Obama's Jolt: Will it Work?
With his American Jobs Act, Barack Obama at last addressed his country’s dire economic situation with passion and determination. In his speech to Congress on Thursday, the President challenged Republicans to “pass this bill now,” filling it with tax cuts that his adversaries will find difficult to reject.
Democrats were ecstatic after the speech: their President had abandoned the conciliatory tone he had used all summer in the hope of bringing Republicans to support his debt reduction plan. Thursday’s speech may be seen as Barack Obama’s first of his campaign for reelection.
Most commentators believe that some of the measures included in the America Jobs Act will get bipartisan support. But Republicans will attack the spending parts of it, for instance the billions offered to State governments so that they can rehire teachers laid off as part of cost cutting initiatives. Whatever the amounts that get Congress approval, economists think the direct impact on the economy will be relatively small. Even when offered tax incentives to hire new employees, managers will not do so if they are not confident that there will be clients for their products. As the President said, “ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.” Sure, government “can help, make a difference” (even Canadian Prime minister Stephen Harper now seems to think so...). But it may be beyond the President’s and Congress’ power to produce the kind of jolt that would quick start the economy.
American companies don’t lack money. As Moody’s has shown, they are sitting on over 1.2 trillion dollars in cash. They're just waiting. Not for tax breaks or federal funds, but for signs that confidence is coming back, that customers are filling the stores again, that the European debt crisis does not lead to the double-dip recession everyone dreads. No confidence, no investment; no investment, no new jobs. Politicians can beg all they want, the private sector will not start hiring in the present environment. As Catherine Swift explains in her interview with the CIC, “companies’ main goal isn’t to create jobs, though that does happen; companies’ Number 1 objective is to stay in business, which means making money.”
After what happened in 2008 and 2009, can you blame the private sector for being careful? For not trusting politicians unable to set aside a little bit of their ambitions for the good of the country? Can you assail business people when you see Europe’s economy threatened by high levels of debt, badly timed austerity packages, social unrest and the impotence of its own political leaders?
No magical formula exists to bring back confidence. The oratory skill that President Obama demonstrated again on Thursday night, as pleasing as it was to his admirers, did not affect investors somber mood, as shown buy the markets' sharp drop on Friday.
Given the current state of the American economy and the few reasons for optimism, I would be very surprised if the Obama administration put a lot of energy in defining the new grand foreign policy some are hoping for, as mentioned in Roland Paris' latest blog entry. If unemployment remains high for a long period, the American economy might suffer long term damage and the United States may start losing some of their influence in the world, both through hard and soft power.
Photo Courtesy Reuters.