Obama's Recovery Plan

Christina Romer is the new chair for the Council of Economic Advisors. On January 9 she released a 14-page document on "The Job Impact of the American Recovery and Reinvestment Plan" to be presented to Congress.


The preliminary findings are:

• The goal is creation of 3-4 million jobs by the end of 2010.

• Tax cuts & fiscal relief to the states may create fewer jobs than direct increases in government purchases. However, there is a limit on how much government investment can be carried out quickly. Since tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress.

• Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy and school repair.

• More than 90 percent of the jobs created are likely to be in the private sector.
  

All of the estimates are subject to significant margins of error. Estimates of economic relationships and rules of thumb are derived from historical experience. Furthermore, the uncertainty is higher than normal because the current recession is unusual both in its fundamental causes and its severity.

The table shows that the plan could meet the goal of creating or saving at least 3 million jobs by the 4th quarter of 2010.

The U.S. economy has already lost nearly 2.6 million jobs since the business cycle peak in December 2007. In the absence of stimulus, the economy could lose another 3 to 4 million more. Thus, we are working to counter a potential total job loss of at least 5 million.

Keep in mind that job loss is an unfortunate by-product of this recession.

While this proposed recovery plan may prove helpful, it is the fundamental problem...linked to the liquidity crisis created last September, the fear that ensued and the remarkable decline in the velocity of money (ie, rate at which Americans are spending) that are at the root of this recession.

And of course that was precipitated by the housing bubble...and all the problems associated with sub-prime mortgage lending.

Hence, efforts that have been underway by Fed Chairman Bernanke & Treasury Secretary Paulson...and carried forward by new Treasury Secretary Geithner may play a much larger role in overall US recovery...as we have seen glimpses of already.