In Wake of CBO Report on Stimulus and Jobs, Obama Presents New Plan

The high unemployment rate has taken center stage as the economy continues to recover, and last week's announcement that the jobless rate had fallen to 10% from 10.2% hasn't dimmed the spotlight, as evidenced by the "Jobs Summit" held last week at the White House.

On December 9, President Obama met with Congressional leaders from both parties in the White House on December 9 to discuss the best ways to stimulate job creation, following a speech the previous day by the President in which he proposed new job-creation measures and trumpeted the economic successes of his Administration so far, focusing on the $787 billion stimulus plan and the "1.6 million jobs" that the American Recovery and Reinvestment Act of 2009 "has already created and saved, according to the Congressional Budget Office."

Those new measures, which various sources estimate would cost anywhere from $50 billion to $200 billion, include "a series of steps to help small businesses grow and hire new staff," Obama said in his December 8 speech at the Brookings Institution, including "a complete elimination of capital gains taxes on small business investment along with an extension of write-offs to encourage small businesses to expand in the coming year," saying he would work with Congress to pass a "tax incentive to encourage small businesses to add and keep employees." The second step calls for a further infrastructure stimulus proposal "to continue modernizing our transportation and communications networks." Third is the so-called cash for clunkers program, in which Congress would create "a new program to provide incentives for consumers who retrofit their homes to become more energy-efficient." The fourth step was to provide additional "emergency assistance to seniors, unemployment insurance benefits, COBRA, and relief to states and localities to prevent layoffs."

Published reports of the December 9 meeting with Congressional leaders say the exchange was testy, with Obama accusing the Republicans of obstructionism and "rooting against" an economic recovery, and with House Minority Leader John Boehner defending the GOP's record of working in a bipartisan manner to help the economy recover, but also making clear that tax cuts would be the best way to stimulate economic and job growth.

What's the Real Number of Jobs Created?

In his speech, however, the President used the high-end estimate on the number of jobs actually created by the stimulus plan, as measured by the nonpartisan Congressional Budget Office (CBO), which in a report said that recipients of funds provided by what it refers to as ARRA--the American Recovery and Reinvestment Act--self-reported that 640,000 jobs were created.

However, looking at the "actual amounts spent so far (where identifiable) and estimates of the other effects of ARRA on spending and revenues," CBO said it proceeded to estimate the law's "impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy."

Using that approach, CBO concluded that as of the third quarter of 2009, "an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2% to 3.2% higher, than would have been the case in the absence of ARRA."

In its careful way, however, CBO also stressed that the estimate of job creation and GDP contribution is limited because "isolating the effects" of the stimulus "would require knowing what path the economy would have taken in the absence of the law."