Stephen Foley: President shifts tactics to get America working


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The Independent Online

US Outlook: Politics is the art of the possible, they say, but here in the US there is absolutely no art to it, and precious little possible.

None the less, you have got to be optimistic if even the Princeton economist Paul Krugman declares himself positively surprised by Barack Obama's new stimulus plan.

Ahem, sorry, I meant "jobs plan". We have had to do a little rebranding, after the percentage of Americans who supported the first $787bn stimulus in 2009 fell into the single figures.

The new $447bn package the President is proposing is certainly surprising in its scale, representing almost 3 per cent of GDP and likely to have a meaningful impact on growth next year – adding between 1 per cent and 2 per cent to GDP next year. Unfortunately, the measures most likely to create jobs – transfer payments to state and local government and public works programmes designed to rebuild the country's schools and infrastructure – are the measures most likely to be thrown away in the attempt to get a winnowed-down middle-ground bill through the Republican-dominated Congress. The bulk of the money is going to a payroll tax cut that will boost take-home pay for employees but may not find its way into the economy if nervous consumers and the well-off use it to pay down debts.

There are good proposals on the table now, though – from tax credits for companies that hire the long-term jobless, to a payroll tax cut for employers, too – which are directly targeted to the main threat to the US economy. This threat is not its short-term deficits but its long-term unemployment problem, which is crimping demand across the economy and keeping businesses in their shell.

This time, the administration is proposing a specific plan of its own rather than waiting for Congress to hash out a deal based on principles pre-defined by the President. It is a tactical shift, and might be more successful in ramming something through. Let's hope so.