President Barack Obama has now spent more than two months calling on Congress to pass his $447-billion jobs bill. The president insists it will, “provide our economy with the jolt it really needs right now.”
Congress on Wednesday passed a small part of that package, including a tax credit to encourage businesses to hire U.S. veterans. But apart from this, legislative progress on the American Jobs Act has been so non-existent that the Obama administration has shifted to using executive orders to make economic policy. “We can’t wait,” the White House is telling the American people.
But if Obama and the current Congress cannot, and do not, pass major legislation targeted on job creation and economic growth, what happens to the U.S. economy?
In the third quarter, the economy expanded 2.5 percent — which is not enough to dramatically cut unemployment, but shows that a slow recovery is still viable. The Federal Reserve Board estimates 2011 growth to be between 2.3 and 2.9 percent and estimates more than 3 percent in 2012. Goldman Sachs has a more pessimistic view — but still projects north of 2 percent growth next year.
These economic forecasts have a number of important qualifications – for example, worsening of the European financial situation could change the U.S. economic outlook significantly. These projections also assume continued gridlock over a major jobs bill but, even with this, do not predict a double dip recession.
This leads us to conclude that the course of the U.S. economy does not hinge on passage of the jobs bill — or something akin to it.
Since this continuing legislative inaction is unlikely to tank the U.S. economy, we expect politics as usual. Republicans will likely zero in on the need to create U.S. jobs — but will emphasize the role of both government regulation and uncertainty created by the government’s large debt burden in our current economic difficulties. The GOP will also likely continue to insist that now is not the time to increase taxes. All this, Republicans will explain, prevents them from voting for a Democratic jobs bill.
Meanwhile, Democrats will likely stress that their job creation measures will be paid for by taxes on millionaires and billionaires. A Democratic plan is thus both productive and fair, they will say, since it can create jobs, reduce unemployment and tax the rich to pay for it.
What you will notice in the claims by both parties is that they sound less like arguments about good economic policy and more like campaign themes for the 2012 elections.
The point is that politicians in both parties think they can use deadlock on jobs and the economy as a winning issue in the 2012 campaign.
Obama is already using Congress’s failure to pass his legislation as proof that this is a “do nothing” Congress — much as President Harry S. Truman treated the Republican 80th Congress. The Republicans will likely campaign on the jobs issue — claiming that they are better qualified to bring back the lost jobs.
The two parties might come together to extend unemployment benefits and the payroll tax cut — but that is probably the limits of bipartisan cooperation.
If you are looking for change – you’ll probably have to wait until right after the presidential election. In January 2013, the Bush tax cuts expire; the new 3.8 percent tax from the health care reform law kicks in, and the real costs of the health care reforms will become increasingly apparent. The president and new Congress will have to deal with these issues immediately on taking office.
If the Republicans capture the presidency, keep the House and win the Senate, they will declare, as elected officials are wont to do, that they have been given a mandate by the American people to make sweeping changes. Tax reform, dismantling of the 2010 health care reforms and a move to deregulate energy production will likely be high on their policy agenda.
Add to this the goal of changing the trajectory of federal spending and deficits.
So 2013 could begin a transformative period in American policy making. If the swing to the Republicans is large, the GOP’s greatest political challenge could be avoiding the same overreaches in policy that led to voter backlashes against the party in 1996 and 2006.
Would the reelection of the president and the return of a Republican majority in the House and a Democratic-controlled Senate —or even Republican control of both chambers — just leave us at loggerheads for another two years? That depends.
There is a good chance to enact significant economic policy changes during a second Obama administration. The president, no longer worried about reelection, would be largely freed from the pressures of his core reelection constituency and activists on the left.
So if election night 2012 brings another round of divided government, we will see how far and in what direction Obama is willing to move on economic policy.
That will be then. This is now. And, for now, don’t expect much in way of legislation that could seriously address our real and mounting economic problems.
David Brady is the deputy director of Hoover Institution and a professor of political science and business at Stanford University. Tammy Frisby is a research fellow at the Hoover Institution and teaches political science and public policy at Stanford University
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