If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try. 
 
 This is not to say that Mr. Obama hasn't made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can't do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013. 
 
 Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we're told the projects really will be shovel-ready. 
 
 We'd like to support a plan to spur the economy, which is certainly struggling. Had Mr. Obama proposed a permanent cut in tax rates, or a major tax reform, or a moratorium on all new regulations for three years, he'd have our support. But you have to really, really believe in hope and change to think that another $300-$400 billion in new deficit spending and temporary tax cuts will do any better than the $4 trillion in debt that the Obama years have already piled up. 
 
 We've had the biggest Keynesian stimulus in decades. The new argument that the 2009 stimulus wasn't big enough isn't what we heard then. Americans were told it would create 3.5 million new jobs and unemployment would stay below 8% and be falling by 2011. It is now 9.1%. But this stimulus we are told will make all the difference. 
 
 Mr. Obama spoke last night as if he is a converted tax-cutter, asking Republicans to expand and extend the payroll tax cut that expires in December for one more year. Along with tax credits for certain businesses that hire new employees, he says this will cut unemployment, and no doubt it will lead to some more hiring. 
 
 But what happens in 2013 when those tax rates expire and Mr. Obama pledges to hit thousands of those same small businesses with higher tax rates on income, capital gains and dividends? He seems to think businesses operate only in the present and will ignore the tax burdens coming at them down the road. This is the same reasoning that assumed that postponing ObamaCare's tax and regulatory burdens until 2014 would have no effect on business hiring in the meantime. 
 
 The same logic applies to Mr. Obama's claim that everything in his new proposal is "paid for." Yes, but only according to the usual 10-year Washington budget window that pushes all of the hard choices into the future, in this case after the election. So Mr. Obama gets to spend more now while promising to save later. This is also how the Administration claimed that a new $1 trillion health-care entitlement would reduce the deficit. It also means he can put more money in the pockets of dues-paying teachers unions and government workers. 
 
 The larger political subtext of Mr. Obama's speech is that if Congress doesn't pass his plan, he'll then campaign against Republicans as obstructionist. Thus his speech mantra that Congress should "pass it right away." This ignores that Mr. Obama has been the least obstructed President since LBJ in 1965 or FDR in 1933, which is how we got here. 
 
 He passed $830 billion in stimulus, $3 billion for cash for clunkers, $30 billion in small business loans, $30 billion for mortgage modification, the GM-Chrysler bailouts, ObamaCare, Dodd-Frank, credit card price controls, Build America Bonds, jobless benefits for a record 99 weeks, and more. 
 
 The only priorities that a Democratic Congress blocked were cap-and-tax and union card check, and both of those would have further damaged growth and jobs. Even last December, after Republicans had retaken the House, Mr. Obama won his one-year payroll tax cut, more jobless benefits and most of what he wanted. 
 
 The unfortunate reality is that even if Republicans gave Mr. Obama everything he wanted, the impact on growth would be modest at best. Washington can most help the economy with serious spending restraint, permanent tax-rate cuts, regulatory relief and repeal of ObamaCare. What won't help growth is more temporary, targeted political conjuring. ||||| The ideas President Barack Obama is considering for his new jobs agenda could put hundreds of thousands of people back to work, and still have a limited impact in an economy that remains 6.8 million jobs behind its pre-recession peak, economists said. 
 
 Among the options Obama is considering is a version of a tax credit for new hires that could spur the creation of 900,000 additional jobs at a cost of $30 billion, according to an estimate by Michael Greenstone, an economics professor at the Massachusetts Institute of Technology and former chief economist for Obama’s Council of Economic Advisers. 
 
 “It allows the private sector to lead the economy toward the areas where the payoffs are greatest,” Greenstone said. 
 
 In discussions with the president, Obama’s economic team has strongly backed a tax incentive for new hires, said a person familiar with the deliberations. 
 
 Even so, the president’s capacity to dramatically improve the economy is limited after an $830 billion fiscal stimulus and almost three years of accommodative monetary policy from the Federal Reserve. Obama also confronts political constraints from Republicans in Congress opposed to further federal spending. 
 
 “The broad honest answer is that there’s a limited amount that he can do that I know of,” said Martin Neil Baily, a former chairman of the Council of Economic Advisers under President Bill Clinton. “We’ve kind of done a lot of the things we know how to do.” 
 
 Worker Retraining 
 
 The White House is considering more infrastructure spending, tax incentives to spur hiring, a reduction in the employer portion of the payroll tax credit and changes to unemployment insurance to subsidize worker retraining for inclusion in a jobs plan Obama is to announce next week, said a person familiar with the discussions. 
 
 Obama said at a White House ceremony yesterday he will use the moment to lay out proposals “to put more money in the pockets of working families and middle-class families, to make it easier for small businesses to hire people, to put construction crews to work rebuilding our nation’s roads and railways and airports and all the other measures that can help to grow this economy.” 
 
 Obama has spent much of the year pressing Congress to act on a familiar set of plans: renewal of a two-percentage-point cut in the employee-paid portion of the payroll tax and extended unemployment benefits, which are both scheduled to expire on Dec. 31; establishment of an infrastructure bank to fund public works spending; ratification of free-trade deals; and overhauling patent law. Obama has said those also will remain priorities. 
 
 Jobless Rate 
 
 More than two years after the recession’s official end, the jobless rate held at 9.1 percent in July, just one percentage point below its 10.1 percent peak in October 2009. Concern about the economy has increased in recent months as growth weakened during the first half of the year to its slowest pace of the recovery and financial markets turned tumultuous amid worries about the European debt crisis. 
 
 Federal Reserve Chairman Ben S. Bernanke said last week at the central bank’s annual Jackson Hole, Wyoming, symposium that U.S. growth “has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment.” 
 
 Joel Prakken, senior managing director of Macroeconomic Advisers LLC in St. Louis, said he doesn’t “have high hopes -- really any hopes” of a significant boost to economic growth from Obama’s new jobs agenda. 
 
 Weak Private Sector 
 
 “We just don’t think that can make up for the fact that in the private sector demand is so weak right now,” said Prakken, who published an Aug. 24 analysis of Obama’s options based on media reports of items under consideration. 
 
 Still, Greenstone said, “The right test is not whether they will solve the overall unemployment crisis but whether they will improve the lives of hundreds of thousands of families, and these programs can do that.” 
 
 A $5,000 tax credit for new hires combined with a five- percentage-point reduction in payroll taxes on the net increase wages paid by a business would stimulate 900,000 additional new jobs, according to his analysis. The tax break would also wind up subsidizing about 5.1 million new hires that Greenstone forecasts will occur without the incentives. Consequently, the cost per additional job would be about $35,000 apiece, he said. 
 
 The White House hasn’t disclosed how a tax incentive for new hires would be structured, and its impact and cost would depend on details such as the amount of a credit. 
 
 Infrastructure Spending 
 
 While government-funded infrastructure spending would directly add jobs and boost overall economic growth, public works programs take time to ramp up and so would their impact on hiring, Prakken said. Even though Obama’s 2009 economic stimulus concentrated on “shovel-ready” projects, it was criticized for delays in getting people back to work. 
 
 Prakken estimates a $50 billion public construction program could only complete about $7.5 billion in work the first year. He estimates that would create 75,000 jobs in the first year and peak employment of about 125,000 in the second and third years. That is about the same as the average monthly growth in payrolls so far this year. 
 
 Jared Bernstein, Vice President Joe Biden’s former chief economic adviser and now a fellow at the Center for Budget and Policy Priorities, said a public works program targeted at refurbishing dilapidated schools could have greater immediate impact. 
 
 Bernstein said low-income school districts have a deep backlog of repairs needed. Work such as roof repairs, insulation, weatherization and window replacement require more workers than most infrastructure spending, he added. 
 
 He estimates $50 billion spent on school renovations could create 500,000 jobs within 12 to 24 months. 
 
 John Makin, an economist at the American Enterprise Institute, a Washington policy research group that supports low taxes and market-driven policies, said he doubted any of the measures would lead to a sustained improvement in employment. 
 
 “These short-term stimulus measures haven’t been working,” Makin said. “When you take them away, growth goes back down again.” 
 
 To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net. 
 
 To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net. ||||| President Barack Obama plans to propose sparking job growth by injecting more than $300 billion into the economy next year, mostly through tax cuts, infrastructure spending and direct aid to state and local governments. 
 
 Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation’s debt. 
 
 Almost half the stimulus would come from tax cuts, which include an extension of a two-percentage-point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers. 
 
 Obama is set to lay out his plans in an address to Congress tomorrow as unemployment remains at 9.1 percent more than two years after the official end of the worst recession since the Great Depression. Payroll growth stalled last month. 
 
 The unemployment rate and the sluggish recovery will be central issues as Obama runs for re-election next year. Former Massachusetts Governor Mitt Romney, a leading Republican seeking the party’s nomination to face Obama in November 2012, yesterday offered his own 59-point economic plan, including tax cuts for those making $200,000 or less a year. He and seven other Republican candidates are scheduled to debate tonight in California. 
 
 Plan Previewed 
 
 The main components of Obama’s jobs plan, though not its scale, have been largely telegraphed by the administration. For weeks, people familiar with deliberations have said the White House is considering tax incentives, infrastructure and assistance to local governments. Obama has stressed construction and tax cuts in recent public speeches 
 
 Obama has pressed Congress throughout the year to renew the payroll tax holiday along with extended unemployment benefits, which also expire Dec. 31. Backing for a reduction in the employer contribution to the payroll tax has been under consideration since at least June. 
 
 Obama’s jobs plan follows the contours of his $830 billion 2009 economic stimulus package, which also stressed tax cuts, infrastructure spending and assistance to local governments. Still, tax cuts would account for a larger portion of the proposal he will lay out this week. 
 
 ’New Proposals’ 
 
 White House press secretary Jay Carney refused to give details of what the president will offer, saying at a briefing yesterday that it would include “some new proposals that you have not heard us talk about.” 
 
 Much of Obama’s plan may have trouble passing the U.S. House, where leaders of the Republican majority have signaled opposition to new spending that would add to the federal budget deficit. House Speaker John Boehner of Ohio and Majority Leader Eric Cantor of Virginia released a letter to Obama yesterday saying their objections to the 2009 stimulus, which they called a “large, deficit-financed, government spending bill,” have been validated by continued high unemployment. 
 
 Obama said in a Sept. 5 speech in Detroit that he would challenge Republicans to support tax cuts, which a person familiar with administration discussions said would be targeted toward middle-class Americans to spur consumer spending. 
 
 Local Government Aid 
 
 “You say you’re the party of tax cuts?” Obama said before the annual Metro Detroit Central Labor Council rally. “Well then, prove you’ll fight just as hard for tax cuts for middle- class families as you do for oil companies and the most affluent Americans.” 
 
 The direct aid to local governments would focus on halting layoffs of teachers and first responders. Education will be a theme in Obama’s address, and he will also propose as part of his infrastructure program money for school construction. Some of the infrastructure spending would go toward roads, bridges and other surface transportation projects. 
 
 White House officials say they anticipate congressional Republicans may go along with some of the tax cuts Obama is seeking, including the extension of the payroll tax cut. Still, they expect to meet Republican resistance to much of the package. 
 
 Job Training 
 
 To address the problem of long-term unemployment, Obama will likely propose a national program, modeled after a Georgia initiative that allows workers who receive unemployment insurance to train for jobs at businesses at no cost to the employer. Obama, at a town-hall meeting in Atkinson, Illinois, last month, called the Georgia Works initiative a “a smart program.” 
 
 Obama also plans to propose measures to make it easier for homeowners to refinance mortgages. 
 
 Obama will unveil a framework for the deficit reductions next week, including changes to Medicare and Medicaid, in addition to other cuts in contributions to military pensions and farm subsidies. 
 
 After a partisan fight over the deficit and raising the government’s debt limit took the country to the brink of default, Standard & Poor’s lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. The rating firm said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to 1.97 percent yesterday. The note added seven basis points to 2.05 percent today. 
 
 Top Rankings 
 
 Moody’s Investors Service and Fitch Ratings affirmed their top rankings on the U.S. 
 
 Concern over the economy has increased as growth weakened during the first half of the year to its slowest pace of the recovery and market pessimism has risen over the ramifications of the European debt crisis. 
 
 Still, stocks rebounded from a four-day global slump that drove valuations to the lowest level since 2009 following news of Obama’s plans. The MSCI All-Country World Index surged 2.1 percent at 10:21 a.m. in New York and the Standard & Poor’s 500 Index jumped 1.7 percent. 
 
 Recent signs of economic weakness have led private economists to raise forecasts for the unemployment rate next year. The median forecast for unemployment during next year’s fourth quarter, when the presidential election will be held, is 8.5 percent, according to 51 economists surveyed by Bloomberg News Aug. 2 through Aug. 10. 
 
 Since World War II, no U.S. president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984. The jobless rate under Reagan had come down more than 3 percentage points during the prior two years. 
 
 To contact the reporter on this story: Albert Hunt in Washington at ahunt1@bloomberg.net 
 
 To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net. ||||| In a last-gasp attempt to jolt the economy and his reelection prospects, President Barack Obama on Thursday put forward a $447 billion jobs package, challenging Congress to shut down the “political circus” and pass his bill as soon as possible. 
 
 After three weeks of buildup, Obama delivered the speech amid high stakes, potentially one of his last major opportunities to wrest the economic debate back from Republicans and reenergize the economy after months of sputtering growth. But expectations that the entirety of his plan would prove palatable to the Republican-controlled House remained low. 
 
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 reset Jobs address highlights Pundits react to jobs speech POLITICO 44 
 
 Obama disregarded that political reality and called on Congress to approve his American Jobs Act “right away,” a phrase he repeated eight times in the 34-minute speech. Speaking in an urgent, clipped tone, he pitted lawmakers against their constituents, saying Americans can’t wait while Washington plays games. 
 
 “The people of this country work hard to meet their responsibilities. The question tonight is whether we’ll meet ours,” Obama said. “The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy, whether we can restore some of the fairness and security that has defined this nation since our beginning.” 
 
 House Republican leaders didn’t dismiss the proposal outright — a contrast to Republicans such as Senate Minority Whip Jon Kyl (R-Ariz.), who described it as a “tired agenda of old ideas wrapped in freshly partisan rhetoric.” 
 
 “The proposals the president outlined tonight merit consideration,” House Speaker John Boehner (R-Ohio) said in a statement. “We hope he gives serious consideration to our ideas as well. It’s my hope that we can work together to end the uncertainty facing families and small businesses, and create a better environment for long-term economic growth and private-sector job creation.” 
 
 Obama will send a bill to Congress next week, but House leaders signaled that they won’t consider it as a single package. Majority Leader Eric Cantor (R-Va.) said he will split off several smaller initiatives and pass them immediately. 
 
 The president went bigger than expected with his $447 billion plan, a mix of tax cuts, state aid, jobs programs and construction projects that satisfied many Democrats but few Republicans, given its resemblance to the 2009 stimulus bill. 
 
 In the speech, he tried to check several political boxes. He served red meat to his Democratic base with a gritty delivery and big-dollar government programs. He appealed to independents by pledging to pay for the full package. And he sought to put Republicans on the spot by offering up tax cuts that could be hard to block. 
 
 “This package of common-sense, bipartisan proposals will present a litmus test to Republicans,” Senate Majority Leader Harry Reid (D-Nev.) said in a statement. “I hope they will show the American people that they are more interested in creating jobs than defeating President Obama.” ||||| Advertisement Continue reading the main story 
 
 WASHINGTON 
 
 
 
 
 
 
 
 
 
 A year ago, President Obama and the Democrats made the mistake of assuming that an economic recovery was under way. This week’s deal to extend the Bush tax cuts shows that the White House’s top priority is avoiding the same mistake again — even if it has to upset many fellow Democrats in the process. 
 
 Mr. Obama effectively traded tax cuts for the affluent, which Republicans were demanding, for a second stimulus bill that seemed improbable a few weeks ago. Mr. Obama yielded to Republicans on extending the high-end Bush tax cuts and on cutting the estate tax below its scheduled level. In exchange, Republicans agreed to extend unemployment benefits, cut payroll taxes and business taxes, and extend a grab bag of tax credits for college tuition and other items. 
 
 For the White House, the deal represents a clear shift in policy focus. Mr. Obama and Democrats spent much of the last year pursuing long-term goals like a health care overhaul and financial regulation, while hoping the economic recovery would continue. But with the recovery faltering and Republicans retaking the House, the administration is turning back to short-term job creation. 
 
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 Congressional Democrats have reacted with a mix of wariness and anger, and some said Mr. Obama should have put up a fight on the high-end tax cuts. Yet once the Democrats bungled this issue — failing to deal with it before the midterm elections — their choices were extremely limited. If they stood firm on the high-end tax cuts and Republicans stood firm as well, all of the Bush tax cuts, not just those on income above $250,000, would have expired Dec. 31. The economy would surely have suffered as a result, and a bad economy is rarely good for the party that holds the White House. 
 
 Tellingly, economists and Democratic policy experts were largely pleased with the deal. Forecasting firms on Tuesday upgraded their estimates for growth and job gains over the next two years. Economists at Goldman Sachs, who have been more negative and more accurate than most Wall Street forecasters lately, called the deal “significantly more positive” than they had anticipated. 
 
 And left-leaning policy experts said the package did more to create jobs than they had thought possible after the Republicans’ midterm election victories. Robert Greenstein, Lawrence Mishel and John Podesta — who run prominent Washington research groups that range from liberal to staunchly liberal — all offered praise for the package. Of its estimated $900 billion-plus cost over two years, roughly $120 billion covers the high-end tax cuts and the estate tax cut, $450 billion covers Mr. Obama’s wish list and $360 billion covers the tax cut extensions both parties favored. 
 
 “People are kind of venting their disappointment and acting as if the administration did a terrible job in the negotiations,” said Mr. Greenstein, who runs the Center on Budget and Policy Priorities. “But it didn’t. The mistake the administration made — and it was a serious one — was that it should have dealt with this well before the election.” 
 
 Advertisement Continue reading the main story 
 
 Advertisement Continue reading the main story 
 
 Still, the risk for Democrats, and the economy, remains the same as it was. Financial crises wreak terrible havoc. They typically cause unemployment to rise for more than five years and leave consumers and business uncertain about when healthy growth will finally resume. Aftershocks are common, as is evident in Europe. Virtually no economist believes the new stimulus package will be big enough to make the economy feel healthy anytime soon. 
 
 The ideal package would have been larger than the current one, and it would have been better tailored. The $120 billion cut in the payroll tax, for example, will apply to the portion paid by workers, not companies. The Congressional Budget Office and other analysts have said that cutting the workers’ portion provides less bang for the buck because individuals are likely to save some portion of the money. Cutting the employers’ portion subsidizes hiring. 
 
 But politics prevented the best kind of payroll tax cut. Republicans did not want one larger than the $120 billion, one-year cut in the package. Administration officials wanted the political benefit of having that whole sum apply to individual workers. The resulting compromise will help the economy, but not as much as it could have. 
 
 Initial estimates by economists suggested that the overall legislation would reduce the unemployment rate by one-half a percentage point to a full point over the next year, compared with allowing all the tax cuts to expire and passing no new stimulus. By the end of 2012, the decline could be up to 1.5 percentage points, economists said. 
 
 On the other hand, the unemployment rate will still probably be near 8 percent by the end of 2012, when the current package expires, and the two parties will get to have this fight all over again. 
 
 What’s the early line on that fight? Republican officials hope that Democrats will again find it hard to let all the tax cuts expire in the name of letting some expire. White House officials hope the economy will have improved enough by then to help Mr. Obama win re-election — and to allow him to threaten, credibly, to veto any bill that includes a tax cut for the wealthy. 
 
 There is also one big unknown looming over the whole debate: the deficit. This week’s deal, of course, will worsen the deficit. In the short run, many economists believe a larger deficit is better than the alternative. As Ben Bernanke, the Federal Reserve chairman, said during a recent “60 Minutes” interview, “We don’t want to take actions this year that will affect this year’s spending and this year’s taxes in a way that will hurt the recovery.” 
 
 Yet Mr. Bernanke and other economists usually add another point. Any additional spending now, they say, should be paired with future deficit reduction. Otherwise, the long-term deficit will continue to rise, and nervous investors may eventually demand that the federal government pay higher interest rates. Interest rates remain low for now, but they did rise on Tuesday, after the compromise was announced. 
 
 The problem is that raising the deficit — be it through high-end tax cuts or a new stimulus program — is a lot easier than cutting it. Strange as it may sound, some of the only fiscal conservatives in Washington this week have been liberals who would be willing to let everyone’s taxes rise. And they seem unlikely to win on this issue.
– Pundits handed out good grades aplenty for President Obama's new jobs proposal last night, with generally positive feedback from liberals like Paul Krugman—but also from conservatives like David Frum and Andrew Sullivan. Krugman writes in the New York Times that he was "favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected." Still, "it's not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment." Of course, Krugman holds out little hope that the GOP will let it pass. It was a "cunning speech," muses David Frum on FrumForum. Economically, it's better than the 2009 stimulus, and, politically, it helps Obama's re-election chances, he adds. But the strongest aspect was using proposals Republicans had previously advocated, which "ingeniously put Republicans into an awkward spot," Frum writes. "This was a blunt, potent, confident attempt to win back the hearts of a disillusioned base, while appealing to the center in ways Republicans may feel a little leery of rejecting," writes Andrew Sullivan. "Game on, in other words." No love, though, from the Wall Street Journal. "Had Mr. Obama proposed a permanent cut in tax rates, or a major tax reform, or a moratorium on all new regulations for three years, he'd have our support," the paper notes. "But you have to really, really believe in hope and change to think that another $300 to $400 billion in new deficit spending and temporary tax cuts will do any better than the $4 trillion in debt that the Obama years have already piled up." Click for reactions to the speech from the 2012 GOP candidate crew and more. (Herman Cain: "We waited 30 months for this?")