservative figure of "nothing" to Mark Zandi's view that passage of the still-nonexistent bill would add 2 points to GDP and hack 1% off the 9.1% unemployment rate. Mr. Zandi is employed by Moody's, a ratings agency. It's worth noting that it's in Moody's best interest to curry favor with the White House in light of the abuse being heaped upon fellow ratings agency Standard & Poors for having the audacity to express a negative view of the government. Not to suggest that Mr. Zandi is in any way conflicted in his opinion; it's simply something to consider as the Administration rapturously embraces Moody's view.

Nesto pointed out the importance of Fed Head Bernanke's Thursday afternoon speech, despite his efforts to keep focus on politicians. The "money line" from Bernanke's speech was assurance that the Fed will do "all it can" to foster jobs growth, provided inflation remains low. In other words, the Fed will continue to do what it's been doing for 3 years.

The President avoided mention of the Federal Reserve but he did cite both Warren Buffett and Abraham Lincoln in his plea for more stimulus now to be paid for later. Lamentably, Lincoln has been dead for 146 years and Warren Buffett's lifetime contribution to the Treasury and the political process has thus far been limited to dodging the estate tax and writing op-eds.

Ultimately the speech amounted to a decent pre-game show for the Packers and Saints. Beyond that the American Jobs Act won't be worth much discussion until we see the details the President promised for next week.