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Meltdown 101: What jobs might the stimulus create?

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An Associated Press story reveals the number and types of jobs the Stimulus Plan could create.

If it works as planned, the stimulus proposal would create thousands of construction jobs building and repairing roads, bridges and other infrastructure. But it also aims to boost employment in the manufacturing, information technology and energy sectors, among others.

The stimulus includes a whopping $550 billion in spending and about $275 billion in tax cuts.

Asked if the Stimulus Plan would stop job losses,

Not necessarily. Mark Zandi, chief economist at Moody’s Economy.com, estimates that the stimulus package would simply reduce the number of jobs lost in the next two years.

Zandi, who favors the stimulus and is a former adviser to Arizona Sen. John McCain, said in a paper last week that without it roughly 8 million jobs would be lost by the end of 2010, pushing the unemployment rate to more than 11 percent.

If the stimulus is approved, he forecasts that job losses would be held to 5 million and the jobless rate would peak at 9 percent.

In his recent report on the U.S. economy, Zandi states

[The] Democratic plan proposed in mid-January includes both increases in government spending and tax cuts. The plan costs approximately $825 billion, equal to 5.5% of the nation’s gross domestic product. This is not as costly as the public works projects of the 1930s, but it is costlier than the 3% of GDP spent to stimulate the economy during the tough downturn in the early 1980s. The cost of the current package would thus be consistent with expectations regarding the severity of this downturn. At 5.5% of GDP, the stimulus would also be about enough to ensure the economy stops contracting by the end of 2009 and that GDP returns to its prerecession peak by the end of 2010—reasonable goals.

The mix of tax cuts and spending increases in the stimulus package is designed to provide both quick relief and a substantial boost to the struggling economy. The tax cuts will not pack a big economic punch, as some of the money will be saved and some used to repay debt, but they can be implemented quickly. Aid to state and local governments will not lift the economy, but it will forestall cuts in programs and payrolls that many governments would be forced to make to meet their states’ constitutional obligations to balance their budgets. Infrastructure spending will not help the economy quickly, as it will take time to get even “shovel-ready” projects going, but it will provide a significant economic boost. Because the economy’s problems are not expected to abate soon, this spending will be especially helpful this time next year.

Zandi’s report, given to Speaker Pelosi prior to the recent House debates on the Stimulus Plan, lays out a detailed scenario of what occurred over the last several years. Facts which few Americans are aware. In reading this report in its entirety, it becomes easy to comprehend the reasons for this recession as well as the numerous benefits to the American public of the Stimulus Plan.

For example,

The House stimulus plan includes some $100 billion over two years in income support for those householdsunder significant financial pressure. This includes extra benefits for workers who exhaust their regular 26 weeks of unemployment insurance benefits; expanded food stamp payments; and help meeting COBRA payments for unemployed workers trying to hold onto their health insurance.

Increased income support has been part of the federal response to most recessions, and for good reason: It is the most efficient way to prime the economy’s pump. Simulations of the Moody’s Economy.com macroeconomic model show that every dollar spent on UI benefits generates an estimated $1.63 in near-term GDP.x Boosting food stamp payments by $1 increases GDP by $1.73 (see Table 2). People who receive these benefits are hard pressed and will spend any financial aid they receive very quickly.

Click to retrieve the report’s Chart on this economic factor.

Zandi concludes:

Now, a new policy consensus has been forged out of collapse. It is widely held that policymakers must take aggressive and consistent action to quell the panic and mitigate the economic fallout. An unfettered Federal Reserve will pump an unprecedented amount of liquidity into the financial system to unlock money and credit markets. The TARP fund will be deployed more broadly to shore up the still-fragile financial system, and another much larger and comprehensive foreclosure mitigation program is needed to forestall some of the millions of mortgage defaults that will occur otherwise. Finally, another very sizable economic stimulus plan is vitally needed. While there will be much more discussion about the size and mix of government spending increases and tax cuts to include, the House Democratic plan is a very good starting point. This is important, for while such debate is necessary it must be resolved quickly. Unless a stimulus plan is implemented beginning this spring, its effectiveness in lifting the economy will be significantly muted.

While not everything in the current House plan meets the criteria of good spending – far too much money is being thrown at private, pet projects of powerful, individual Congressional members which fail to address the jobs revival and long term economic competitive issues facing this country. Nevertheless, the overall the plan appears to have broad support among the business, investor and economic communities.


3 Responses

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  1. […] See original here:  Meltdown 101: What jobs might the stimulus create? […]

  2. New jobs! More government bureaucrats doing less I’m sure!!


    February 7, 2009 at 2:50 PM

  3. […] Theuth.com Weblog Most Demanding Skills in Web Development | Web Designing, Development &.. Meltdown 101: What jobs might the stimulus create? « Epiphanyblog Tips for Tough Times: exuding positivism, getting help from other entrepren.. Bloomberg News: Slump […]

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