With five Republicans voting for cloture in the Senate– Olympia Snowe, Susan Collins, Kit Bond, George Voinovich, and (surprise!) Scott Brown — we should expect the Congress to pass its new “jobs bill” this week (in reality, this is like a 100-calorie pack version of the stimulus).
It’s not surprising that some Republicans are feeling the pressure to get behind this legislation. The perennial temptation in times of economic crisis is to get behind anything that seems like it could make a difference. This is not that piece of legislation.
Let’s start with the basics: At $15 billion, this package could be financed with what’s between the cushions of the sofas in the Oval Office. But that’s still $15 billion in new debt that can’t be justified without a commensurate kick to the economy. This package can’t deliver that kick.
The big hooks for Republicans are going to be the exemption from payroll taxes for new employees through the rest of the year and the $1,000 tax credit for new employees who are retained for a year. These provisions will have positive economic effects, but they will be very subtle. Because this bill only aims to jumpstart the employment side of the market without addressing broader economic conditions, it will make it slightly cheaper to hire new employees, but won’t create enough economic activity to justify employers adding many new hires to their payrolls. As with the similar plan that was tried during the Carter years, this most likely means that the majority of the benefits will go to hires that would have been made with or without the package. Given the limited time horizon of the bill, we should also expect its net effects to be similar to “Cash for Clunkers” — that is, just moving up hiring decisions instead of changing the fundamentals behind them.
The other provisions are no more impressive. This package will subsidize further borrowing by local and state governments, which only continues the sugar-high spending that simply can’t be sustained even in the best of economic times. And while infrastructure spending is certainly a legitimate function of government, it’s hard to sell as a strategy for increasing employment. After all, the mark of good infrastructure development — quick, efficient construction — is fundamentally at odds with the idea of creating jobs that are meant to endure for the long-term.
This certainly isn’t the worst piece of legislation to come out of the Age of Obama, but it also isn’t much more than a placebo. Until Washington begins to focus on shrinking the size of government, however, we shouldn’t expect the prescription to change much.