A few not-so-glamorous things Obama can do for the economy
The president should stop making fluffy speeches and start doing the dirty work of banking regulation
With the U.S. economy spinning its wheels, demands are growing for President Obama to “do something.” But considering the nature of the slump and the political dynamics in Washington, there may be very little he can do to get the economy out of the ditch.Skip to next paragraph
Howard Gleckman is a resident fellow at The Urban-Brookings Tax Policy Center, the author of Caring for Our Parents, and former senior correspondent in the Washington bureau of Business Week. (http://taxvox.taxpolicycenter.org)
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Obama doesn’t make his life any easier when he makes speeches that include no important initiatives, as he did on Aug. 8. Note to president: If you are going to go on TV, you better have something to say.
Instead, Obama announced one new program—a tax credit for businesses that hire unemployed veterans. My Tax Policy Center colleague Bob Williams figures the plan would subsidize the hiring of 12,000 to 50,000 vets. Companies would happily take the credit for hiring somebody they would have hired anyway, or for hiring a vet instead of a non-vet. But, either way, the number of new jobs created by this initiative would be tiny.
What could a more aggressive Obama do? Voices on the left, such as Paul Krugman, argue that the president should push for a major new stimulus package, including more public works spending. The right wants more tax cuts. Leaving aside the question of whether either could pass Congress (they couldn’t), is either the right cure for what ails the economy?
Growth in the U.S. has stalled for several reasons. Banks still are not lending to domestic borrowers. In part this is because they are stuck with billions of dollars in non-performing or troubled real estate loans and are terrified of taking on more bad credits. Big public companies are swimming in cash, but won’t invest in either new equipment or new workers until they see new customers. And construction remains dead in the water, with more than 4 million existing homes still on the market and millions more close to foreclosure.
These factors have been with us for a couple of years. What is new is a toxic wave of uncertainty driven partially by the U.S. fiscal mess and more so by deep troubles in the Eurozone.
What’s the cure? It is hard to see how more tax cuts would do the trick. Small businesses need orders and access to credit, not tax breaks. And there is no reason to believe that having even more cash sitting around will encourage big businesses to invest.