Has The US Reached The Limits Of Fiscal Policy?

florida job line

Aides to President Barack Obama are “scrambling” to finalise the jobs and debt plan that is scheduled to be released next week, as Republicans are preparing to pounce on it.

The Washington Post reports that Obama is not yet sure whether he wants to put forward a plan that is broad in scope, or a less controversial one with greater odds of passing the Republican-controlled House of Representatives.

GOP lawmakers are already attacking Obama’s attempt at a “second stimulus,” even though his proposal is likely to be made up predominantly of tax breaks.

Many of the details of Obama’s plan have already been leaked to the press — including an extension of the payroll tax cut, a new infrastructure bank, and the continuation of unemployment benefits — and already some judge the job creation outlook as “not so great.”

Joel Prakken, senior managing director of Macroeconomic Advisers LLC, told Bloomberg that he doesn’t have “have high hopes — really any hopes” that Obama’s proposal will significantly boost economic growth.

In a post on his company’s blog, Prakken writes that political concerns have closed off broad areas of fiscal policy — and that failing to deal with long term economic uncertainty may doom the President’s plan:

“Temporarily extending the current payroll tax holiday, emergency unemployment benefit, and business tax breaks will temporarily boost GDP and hence employment, albeit modestly. For temporary training programs and hiring incentives to have much impact now, firms must be confident that when the temporary programs and incentives expire, economic conditions will validate the decision to hire earlier rather than later. In today’s economy, there’s certainly no guarantee this will occur. For infrastructure spending to make a big dent in the unemployment rate, it would have to be done rapidly and on a scale that is impossible in today’s political climate. In sum, and disappointing as it may be to unemployed Americans, there simply are limits to what a jobs bill can achieve today.”

White House officials promise that there will be something new in the president’s proposal beyond what they have already revealed, but whether it will be enough to confound less-than-positive expectations remains to be seen.