Reaction Roundup: Heritage Responds to Obama’s Jobs Speech

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Heritage’s experts watched President Barack Obama’s jobs speech delivered to a joint session of Congress. Here are some of their immediate reactions:

Jobs for Teachers?

In his remarks tonight, President Obama argued that his jobs proposal would create more jobs for teachers. He went as far as to say laying off teachers…”has to stop”.

But since 1970, student enrollment in public elementary and secondary schools has increased just 7 percent, while public elementary and secondary staff hires have increased 83 percent. Moreover, in the 1950’s, there were approximately 2.36 teachers for every non-teacher in a school district. Today, in our nation’s school systems, that ratio is closer to 1 to 1. So every teacher in the classroom has an administrative counterpart in your local public school district. That is a tremendous strain on state budgets. But it is also a huge boon the education unions.

President Obama’s call to spend more precious taxpayer dollars to “prevent teacher layoffs” may do more to inflate schools’ non-teaching rosters than to retain teachers.

On a per-pupil basis, federal spending on education has nearly tripled since the 1970’s. And those who have benefited the most from this profligacy aren’t the children sitting in the nation’s classrooms. No, the increase in federal education spending (and commensurate increase in Washington’s involvement in local schools) hasn’t led to improvements in academic achievement, to increased graduation rates, or even to a narrowing of the achievement gap. It hasn’t served to improve outcomes for children, but it has propped-up the public education jobs program that too often aims to meet the needs of the adults in the system, not the children it was designed to educate.

– Lindsey Burke

A Puzzling Plan to Allow Refinancing of Mortgages

One of the more puzzling parts of the President’s plan promises to allow more Americans to refinance their mortgages, but provides no details about how.  The President promises that with refinancing, families could save about $2,000 a year, but like similar past promises few homeowners are likely to see those savings.

Briefing papers released by the White House say that the economic team will “work with” Fannie Mae, Freddie Mac, the regulator that runs them since both effectively failed three years ago, and “industry leaders” to make the 2009 Housing Affordable Refinance Program (HARP) more effective.

This means that the White House still has no idea how to do this. HARP, which was supposed to help between 4 and 5 million homeowners who owe more than their property is worth, and several other attempts to help under water homeowners have all been resounding failures.

In theory, refinancing at today’s record low mortgage rates is a good idea that would reduce monthly mortgage payments for those whose mortgages are refinanced. This would especially benefit homeowners who have paid their mortgage on time, but still owe more than the house is worth. These homeowners would be more likely to stay in the house.

However, even a well planned refinancing program would still be slow and complex. And sadly, there is no sign that the Administration has figured out how to successfully structure such a program.

Mortgages are both made and refinanced one at a time. The several past efforts to do mass refinancings have foundered in a mass of overwhelmed phone lines, complex paperwork requirements, and confusion. Some housing advocates talk about redoing hundreds of mortgages at a time, but have no idea how to legally implement such a goal.

Another question that must be answered if the mortgage refinancing proposal would cost money. Briefing papers are silent on this, but a refinanced mortgage will produce lower earnings for the lender. If the mortgage value is written down to the actual value of the house (which is unknown at the moment), there would be additional costs. And most importantly, how would this proposal create jobs?

Until there are details, the President’s proposed mortgage refinancing program, like its predecessors will be little more than another unkept promise.

– David John

Obama’s False Choice – and Missed Opportunity – on Regulations

The President tonight missed an opportunity to constructively address one of the major problems facing the economy: regulation.

After acknowledging that “there are some rules and regulations that put an unnecessary burden on businesses, and claiming credit for the small steps taken so far toward reform, he then slipped into a rhetorical — and rather cartoonish — description of the issue.

“What we can’t do,” he said, “is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades.  I reject the idea that we need to ask people to choose between their jobs and their safety.”

But no one is suggesting that any basic protections be erased — instead the pressing need now is to stop the tidal wave of regulation — costing almost $40 billion dollars — that has swamped Americans and the economy since the president was elected.

From lightbulbs to the Internet, from guitars to health care, Washington has imposed new rules. It is time to stem this flow. This need not be a partisan issue — both sides agree the current rulebooks are too fat. But demagoguery and rhetoric will get us no closer to a solution.

– James Gattuso

The Futility of Infrastructure Banks

Building and repairing roads and bridges neither creates net job growth nor boosts the economy in the near term.

First, increasing government spending on these projects simply moves resources from one place to another — it may employ construction workers, but only by reducing jobs in other sectors. Further, the money never gets out the door soon enough to promote near-term job growth: “shovel-ready” projects are not nearly so shovel ready as they may seem, as the President himself recently acknowledged.

Further, the infrastructure bank the President proposes would require a whole new bureaucracy that would only increase the central government control over transportation — which would be consistent with the President’s government takeover of health care, student loans, financial markets, and other sectors.?

– Patrick Knudsen

The Absurdity of Obama’s Spending Offsets

It is absurd that this President — who ignored the recommendations of his own fiscal commission, and then sought to raise the debt ceiling without a nickel of spending reductions — now demands the super-committee created in the debt-ceiling negotiations to come up with additional savings to pay for his jobs proposal.?? ?

– Patrick Knudsen

And When, the Rest of the Story, Mr. President?

In giving his big jobs speech this evening before a rare Joint Session of Congress, also gave us a classic “Paul Harvey” moment.

Paul Harvey was a famous radio commentator and personality with one of the longest running national radio programs in history.  His trademark was to tell the audience the big lead into a big story and then break for a commercial.  When he came back he would then announce, “And now, (pause) the rest of the story”.  We’re still waiting for Barack Obama to give us the rest of the story.

In his jobs speech, the President laid out a bunch of retread policy ideas that two years after they were first tried managed to create an arithmetic novelty – exactly zero job growth in August.  In total, the President is calling for more new spending on proven policies that are proven failures, and he says these will all be paid for with budget reductions elsewhere.

But he refused to give his proposals for offsetting the cost of his proposals.  Desserts only, no spinach?.  We’re still waiting for “the rest of the story”.  Was he unable to decide in time on what to propose?   Did he think perhaps no one would notice?  Why put out what is literally a half-baked plan?

– J.D. Foster

President Calls for Ill-advised Federal School Construction

As expected, tonight President Obama called on taxpayers to send their hard-earned money to the federal government so that Washington can pour that money into public school construction. In an attempt to boost job growth, the president suggested spending billions on school infrastructure projects to “modernize 35,000 public schools.”

Since President Obama came into office, spending on public education has skyrocketed:

And state and local school construction spending has also seen significant increases.

By some estimates, inflation-adjusted school construction spending has increased 150 percent in the last two decades. And unfortunately, profligacy and waste are the norm. Remember the $500 million RFK high school in Los Angeles, built last year after a California bond referendum was enacted? There are certainly schools in ill-repair, but this maintenance should be a local concern. Washington should not be in the business of school window repair, updating facilities, or repainting buildings. Schools don’t need increased federal funding for school repairs; they need more flexibility with funding to be able to use dollars for needs they consider pressing.

The president’s proposal to funnel more taxpayer dollars into school construction has both constitutional and pragmatic problems. School construction has historically been – and should remain – the job of states and localities. Federal forays into school construction have been rare and indirect. Federally-funded school construction is also a terribly expensive way to build schools: Washington-funded jobs must pay prevailing wages, increasing costs on average by 22 percent.

In calling for federally-funded school construction, President Obama is once again supporting Washington overreach in education. But he’s also behind the game in terms of the direction school policy is trending. As states and localities begin embracing online learning  – and as education shifts to a world outside of the walls of physical school buildings – President Obama is pushing to subsidize the old model. The administration might think “school construction” polls better than other government “jobs” projects, but it’s just as destined to be a waste of taxpayer money, and a public policy failure.

– Lindsey Burke

Not A ‘Jobs Plan’ — Just Stimulus Redux

What President Obama calls a “jobs” plan is really just stimulus redux: a typical Keynesian-style set of infrastructure, school construction, teacher pay, unemployment benefits, and temporary tax breaks that have demonstrably failed in the two-and-a-half years since the $825-billion Recovery Act.

Obamanomics has left the economy with a growth rate just a fraction above 1 percent, nearly 2 million fewer Americans working, and an unemployment rate higher now than when he took office. Government cannot “grow the economy” (as if it were a field of strawberries), and it cannot create private sector jobs. It can only maintain conditions conducive to growth — limiting government spending and regulation, keeping tax rates low, and removing the uncertainties caused by feckless public policies.

– Patrick Knudsen

Obama Calls for Tax Hikes on Job Creators – In Jobs Speech

It was expected that President Obama would rehash and recycle a litany of policies that have no hope of stimulating job creation in his big speech tonight. What comes as a surprise is that he called for offsetting the costs of his sure-to-be-ineffective policies with tax hikes. On job creators.

The President has said himself that tax hikes slow economic growth and deter job creation. That was the justification he gave in December for extending the Bush tax cuts through 2012. It seems he has forgotten what he himself said less than a year ago.

The President called for raising taxes on investors, businesses, and entrepreneurs in his speech. These are the job creators he so desperately needs to help revive the economy. Raising their taxes will reduce the already limited incentives they have to invest and add new workers right now.

This is akin to bailing water into an already-sinking ship.

If Congress foolishly passed the President’s ill-advised plan the tax hikes would be permanent and the jobs policies permanent. The American people would get a permanently enlarged federal government for temporary jobs policies that won’t create any jobs.

Uncertainty is the major factor causing businesses to hold back on new investment and refrain from adding workers. One of the biggest sources of that uncertainty is the President’s never-ending crusade to raise taxes. As long as their taxes might go up, job creators will be hesitant to add new workers.

If the President stopped incessantly demanding higher levies it would relieve some of the uncertainty. That alone won’t cure all that ails the economy, but it would be a big help.

C’mon Mr. President, surprise us in your next major speech by not calling for tax hikes.

– Curtis Dubay

Unsurprisingly, Obama Ignores Energy Exploration as a Solution

Increasing energy supply should have been a no-brainer for President Obama.  It’s a policy that can lower energy prices, create jobs and generate hundreds of billions in revenue from more royalties, leases, and rent.   And it’s a massive revenue raiser that occurs without raising taxes. Instead, the president used the opportunity to take a jab at oil companies and the “tax loopholes” they receive.

To be clear, what the President and anti-oil crusaders label a tax loophole is not tax treatment specific to the oil and gas industry. These are broad tax policies that apply to many industries.

The reality is the economy is weak and steep energy prices will hurt the economic recovery.  Despite the fact that oil settled at $89 per barrel, gas prices remain high and the economic pain as a result of higher gas prices spreads far beyond the pump. Higher energy prices also drive up production costs, which must be reflected in product prices, especially for goods reliant on transportation. Since higher prices reduce quantities sold, producers produce less. In turn, this drives wages down and incomes decline.

At least the people of Louisiana have the Saints to watch, because they don’t have jobs. Despite the fact that the administration lifted the official moratorium on deepwater drilling, the molasses-like permitting process is impeding the Gulf’s economic recovery; 20 rigs are in jeopardy of leaving the Gulf.

But it’s not just the Gulf that would benefit from allowing access for energy exploration and creating an efficient regulatory process that allows energy projects to move forward in a timely manner.  Colorado, Montana, New Mexico, North Dakota, Utah, and Wyoming have all suffered from a slower permitting process would see tremendous economic benefits if companies could explore and drill in a more timely manner.  Alaska has 19 billion barrels of oil of its coasts and another 10.4 billion in the Arctic National Wildlife Refuge (ANWR).  Increased proven natural gas reserves increased states like Pennsylvania, New York, Texas, Oklahoma, Arkansas and Louisiana has increased regional interest.

Increasing access to oil and natural gas reserves in the United States both onshore and offshore, would help offset rising demand, increase jobs and revenue, and provide the real economic boost our country needs rather than more the same tried-and-failed government spending programs.

– Nicolas Loris

Obama Calls for Reviving Failed Hiring Tax Credit

What to make of President Obama’s plan in his speech tonight to revive a tax credit for businesses hiring new workers? In March 2010, the President signed into law an almost identical credit.

It was a credit he pushed for Congress to pass. The credit lasted from March through the end of December. It had no beneficial impact on job creation and added billions to the national debt. There is absolutely no good reason for trying it again.

As we argued before the first hiring credit became law, such a policy won’t spur permanent hiring because it only temporarily reduces the costs of employing new workers. Businesses only hire new workers when they anticipate those new workers will increase their profitability over the long haul.

A credit of a few thousand dollars, a mere fraction of the cost of hiring a worker, does nothing to change that calculation. The only positive effect on hiring the credit could have would be on temporary positions if it makes adding a few new temps profitable in the short term. But once the credit expires businesses will let those workers go.

To get the true picture of the credit’s effectiveness, however, you can’t just look at the few temporary jobs it might create. You also need to subtract the jobs foregone because the government took the money for the credit out of the hands of the private sector by taxing or borrowing to give it to the businesses that qualify. In the end it is more likely the hiring credit will actually destroy jobs on net.

– Curtis Dubay

Extending Unemployment Benefits

Today, Senate Minority Leader Mitch McConnell (R-KY) quoted Albert Einstein who he said once defined insanity as doing the same thing over and over again and expecting different results. By that measure President Obama’s plan to boost the economy by spending more on unemployment benefits is insane. Unfortunately, the President isn’t joking.

Congress has expanded unemployment insurance (UI) dramatically since the recession began. Laid off workers can now collect up to 99 weeks of benefits in some states. It isn’t hard to see why Congress did so. Normally workers can collect benefits for to up to six months. But the average unemployed worker has now been out of a job for nine months.

For welfare reasons Congress wants to help workers who cannot find jobs. This is understandable. That doesn’t mean it will help the economy, no matter how much the President wants it to.

The stimulus bill extended UI benefits. Congress has kept them in place several times since then. All told the government has spent over $300 billion on unemployment benefits since Obama took office. All that spending has done nothing to boost the economy. Unemployment is higher than the Administration projected if Congress did nothing. This failure was predictable.

The studies that show that UI spending stimulates the economy are based on macroeconomic models programmed to show large “multiplier effects” from government spending. These models assume that each dollar of government spending creates more than a dollar of economic growth. They essentially assume their conclusion. Actual empirical research shows that UI payments do not boost GDP. This is exactly what economic theory predicts.

One of the most thoroughly established findings of labor economics is the fact that extended unemployment benefits cause workers to remain unemployed longer. Even Alan Krueger, President Obama’s nominee to chair the Council of Economic Advisors, agrees. Studies show that raising benefits to 99 weeks during the recession has increased the unemployment rate by 0.5 to 1.5 percentage points. Extended benefits come at an economic cost.

There are understandable reasons for wanting to extend UI benefits despite this cost. But as much as it would be wonderful if doing so also boosted the economy, it does not. It would be similarly wonderful if an all you can eat bacon and ice-cream diet helped shed pounds. Wishing does not make it so.

If Congress thinks that keeping extended benefits is good policy then Congress should pay for it by reducing spending on less important programs. But spending tens of billions more on unemployment insurance will not stimulate the economy any more than the last extensions did.

– James Sherk

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