Mark Zandi: Obama jobs plan would add 1.9 million jobs

I hope Congress will pass the job creation proposal — the American Jobs Act — that President Obama delivered last night.

There are obviously many opinions on the package — what it does, what it doesn’t do — but, as I keep saying over and over, we’re on the knife-edge of another recession and we need to be taking bold steps. Here are the basic pros and cons as seen by Mark Zandi of Moody’s Analytics, as quoted in the Washington Post:

“The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

To be sure, Zandi is not totally smitten with the plan, arguing that it doesn’t adequately deal with the “ongoing foreclosure crisis and housing slump”—two things, he writes, that are “major impediments to the recovery.” On the bright side, it “would go along way toward stabilizing confidence, forestalling another recession, and jump-starting a self-sustaining economic expansion.”

The details of the plan are here. The approximately $450 billion proposal would include $250 billion in payroll tax cuts that would benefit both employers and employees. There’s a tax credit for businesses that hire unemployed veterans. There’s money for schools to avoid layoffs and money to help the unemployed.

The NYT has a skeptical piece about the plan’s impact: Employers Say Jobs Plan Won’t Lead to Spur in Hiring:

“You still need to have the business need to hire,” said Jeffery Braverman, owner of Nutsonline, an e-commerce company in Cranford, N.J., that sells nuts and dried fruit. While a $4,000 credit could offset the cost of the company’s lowest-cost health insurance plan, he said, it would not spur him to hire someone. “Business demand is what drives hiring,” he said.

Indeed, the industries that are hiring workers now — like technology and energy — are those where business is strong, in contrast to the overall economy. Administration officials and some economists, of course, say they believe the president’s plan, if adopted, could help increase demand more broadly. The proposed payroll tax cuts for individuals should spur consumer spending and in turn, prompt companies to hire more people.

And that’s pretty much the whole argument — and it echoes one I’ve been making over and over. Our main problem right now is lack of demand. Businesses aren’t going to hire until business demand necessitates it, no matter how deep the tax cuts.

But the president’s plan will mean more money in the pockets of employees and more profits for employers. That amounts to a huge injection of cash into the economy. Many of us will spend all or part of that one-year raise. All of the extra spending will certainly boost demand, which will lead to more jobs.

What happens in a year when the tax cuts and other stimulative efforts unwind? Hopefully, the economy will be on firm enough footing to continue to grow.

What will this do to deficits and debt? It will hurt them, unless Obama in fact comes up with a clear plan for offsetting spending in a package apparently to be announced next week.

But a little more damage to the deficit should not be our big fear right now. U-6 unemployment is 16.2%; in other words, one in six Americans willing and able to work is unemployed, is working part-time for economic reasons, or has given up looking for work. That’s unacceptable, especially when straightforward policies like this can help improve the situation.

The American Jobs Act is not a magic bullet. There is no magic bullet. The economy is still going to be tough a year from now, and probably a year after that. And probably a year after that.

But we’ll be better off with passing this package than not.