Is Obama's Job Creation Strategy Any Good?

The president's speech today to the Brookings Institution today isn't exclusively a job creation speech. It's more like a summary of the Obama administration's domestic policy pegged to job creation plans. But still, all the new stuff is in the job creation plans, so let's get to it. How do these ideas stack up?

First Obama begins with small business assistance, since small businesses have "created roughly 65 percent of all new jobs in America" over the past 15 years, according to one oft-recited statistic. He proposes increasing small biz loans, eliminating capital gains taxes on small biz investments and extending write-offs to encourage them to pocket more money and hire more employees. Furthermore, he suggests that he is willing to support a tax incentive for companies who hire -- an idea that has received a lot of attention recently. These are fine ideas that will receive bipartisan support -- Republicans love their tax incentives and their small businesses -- and that is something they don't share with the next proposals.

The second big idea is to spend more money on infrastrucutre projects. Obama explains that the Recovery Act passed this year was always designed to spend more aggressively on infrastructure over the next six months than in the last six months. There's a decent economic reason for this. Unemployment usually lags a recession, so you want public spending to last longer than the actual downturn in production to stem rising joblessness. But I'm torn on Obama's trumpeting this point. One the one hand, it's good for employment, and Obama, that we have a lot of infrastructure stimulus left over from the first round. On the other hand, it's bad for employment, and Obama, that we didn't haven't used enough infrastructure stimulus already, especially considering that the CBO and Obama's economists consider itone of the most efficient methods of priming production.

(Extra note: Bloomberg is reporting that the Obama administration sees a role for public works projects. I don't see anything like a WPA program in this speech, or the White House press release, which says the admin is going to ramp up its support for more private sector infrastructure projects. That's not the same as the government taking over the projects themselves and paying unemployed workers directly.)

Third, Obama turns to clean energy. He wants to incent homeowners to retrofit their homes to become more energy efficient. David Leonhardt did a great job explaining why this plan is smart -- if used properly, homeowners save energy costs and help the planet to boot -- but also why choosing how to retrofit your home is a really, really complicated process that even befuddled him. It's unclear how homeowners will take advantage of this credit. The president will also expand tax credits for companies to make energy-efficient updates.

Finally, in a small graph, Obama promises expanding relief to states in the form of benefits for seniors and insurance (Medicaid payments ate up a huge part of the Recovery Act) and "relief to states and localities to prevent layoffs." I certainly hope so. The states are running historic deficit that threaten jobs in education. If you want bang for your buck in terms of job "creation or saving," I'd say one very good way would be to pay states to keep their education budgets together. The first round of stimulus has already saved an estimated 200,000 teachers, and the evisceration of public education would be a blight on our long-term growth.

Overall, the Obama plan aims long. As Christina Romer's WSJ op-ed suggested, they don't want to set up public works projects that they'll later have to spin-off when the economy picks up. They don't want to cut payroll taxes or institute job sharing programs that will establish a new baseline going forward for payroll tax levels or the role of government in employment. They want to use the job creation bill to build programs that last, houses that last, jobs that last, and infrastructure that lasts.

The problem with this approach is that it pushes some good short-term job stimulus ideas like direct public works projects off the table. The good news is that Obama's plan is multi-faceted and, with a price tag of up to $200 billion, a bold shot to the heart of unemployment.