The stimulus plan and debt
Analysts and political pundits are watching closely to see how the economic stimulus package affects consumer debt relief and the unemployment rate. The $767 billion stimulus plan Obama unveiled promised to do a lot of good for the struggling economy.
One of the main pledges was the creation of 3.5 million new jobs by the end of next year. The focus on job creation, Obama maintained, would help consumers find debt relief and in the recession, this would be the best way to invigorate the market.
What the critics say
Many critics say that Obama’s stimulus plan and promise to create jobs are unrealistic. Newt Gingrich calls Obama’s constant reference to creating jobs “meaningless metric.” Tony Fratto, former spokesman for former president George W. Bush, said Obama’s intent is nothing more than a political trick.
At the heart of Obama’s job creation formula are the following two economic assumptions:
Assumption No. 1: Every dollar spent by the government trickles down through the economy, creating a greater effective value. For example, if the government funds the building of a highway, it channels money to contractors. The contractors pay workers, who then pay rent or mortgages and buy food and other goods and services. Landlords, banks, grocers, and movie theaters, in turn, enjoy increased revenues. The government estimates that every $1 it injects into the economy will have a $1.50 effect, overall.
Asumption No. 2: For every 1% increase in the economy, approximately 1 million jobs are created. Reinvigorating the economy by about 3.5%, which will achieve the goal of 3.5 million additional jobs.
The job creation plan assumes that savoir-faire politicians can literally estimate the creation of 3.5 billion jobs, and then extrapolate further to make debt relief approximations.
Critics believe that Obama’s math is flawed because his assumptions are wrong. In reality, they say, cutting $250 billion in taxes might create more jobs, while spending $500 billion might create fewer jobs. One critic stated, “Think of Obama’s formula as reliable as a weather forecast. Obama is using it like a thermometer.”
Christina Romer, chairwoman of the Council of Economic Advisers, who also helped to create the formula, stated that it was always intended as a prediction. To get a real number, specific numbers have to be entered such as unemployment figures, manufacturing rates, building and construction data, and county-specific job reporting. She added, “Once we’ve spent the money, we can’t just assume the model was right. The proof is going to be whether or not the overall economy recovers.”
Time will tell
The question remains whether or not Obama’s job creation promise — and concomitant consumer debt relief — is valid. With the unemployment rate expected to continue increasing in the near future, it’s difficult to say whether or not the promise of new jobs will be fulfilled. Experts agree, however, that the Obama administration’s superficial usage of the formula is not what its creators intended. Only time will tell if the stimulus plan will bring the much-needed job reinvigoration the American public is hoping for.