Friday morning’s miserable jobs report delivered a blunt-force blow to Obama’s overall economic approach and posed a serious threat to the country’s recovery. More immediately, it complicates the President’s already difficult debt ceiling negotiations with Speaker John Boehner by adding an urgent priority: getting another stealth stimulus past a spending-resistant Congress as part of the deal.
Last December, as the economic recovery sputtered and Congressional opposition to counter-cyclical spending grew, Obama managed to get a hidden Keynsian economic boost moved through both chambers just before the Christmas recess. The massive tax cut bill extended Bush era rates for all Americans for two years, something the GOP had insisted on, but also delivered a Democrat-pleasing extension of unemployment benefits for 13 months and a one-year payroll tax holiday. The budget effect was negative, weighing in at $858 billion in lost revenue, but it delivered as much fuel to the stalling recovery as Obama’s original, now-unpopular stimulus spending bill, passed in early 2009.
It is unlikely Obama will be able to pass that kind of big, short-term boost as part of the debt limit talks. But the President and his advisers are trying to come up with things they can shoehorn into the deal. An hour before Obama made a statement on the economy at the White House on Friday morning, the chairman of the Council of Economic Advisors, Austan Goolsbee, went over Obama’s five-point prescription for getting the recovery going again: extending the payroll tax cuts beyond their deadline, passing several free trade agreements that are pending in Congress, creating an infrastructure bank, passing a new patent reform bill, and passing a deficit reduction bill that includes some revenue increases.
Patent reform is largely irrelevant to the immediate economic crisis, and the trade bills will have little or no immediate effect either. That leaves getting the payroll tax cut and the infrastructure spending moved as part of the deficit reduction bill that forms the heart of the debt ceiling negotiations.
Of those two measures, the tax cut is more gettable. It affects workers, so the left likes it, and it’s a tax cut, so the right likes it. Two hours after the jobs report came out, New York Senator Chuck Shumer signaled Democratic support for expanding the tax break as part of the deal: “Job growth has hit a stubborn lag that should make us worry for the sustainability of the economic recovery,” Schumer said. “The economy needs an immediate jolt, and the most achievable step that can be taken by Congress is to extend and also expand the current payroll tax break. We should enact this as quickly as possible by including it in the final debt limit agreement.”
Creating an infrastructure bank will be harder. The idea is for the government to make an initial $10 billion deposit into a fund that would provide loans and loan guarantees for national projects buildings things like roads, water supplies and power delivery systems. Some reporting indicates neither the GOP-led House Transportation committee nor the Senate intends to fund the bank in the six-year highway funding bills now moving through Congress. The two versions would spend $210 billion or $339 billion over six years, respectively; the House bill would spend $35 billion in its first year.
Obama didn’t mention the infrastructure bank in his comments Friday morning, calling only for general investments in highways and construction. “There are over a million construction workers out of work after the housing boom went bust, just as a lot of America needs rebuilding,” Obama said. “We connect the two by investing in rebuilding our roads and our bridges and our railways and our infrastructure, and we could put back to work, right now, some of those construction workers that lost their jobs when the housing market went bust.” That may mean Obama wants to accelerate the highway bills through Congress or front-load some of their spending, rather than focusing on the infrastructure bank itself. Republicans on the Hill have been receptive to such suggestions as part of the debt talks.
But just as the jobs report may push Obama to seek a new stealth stimulus, it also makes it harder for Obama and Boehner to push the overall debt limit deal in which an economic boost would be hidden. The jobs numbers make it harder to get GOP votes for letting the Bush tax cuts for the wealthy expire, which is the main demand from the President; likewise, the poor jobs numbers make inflation-accounting changes that result in cuts to Social Security and Medicare payments harder to get past angry Democrats.
The June jobs report not only hits Obama hard in the medium term, but it’s an immediate blow to efforts to avoid defaulting on the debt.