PUTTING AMERICANS BACK TO WORK / THE WALL STREET JOURNAL OP EDITORIAL

OPINION

DECEMBER 2, 2009

Putting Americans Back to Work

By CHRISTINA ROMER

President Obama took office at the height of the worst downturn since the Great Depression. Following the collapse of Lehman Brothers in the fall of 2008, both weak and strong financial institutions faced panic-induced runs, and by last November, job losses rose to over half a million per month. Over the winter, any hope that the crisis might be limited to the United States was dashed as countries throughout the world began reporting breathtaking declines in GDP and trade.

The president's first task was to stop the economic free fall and stabilize financial markets. Next was to help restore confidence and begin the process of financial-market repair. And now we are moving ahead toward solutions that jump-start job creation.

Within a month of taking office, the administration had announced its Financial Stability Plan and signed the American Recovery and Reinvestment Act. The Recovery Act helped stem the decline in spending caused by consumers and businesses reeling from the fall in asset prices and the drying up of credit. Real GDP, which had fallen at a 6.4% annual rate in the first quarter of 2009, began to grow again just two quarters later.

The vast majority of professional forecasters attribute much of this dramatic turnaround to the fiscal stimulus. Indeed, on Monday the nonpartisan Congressional Budget Office issued a report that estimated that the Recovery Act raised GDP in the third quarter by between 1.2% and 3.2% relative to what it otherwise would have been, and increased employment between 600,000 and 1.6 million.

The administration's efforts on economic growth and job creation did not end after that first eventful month. Subsequently the president pushed for the Cash for Clunkers program that was successful in boosting demand and job creation; about a month ago the president announced the latest in a series of measures to encourage banks to lend to small businesses; and in early November the president signed into law a measure that would provide relief and spur job creation by adding additional weeks of unemployment insurance, cutting taxes for businesses, and expanding and extending the home-buyer tax credit.

Despite these positive developments, the job market remains very weak. The dramatic decline in economic activity last fall and winter led to soaring unemployment. Furthermore, the job losses were deeper than would be expected just on the basis of the behavior of GDP. Having come through a period of almost unprecedented financial strain, American businesses appear hesitant to hire, and are producing more with fewer workers.

Months ago, President Obama asked his economic team to intensify our exploration of strategies to build on the Recovery Act and subsequent measures to help spur job creation. Tomorrow he will convene a meeting of business and labor leaders, small-business owners, economists and community representatives to discuss our ideas and solicit others for accelerating hiring.

Many ideas under discussion build on partnerships with the private sector. Given the budget deficits this administration inherited, it is critical to leverage scarce public funds. More fundamentally, when businesses seem hesitant to hire and productivity is surging, we need to harness the private sector, bringing large and small firms in off the sidelines to boost job creation.

One idea is to give direct incentives for homeowners to retrofit their homes to improve energy efficiency. This approach would be convenient and certain, and it could encourage millions of homeowners to make cost-effective investments they might not have done for years, if ever. It could help both stimulate the manufacture of retrofit products and increase construction employment. Others have suggested incentives to help small businesses invest, grow and create jobs. This could include measures to restore the flow of credit for small businesses and targeted tax cuts. In these types of ways, a moderate and targeted investment by the government might be leveraged into significant employment gains and purchasing power by small businesses.

Direct government investments can also play an important role. We've already seen from the Recovery Act that spending on infrastructure—everything from roads and bridges to schools and municipal buildings—is an effective way to put people back to work while creating lasting investments that raise future productivity.

All these ideas are just that—ideas to be discussed, refined and evaluated. Action on any measures to spur job creation will be worked out with Congress after careful study, and will be done in a fiscally responsible way. But it is important to use Thursday's Jobs Forum at the White House as a chance to confront the challenges our workers and firms face, and explore creative, cost-effective solutions.

Etched in stone on the Roosevelt Memorial are words that are as true today as they were in 1934 when President Roosevelt spoke them: "No country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance." Businesses and the government can and must come together to put America back to work.

—Ms. Romer is chair of the president's Council of Economic Advisers


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