Yesterday's speech by President Obama on creating jobs has been met with mixed reviews. Our own Bob Reich didn't like it because it doesn't spend enough money to fill the gap, but unfortunately it's hard to imagine Congress spending the necessary funds to solve this problem. One thing that Bob is particularly wrong about, though, is his idea that the nebulous "word in Washington" is that all our economic problems are over. Not even Republicans, and certainly no administration officials or Democratic congressional leaders, believe that the .2 percent dip in unemployment last month was the end of the problem; the debate is what can be done.
Basically, Obama has to take what little funding he can get from Congress, justifying it as best he can as TARP savings, and try to use it to reinforce the labor market as effectively as possible. Them's the politics. Bashing the president for not outlining bigger plans in his speech is a waste of time -- go after Ben Nelson or Evan Bayh or the other folks who, when the rubber hits the road, will be more concerned about long-term deficits than dealing with the problems we face now.
Onward to more specific analysis: Steve Pearlstein's column this morning runs through the specifics of the speech, rating the various programs. I agree with a lot of what he says but I'm not sure about this assessment:
Under the category of truly bad ideas, the president has proposed to increase from 80 percent to 90 percent the share of small-business loans that the government will guarantee. It was loose lending that got us into this pickle, and a recession hardly seems like the ideal time to encourage banks to lower underwriting standards by having less skin in the game. If banks are really refusing to make loans to creditworthy small businesses, the safer and less costly approach would be to ask regulators to temporarily lower the amount of capital that banks must set aside for small-business loans.
While I don't think going from an 80 to 90 percent guarantee represents a huge jump in risk (we're already guaranteeing all but 20 percent, for goodness sake), a recession is definitely the ideal time to encourage banks to lend more, however you can -- the problem now is the exact opposite of the problems we had in 2007, and we have to find a healthy middle. Lowered underwriting standards are not the guaranteed result of the administration's policies; many banks aren't lending not because of concerns about business fundamentals but because of macroeconomic trends. If that's Pearlstein's concern, then he should realize that lower prudential standards would have the same effect -- less skin in the game. But either mechanism is more likely to compensate for broader trepidation about the economy than result in poor underwriting, which is more often the result of boom-time optimism than recession incentives.
Finally, like Harold Meyerson, I appreciate the pickle that the president has put Republicans in with his focus on small business and his stated understanding that the government doesn't create jobs in the private sector but is vitally important creating the necessary conditions for new jobs. I also think it would be a good idea to have a "hammer," as SEIU's Anna Burger puts it -- an official in charge of shaping job creation efforts. Maybe there is someone like that out there already. Perhaps his name rhymes with Don Doom?
-- Tim Fernholz
