|Restructuring underwater mortgages is 'the best simple step to getting out of a recession faster.'|
Economists doubtful on chances Obama’s jobs bill will succeed
DALLAS - Although President Obama sent his jobs bill to Congress yesterday, urging lawmakers to approve the measure “immediately,’’ many leading US economists at a conference here this week expressed skepticism that the proposal would help solve the nation’s long-term economic troubles.
The economists, who convened for the National Association of Business Economists annual meeting, said the president’s bill could put people back to work at least temporarily, but many said the severity of the nation’s downturn will require bolder policy solutions.
Kenneth Rogoff, a Harvard economics professor and keynote speaker who is a foremost expert on recession and recovery, said he thought the jobs plan was “not unreasonable’’ but that policy makers could give the economy a bigger boost by finding a way to restructure thousands of underwater mortgages held by US homeowners.
“At this point, that’s the best simple step to getting out of a recession faster,’’ Rogoff said. “We need fundamental reform.’’
The Obama administration’s $447 billion jobs bill has been promoted as a way to get a significant number of Americans working at a time when the nation’s unemployment rate hovers above 9 percent. To boost jobs, the bill would cut businesses’ payroll taxes to 3.1 percent and offer additional tax incentives to companies that hire unemployed workers and military veterans. The jobs plan also funds an infrastructure program that would modernize schools and rebuild roads and bridges, rehire teachers and emergency medical personnel laid off in government cutbacks, and extend unemployment benefits and middle class payroll tax breaks set to expire at the end of the year.
The Obama administration has not offered estimates about how many jobs the plan is expected to create; about 14 million Americans are unemployed. And while economists disagree on the bill’s chance of passing - due to a deeply divided and partisan Congress - many said the US economy will still continue to grow at a snail’s pace and unemployment will continue to rise even if the bill passes.
“They are scraping the bottom of the barrel - trying anything that is left in their arsenal,’’ Adolfo Laurenti, an economist at Mesirow Financial in Chicago, said of the administration’s efforts. Though the proposal has not been officially offered as a “stimulus’’ plan, Laurenti said it bears many similarities to stimulus plans enacted two years ago that helped the nation avert a depression but did not successfully jump-start a period of economic growth.
Such plans, Laurenti said, are the equivalent of putting the economy on steroids, which eventually wear off.
When the spending dries up, sometime in 2012, Laurenti said he expects another slowdown.
“By now we should realize that these kinds of plans do not work’’ in the long term, he said. “If we did not jump-start economic spending two years ago with $800 billion, we will not jump-start spending today with $447 billion.’’
Donald Kohn, a senior fellow at the Brookings Institution and former vice chairman of the Federal Reserve, said there is a need for “sensible solutions’’ to problems in the US economy; he also said he saw a need for policy makers to address the continued problems caused by the nation’s stalled housing market. He said an important goal is to create a “minimum of uncertainty in housing prices,’’ which can help restore lenders’ confidence.
In the current economic climate, he said, lenders are so cautious that even homeowners who are not underwater are having difficulty finding a bank that will help refinance their mortgage. He said economic volatility in Europe and concerns about how it could affect the United States have only added to lenders’ uncertainty.
“We’ve been much slower to work through the problem than I thought we’d be,’’ Kohn said. “I think we need to speed up the process of moving through these loans. Banks and servicers need to get going much, much faster.’’
The National Association of Business Economists, the group sponsoring the conference, released a survey of 52 professional economic forecasters yesterday that found that 30 percent viewed the current economic recovery as “subpar with severe wealth losses and onerous debt burdens inhibiting spending and lending.’’ About a quarter of those surveyed said the recovery would continue at a moderate pace, 14 percent foresee an uneven recovery with growth in “fits and starts,’’ and 13 percent expected the economy to slip back into recession (up from 3 percent in May).
The survey, conducted in mid to late August, also found that the number of economists who thought the economy would overcome “headwinds’’ was 7 percent, down from 29 percent in May.
Those surveyed were also divided about whether Spain and Italy are headed into the same default situation as Greece; 50 percent consider it unlikely, 22 percent would place odds on it, and 28 percent considered it likely.
Despite the weak national and global outlook, the survey also found that economists expect corporate profits to rise 7 percent this year and again in 2012. And all but two forecasters said they thought the S&P 500 stock index would see median growth of 8 percent next year.
Economist David Bowers, managing director of Absolute Strategies Research, a London firm that offers economic analysis to hedge funds and other institutional investors in Boston and the United States, described the president’s jobs plan as “necessary but not sufficient’’ because it fails to address why corporations aren’t investing or hiring in the United States.
“We need to be bolder on improving incentives to hire,’’ he said. “There needs to be more imagination.’’
Megan Woolhouse can be reached at firstname.lastname@example.org.