File photo of Austan Goolsbee, President Obama's new chairman of the White House Council of Economic Advisers. (Photo Credit: CC BY/Samantha Appleton/Wikipedia)

President Obama has taken a political beating from all sides over how he has dealt with the economy. In the recent jobs speech he delivered in Cleveland, he appeared to be somewhat disconnected when it comes to understanding “the plight of the middle class,” as Arianna Huffington puts it. Obama said “Not everything we’ve done over the last two years has worked as quickly as we had hoped, and I am keenly aware that not all our policies have been popular.” In large part, this appears to be what prompted the president to nominate longtime adviser Austan Goolsbee to the position of chair of the White House Council of Economic Advisers, reports the Wall Street Journal. Goolsbee’s nomination has already cleared the Senate.

Austan Goolsbee: University economist and advisory board member

Austan Goolsbee is currently an economist at the University of Chicago business school, as well as the executive director of Obama’s Economic Recovery Advisory Board. The WSJ says popular speculation is the president elevated Goolsbee to the White House Council of Economic Advisers chairmanship due to their personal friendship and association within the administration’s inner circle. Goolsbee will replace former Economic Advisers chairwoman Christina Romer.

The WSJ reports that Goolsbee assisted in drafting policies during Obama’s first year, including expanded health care access, higher education aid and an energy push to generate jobs. These areas have been part of the president’s “New Foundation” for middle-class economic security – at least in theory, says the Huffington Post.

Austan Goolsbee may not be the change for which critics are calling

Unemployment continues to plague America, and economic recovery during the current recession has been sluggish at best. Outrage has been palpable, even in Democratic circles, where the potential firings of Treasure Secretary Tim Geithner and National Economic Council Director Larry Summers have been discussed openly by lawmakers. But placing Austan Goolsbee in charge of the White House Council of Economic Advisers isn’t a sign of new policies to come, writes the WSJ.

Sources:

Chicago Sun-Times

Huffington Post

Wall Street Journal

Austan Goolsbee on CNN’s “Late Edition,” Sept. 21, 2008

(Photo courtesy of wikimedia.org)

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.

Economic assumptions

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.

Mathematical flaws

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.