Economists: Obama jobs plan could help prevent a recession, but growth impact likely to be modest

Zachary Roth
·Senior National Affairs Reporter

What will President Obama's jobs plan do for the economy? It could help avoid a recession, economists say. But it may not spur as much growth as the administration is predicting.

Bloomberg surveyed 34 business economists about the impact of the president's plan. On average, they said it would boost next year's GDP by 0.6 percent, and add around 275,000 jobs, bringing down unemployment by 0.2 percent. It would have a smaller payoff in 2013, they predicted.

The plan "prevents a contraction of the economy in the first quarter" of next year, John Herrmann of State Street Global Markets told Bloomberg.

The $447 billion plan includes tax cuts for small businesses and government spending on infrastructure, both intended to encourage growth and hiring.

The administration hasn't given an official estimate of the plan's impact -- perhaps wanting to avoid a repeat of what happened when it said the 2009 stimulus would cut joblessness to 8 percent, which proved overly optimistic. But in a speech last week to the IMF, Treasury Secretary Tim Geithner said that private economists had predicted it could boost GDP next year by 1.5 percentage points, and create more than 1 million jobs.

In reality, it's highly unlikely that Obama's plan will pass in its entirety. Republicans in Congress have said they're open to negotiating on some aspects of the proposal, including tax cuts for employers, but have been highly skeptical of others, like money for infrastructure spending.

It's also worth keeping something in mind when thinking about the Bloomberg survey's results. When economists say the plan will boost growth by 0.6 percent in 2012, they mean as compared to what growth would be without the plan. That doesn't mean next year's growth will be 0.6 percent higher than this year's, because other factors could come into play that reduce or increase growth, independent of the plan.

Indeed, much of Obama's plan simply extends programs that would otherwise run out at the end of the year, like the payroll tax cut and extended unemployment benefits. So if those measures weren't renewed, growth would likely be reduced. By prolonging them, we would simply be maintaining the status quo.