Roundtable: What Should Obama Do?
We may have stopped the jobs freefall induced by the financial crisis, but the U.S. economy has been painfully slow to return to full employment. Everyone knows it's tough out there: unemployment sits above 9%, and when you include all the people who are forced to work part-time or have stopped looking for jobs, that figure reaches 16%. The August jobs report showed a tragicomical gain of zero jobs.
Tonight, President Obama addresses a joint session of Congress to highlight his proposals for boosting employment. He will reportedly call for $300 billion in tax cuts, infrastructure, and aid to states. I decided to ask a few of our Foolish economic contributors what they thought Obama should do.
Morgan Housel, Fool contributor
Presidents in general get too much credit when economies are booming and too much blame when they're sour. Ten years ago, President Clinton received far too much praise for an economy buoyed by the dot-com bubble. Today, the idea that if we had a different president the budget would be balanced, the economy would be humming, and jobs would be plentiful is delusional. We had a financial crisis, folks. They hurt.
That said, I think former Obama advisor Larry Summers nailed it when he pointed out that it's a false economy to be delaying infrastructure repairs when we can borrow money at record lows and construction unemployment is near 20%. These repairs absolutely have to get done some day, and the longer they're delayed the more costly they become. It's an incidence where spending money today can reduce unemployment and lower future deficits.
Finally, I'd like to see a jobs approach that acknowledges where the great majority of new jobs come from: New businesses, not small businesses, as is oft-repeated. Two things here are important. One, the U.S. Patent Office is in shambles, by its own estimates holding back "millions" of jobs due to delayed patent approvals. Second, I'd like someone to stand up and say that tomorrow's jobs aren't going to come from an elderly billionaire; they'll come from the 20-year-old Stanford kid tinkering with gadgets in his parents' basement. Any plan that doesn't emphasize education is inexcusable, in my opinion.
Alex Dumortier, Fool contributor
What Mr. Obama should do is propose -- indeed, champion -- a second fiscal stimulus program to fund infrastructure projects, while simultaneously ramping up efforts to address the government's medium/long-term fiscal position. The two aren't inconsistent, they're complementary. The government can earn a positive return on well-chosen infrastructure projects -- particularly when they are funded by borrowings that cost less than 2% annually over ten years. However, austerity is the dominant fashion, and Mr. Obama appears to have lost his taste for bold plans and the political battles they require.
Another possible initiative addresses the issue of household debt. Expanding and accelerating programs to reduce the principal on some of the mortgages that are underwater -- where the borrowers have a realistic hope of making the lower payments -- would be useful. Large lenders, particularly those that lent aggressively, would be forced to take writedowns on these loans. That's not something Bank of America (NYS: BAC) needs right now, but it looks like an acceptable trade-off.
Mr. Bernanke's message at Jackson Hole was unambiguous: The government must step up and respond to the crisis with vigor -- there is only so much the Fed can do. Call me a cynic, but I'm expecting to be underwhelmed by the President's address. With politicians, I've learned to keep my expectations exceedingly low; that way, I'm not disappointed every time.
Matt Koppenheffer, Fool contributor
Imagine for a moment the scene in a hospital ER as doctors rush to treat the loser of a samurai duel. Are the doctors treating the sliced and diced warrior by just coating the gaping wounds with gobs of topical ointment and covering them over with gauze? Or are they going to do that along with stitching up the wounds and hooking the patient up to IV antibiotics?
Obviously, they're going to do the latter. Going the ointment-and-gauze route might be quick and make it seem like they're addressing the problem, but it's a short-term fix that won't help the patient heal properly.
The need to create jobs is an unfortunate reality right now because the economy is in such a sluggish state. But President Obama's response needs to be much bigger than that. It needs to address the fact that a big part of the problem is that we have a chunk of the workforce that's not changing with the economy. Three of the country's five most valuable companies are Apple (NAS: AAPL) , Microsoft (NAS: MSFT) , and IBM (NYS: IBM) , underscoring the fact that we have a much more information- and knowledge-based economy as opposed to a factory- and manufacturing-based economy.
Forcing job creation is only a very-short-term fix. For a truly healthy country, we need to make sure workers have the skills needed to succeed in today's economy.
Ilan Moscovitz, Fool editor
There's no mystery why unemployment is so high right now: consumers aren't spending because they're reeling from the housing bubble collapse, feeling anxious about their job security, or have already been laid off. Businesses aren't hiring because consumers aren't spending. With that self-perpetuating dynamic, it's easy to see why the economy continues to malinger.
The most direct way to clear up this economic traffic jam is to hire all those unemployed construction workers to rebuild our crumbling roads, rail, water lines, sewers, dams, and levees. We have to complete these projects within the next few years anyway, and doing them now would immediately employ construction workers, and, by putting money in their pockets, improve business sales and begin to break the current self-destructive unemployment dynamic. Not to mention the fact that the Treasury's cost of borrowing is at a 60-year low. Adjusted for inflation, Treasury interest rates are actually negative. The market is practically begging us to borrow money for these projects now. Given the need to create jobs and repair and upgrade our infrastructure, it'd be crazy not to take Treasury investors up on the offer.
State and local governments, on the other hand, are in a much worse position to boost employment because they have balanced-budget amendments. This has resulted in counterproductive measures during a jobs crisis, such as firing teachers, policemen, and firefighters. Since the start of the recovery, they've laid off 600,000 people. Considering how important education is for our increasingly knowledge-based economy, it's especially important that we shore up funding for schools and colleges and find ways to make college affordable for deserving students.
One final way to speed up the recovery would be to reduce the debt burden hanging over consumers by refinancing or reducing principal on mortgages. We do corporate debt restructurings all the time, and something similar for homeowners would be obviously helpful -- and not just for them, but for businesses with weak sales. In cases where such modifications wouldn't work, people could rent their houses. The banks that greatly contributed to the financial crises before being bailed out won't like this, of course, but judging from their capital levels, profits, and bonuses, JPMorgan (NYS: JPM) and Wells Fargo (NYS: WFC) can afford it. Plus, they owe us one.
What jobs proposal do you think President Obama should make? Let us know in the comments section below.
At the time this article was published Ilan Moscovitzdoesn't own shares of any company mentioned.You can follow him on Twitter@TMFDada. The Motley Fool owns shares of Bank of America, JPMorgan Chase, IBM, Apple, and Microsoft. The Fool owns shares of and has created a ratio put spread position on Wells Fargo.Motley Fool newsletter serviceshave recommended buying shares of Microsoft and Apple, as well as creating a bull call spread position in Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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