Obama's New Plan for Unemployment

The new fiscal stimulus plan that President Obama presented on Thursday to boost growth and employment has been practically ignored by the financial markets, which are more concerned with the European debt crisis and the divisions at the heart of the European Central Bank.

The $447 billion stimulus plan — which consists primarily of tax cuts — is designed to reduce unemployment in the United States. It’s estimated that the unemployment rate could go down by two points, from 9 to 7 percent, and that the world’s largest economy could avoid a recession. As Obama said, “The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working.” This is vital to increasing consumer spending, which accounts for 70 percent of the country’s economy.

The problem is that Obama’s plan — if it’s successful — is as important for the U.S. economy as it is for his reelection next November. This will make negotiations with Republicans, who have a majority in the House of Representatives, very difficult, and it’s therefore likely that the process of passing such a plan will be drawn out significantly.

Citizens and financial markets have higher hopes for new measures for monetary expansion from the Federal Reserve, which, despite divisions within the institution, are expected to be approved at its meeting on Sept. 20.

But the possible positive effects of monetary expansion on economic growth demand that credit is available to businesses and families and, above all, that a sense of confidence returns and drives consumer and investment decisions. However, the fratricidal political tension that exists in the United States, with a heated battle between Democrats and Republicans, does nothing to help.

Obama’s plan fits in with the third shift toward public spending to aid the economy (after stressing the need for budget cuts) now being proposed by the International Monetary Fund and the Organization for Economic Cooperation and Development.

The U.S. model was contrasted with the European one yesterday during a meeting of G-7 ministers in Marseilles, where no consensus was reached on a better model. German orthodoxy insists that a debt crisis cannot be solved with more debt. But that’s the approach in the United States.