A Road Map for Congress
From the time the United States hit its statutory debt limit on May 16 until President Obama signed a bill raising the limit on August 2, the Dow Jones industrial average fell nearly 600 points. (By close on Thursday, it was down 512 points on the day.) Lenders foreclosed on some 500,000 homeowners. The Commerce Department reported that the economy grew by just 0.4 percent in the first quarter of the year and 1.3 percent in the second. About 300,000 more Americans went looking for a job and couldn’t find one.
Lawmakers didn’t do a thing about any of that.
In a protracted quest to avoid an economic catastrophe entirely of their own making, members of Congress and Obama spent several months ignoring an actual catastrophe unfolding under their noses—the sharp turn of the U.S. recovery back toward recession. At the end of their tortured negotiations, both sides bragged that they had spared the meltdown of a sovereign default or a massive disruption in consumer spending. No one argued that they had boosted growth or created jobs.
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Economists call that an “opportunity cost”—the price of doing one thing, measured in the value of what you could have been doing instead. Voters might call it negligence. By any name, it’s finally over, and it’s time for lawmakers to make amends. They should start by carrying their urgency from the final days of the debt-ceiling debate into an immediate crisis conversation about jobs.
This is not the time for recess, for fundraising, for catching up on sleep. Certainly not for golf. It’s not time to talk about a “pivot” to job creation, as Obama and Senate Democrats did this week, or to promise action at some unspecified date on some small-scale bills languishing in both chambers. It’s time for Obama to summon John Boehner and Harry Reid and Mitch McConnell and Nancy Pelosi and whatever lieutenants they require back to the White House, day after day, until they can work out a deal to help speed growth and unleash millions—millions—of new jobs. If the leaders can’t handle the details themselves, they could pass the task off to another congressional super committee, like the one they created for deficit reduction under the debt-limit deal, and fast-track its recommendations to the House and Senate floors.
Assuming that Washington actually cares about job creation, as opposed to just talking about it, a bipartisan economic package should be able to attract a supermajority in the Senate and at least 160 Republicans and 90 Democrats in the House—something like the debt-ceiling coalition. It’s clear that this Congress won’t entertain any ideas that cost serious taxpayer money (such as a $100 billion-plus infrastructure bank or a similar effort to rebuild crumbling highways and bridges), no matter how many economists warn that faltering consumer demand is sinking the economy. But plenty of opportunities remain to leverage private investment and spur widespread job creation, in areas where Republicans and Democrats have found common ground in the past.
Here’s a starter list of possible “grand bargains” for the politicians who spent the bulk of their summer arguing about everything but how to get America’s 14 million unemployed back to work.
Open and improve trade. First, because it’s the easiest. Republicans get swift passage of pending free-trade agreements with South Korea, Panama, and Colombia, along with accelerated negotiations toward a Trans-Pacific trading partnership with other Asian nations. Democrats get a diplomatically delicate—but wildly popular among voters at home—law authorizing the administration to retaliate against China for suppressing the value of its currency. Leveling the currency playing field would boost U.S. exports to China, perhaps dramatically (unless it sparks a trade war, which seems unlikely because that would be in neither country’s interest). The total package of freer, fairer trade could support more than 2 million new jobs, according to cumulative calculations from the U.S. Chamber of Commerce and the Economic Policy Institute.
Stabilize the housing market. Housing, the recovery’s biggest drag, has confounded the White House and Congress, and with good reason. The market is still working through a glut of foreclosures that started with homeowners who bought more than they could afford, and then spread to more-responsible borrowers who lost jobs in the financial crisis. An oversupply of cheap, repossessed homes has helped sink housing prices nationwide to their lowest levels in a decade, adjusted for inflation. Falling values have erased trillions of dollars in wealth for Americans who have kept their houses, spurring consumers to save more and spend less and robbing entrepreneurs of a tried-and-true tool—home-equity loans—for starting or expanding a small business. “You don’t have a very good shot at sustained job growth unless you address the largest factor holding it back, which is demand,” says Robert Shapiro, a former Clinton administration economic adviser who now runs the consulting firm Sonecon. “You can’t get demand going until housing prices stabilize.”
For people who could afford to stay in their homes if they found jobs, the government could set up a sort of bridge-loan program to stave off foreclosure.
Therein lies another possible bargain: Obama and Republicans could agree to try a double-barreled attempt to get foreclosure rates back to historically normal levels. They could reverse the administration’s recent efforts to slow the foreclosure process for delinquent borrowers and, instead, take steps to shuttle the most-troubled homeowners—the ones who borrowed beyond their means—out of their houses and into rental units as fast as possible. Keith Hennessey, a former economic adviser to President George W. Bush, compares that effort to removing a Band-Aid: “Policies for several years now—including under the administration I worked for—have focused on trying to keep people in their homes,” says Hennessey, now a research fellow at Stanford University’s Hoover Institution. “That stretches out the problem,” pulling the bandage off slowly. Maybe now, he says, it’s time to “rip it off really fast. Stop trying to help keep people who can’t afford to be in their homes stay in their homes.”
For people who could afford to stay in their homes if they found jobs, the government could set up a sort of bridge-loan program to stave off foreclosure—money to cover mortgage payments for a year or two, until the economy improves and the borrower finds a job and pays back the money. Those loans could help stabilize home prices, restore consumer demand, and, hopefully, trigger job creation. “If you can get that virtuous cycle going,” Shapiro says, “then the loan only has to be temporary, and they’ll be able to handle their own mortgage” very soon. Double bonus: The cycle would help lift the rest of the economy, and hiring too. The political and policy challenge will be finding a best-fit formula for determining which homeowners can afford their loans and which ones are in over their heads. But the rewards of stabilizing housing outweigh the political risks. Top economists such as Stanford’s Robert Hall and the University of Chicago’s Amir Sufi contend that housing woes and their effects on consumers are key factors in stifling growth and job creation.
Drill, responsibly, drill. Obama has tried an expanded oil-exploration bargain before, but the massive spill in the Gulf of Mexico scuttled it. BP’s summerlong gusher last year exposed serious flaws in how the government polices deepwater drilling, including an insufficient corps of safety regulators and an embarrassing failure to anticipate that new technologies to drill several thousand feet below the ocean surface might also bring new risks. While the Interior Department revamped its oversight procedures, permits for Gulf drilling slowed and, with them, job-creation potential.
Accelerating Gulf oil and gas permitting would result in 230,000 new jobs in 2012 and leverage $19 billion in capital investment over the next three years.
Interior has completed its safety review and requested $358 million for fiscal 2012 to hire more regulators and implement stricter drilling standards, a $119 million increase from fiscal 2010. Republicans should grant the request. In exchange, Obama should turn up the heat on Interior to fast-track permitting as much as the oversight infrastructure allows. The energy consulting group IHS CERA estimated last month that accelerating Gulf oil and gas permitting “to levels that support the oil industry’s capacity to responsibly explore and operate” would result in 230,000 new jobs in 2012 and leverage $19 billion in capital investment over the next three years. Government royalties from the increased production are estimated at $6 billion a year, which would pay for the most gold-plated safety regime Interior could ask for—and maybe even help fund some of those housing bridge loans.
Welcome a new wave of immigrants. If you take McConnell’s Machiavellian creativity on the debt limit—the idea to let Obama ask Congress for more borrowing authority, for Congress to reject it, and for Obama to veto that rejection—and apply it to America’s consumer-demand problem, you just might find a clever agreement on one of Washington’s most polarizing issues. Bonus: You’ll create a lot of jobs.
A persuasive body of economic research suggests that one of the easiest ways to boost consumer demand would be to allow a couple of million additional consumers into the United States. A flood of immigrants would boost growth; economists who have studied immigration and its economic impact suggest that the newcomers wouldn’t drive down wages or employment for everyone else. Adam Ozimek, an economic consultant and blogger at Econsult in Philadelphia, wrote recently, “Immigrants buy stuff; that means businesses sell more, and they need to expand and hire new workers.” The big economic lift would stem from the simple fact that all of those immigrants would need to live somewhere, thus boosting the housing market. A Swiss National Bank study from last year found that an immigrant influx equal to 1 percent of the population in a given Swiss region created a 2.7 percent increase in housing prices.
The creativity comes from how the government chooses which immigrants win the right to join the incoming tide. Some could be selected for citizenship through a lottery. In the spirit of American capitalism, others could buy citizenship at an auction. As economic blogger Matthew Kahn suggested last month, “The United States does have a product that the rest of the world wants. It is called a ‘U.S passport.’ ” Each new one could fetch an average of $250,000 at auction, Kahn estimates. U.S. employers, which are both flush with cash and worried about the thinness of America’s ranks of engineers and other highly skilled workers, could buy spots for would-be citizens who would help their businesses. Would-be entrepreneurs could borrow money or recruit venture capital to sponsor themselves. A million citizenships averaging $250,000 each would raise $250 billion—money that the president and Congress could agree to devote exclusively to paying down the national debt.
Unleash energy companies’ spending power. Late in 2010, Midwest mega-utility Exelon announced that it would start spending $5 billion on renewable-power generation, energy-efficiency efforts, and other clean-energy projects, which the utility said would create “thousands of jobs.” Few other utilities have announced investments anywhere near that large, even though the nation’s power plants are aging and electricity demand is projected to rise. The disconnect is one of the easiest-to-spot examples of the “certainty” problem that Republicans often complain about—and it’s fairly easy to remedy.
Exelon CEO John Rowe likes to point out that utilities face a “train wreck” of multiple new environmental regulations in the next decade, along with a vague sense—but no concrete indications—that Congress will eventually put a price on carbon dioxide emissions. The multiple unknowns create a near-paralysis for an industry that invests on decades-long time horizons. Utilities don’t know which types of power plants will be affordable or even feasible to operate down the road, so they’re hesitant to make big bets now. If they build more coal or natural-gas capacity, which is mostly cheaper today than renewable power such as wind or solar, utilities might get socked by regulations or carbon pricing down the road. If they had a better idea of what’s to come—specifically, the knowledge that renewables, which are costlier today, will necessarily form a growing share of the nation’s future electric mix—they would be more likely to invest in those sources now, when idled construction workers could use the work.
One of the easiest ways to shore up certainty for utilities would be a “Clean-Energy Standard”—a mandate that a certain percentage of each utility’s power generation come from low-carbon-emission sources. The percentage would ramp up over time. Under current technology, clean energy is often more expensive than, say, coal-fired electricity, but a phased-in standard would allow utilities time to increase electric prices incrementally; a well-designed standard with flexibility (for regions most dependent on fossil fuels today) could blunt much of the long-term impact on consumers. Meanwhile, the new construction could start right away. Such a federal mandate, says Joshua Freed, vice president for clean energy at the centrist Democratic think tank Third Way, “would provide a clear signal, without costing any money, to the private sector to invest in wind, solar, or any of the other technologies that are coming on line today.” Several large utilities say that the resulting certainty would spur billions of dollars of investment and drive job growth.
Explore other deals. Obama and Republicans could seek common ground elsewhere, too: freezing or repealing some federal regulations (the National Labor Relations Board has several that the business community would love to vanquish); enacting German-style labor laws to encourage job-sharing, in which businesses keep workers on the payroll but reduce hours across the company to prevent layoffs; and extending payroll-tax cuts or enacting new ones designed to encourage businesses to hire the long-term unemployed (Obama has pushed that last idea for some time now). Lawmakers should look for more ways to boost exports, to unleash corporate investment, and to unlock credit for start-ups.
If Washington’s top political and policy strategists can’t find some way to compromise on any of these ideas, they should take a day off—only one—and draft a list of new possibilities. Then they should reconvene, or call in their super committee and lock its members up until they reach consensus.
It doesn’t matter where everyone meets, but it would be nice if the room had a big bank of phones. That way, if job-creation talks stall, everyone could leave the table and dial for a while. Across America, 14 million unemployed workers would be happy to take their calls. They’re bound to be full of ideas. Unlike the folks in Washington, they have thought about almost nothing else these last few months.
This article appears in the August 6, 2011 edition of National Journal Magazine.