Why Obama Cannot Match Germany's Jobs Miracle

In 2002, Chancellor Gerhard Schroder appointed a jobs council headed by Volkswagen’s Peter Hartz to solve Germany’s high unemployment. In 2011, President Barack Obama similarly appointed a jobs commission headed by General Electric's Jeffrey Immelt to achieve the same goal.  (At the time, Schroeder headed the SPD, the equivalent of America’s Democratic Party.)

Germany’s labor market turned around in a dramatic fashion after Schroeder implemented the Hartz Commission’s sweeping reforms between 2002 and 2005. In contrast, Obama’s Immelt Council quietly disbanded without making substantive proposals, and America’s worst jobs recovery of the postwar period continued.

Obama cannot duplicate the German reforms. They reject his Keynesian belief that jobs are created by government stimulus.  Instead, the Hartz reforms rest on the common sense notion that people take jobs when work, rather than welfare, pays. Such an approach violates Obama’s core belief that government must make the lives of the unemployed as comfortable as possible. No, the Germans say. If the state gives too much, the unemployed will have no incentive to take jobs, even when they are available.

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Add Disability to Obama's Anti-Jobs Policies

As the election draws closer, the two most closely watched economic indicators are the unemployment rate and the number of jobs created.  On June 1, the Bureau of Labor Statistics issued bad economic news. The number of jobs created was only 69,000 and the unemployment rate increased from 8.1 to 8.2 percent. In a presidential campaign, the difference between an 8.2 and a 7.5 percent unemployment rate or a month of 250,000 jobs versus 69,000 can be the difference between re-election and defeat.

The die is already cast. Obama bet all his money on Keynesian stimulus propped up by super-expansionary monetary policy, the Detroit bailout, and extensions of unemployment insurance. He has nothing left other than infrastructure projects, subsidies for state teachers and first responders, and a feeble jobs credit for small business. The one move that could turn things around quickly — extension of the Bush tax cuts – would deprive Obama of his prime campaign message that “the rich must pay their fair share.”

In a piece dated August 28, 2011 Why Obama Cannot Support a Real Jobs Program, I laid out an anti-Keynesian jobs program to create jobs and lower the unemployment rate. The third point in my program read “to create economic conditions that encourage businesses to hire and the unemployed to seek and accept jobs.” To do this, I advised not to extend unemployment benefits and to reduce the minimum wage, particularly for youths. The President did not follow my advice and look where he is now.
I wish to throw the social security disability into the mix of anti-job programs. The disability program is not the creation of the Obama administration, but Obama appointees have set and interpreted its policies for more than three years. Let’s examine their record:

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Obama’s New Top Economist Opposes His Jobs Program

The mainstream press has heaped praise on President Obama’s pick to head his Council of Economic Advisers. Alan Krueger is indeed a prestigious economist, noted for his empirical work and lack of ideological bent.

The mainstream press particularly emphasizes his controversial work on minimum wages which concludes that in the case studied the minimum wage did not depress employment. Insofar as this finding defies much conventional wisdom, this particular study set off a string of research that served the economics profession well.

Only the Wall Street Journal has noted that Krueger, in two research papers for the prestigious National Bureau of Economic Research, found that more generous unemployment benefits raise unemployment.  In his 2008 study, Krueger concluded that job search is inversely related to the generosity of unemployment benefits. In other words, unemployed workers who get generous unemployment insurance spend less time looking for a job.

This finding, by the way, is consistent with a great deal of research that shows that the unemployed find jobs near the end of coverage by unemployment insurance.

The extension of unemployment insurance beyond the current almost two years will be a major plank in Obama’s job program. His new top economic advisor should tell him to drop that provision if he really wants to lower the unemployment rate.

Why Obama Can't Support A Real Jobs Program

President Obama’s much-anticipated jobs speech will undoubtedly cover more of the same things that already haven’t worked. He will propose an infrastructure bank, extension of unemployment and food stamps, promotion of green jobs, more government-corporate partnerships, and a one-year extension of the payroll tax reduction. He’ll advocate a second stimulus. He may be flanked by his jobs commission, headed by the CEO ofGeneral Electric, which earlier issued a lame interim jobs report.

His speech will not be about jobs. Instead, it will be a campaign speech in disguise.

Obama cannot propose a real jobs program. His constituents would rebel. A real jobs program attacks too many of the core beliefs of his party, such as minimum wages and higher taxes on the better off. Even if his presidency rested on it, Obama couldn’t emulate Bill Clinton’s 1996 Welfare Reform Act that triangulated him from his own party. There is no way for Obama to enunciate the equivalent of Clinton’s “We must end welfare as we know it.” His core beliefs rule out such a dramatic move to the center.

However, if Obama really wished to create jobs, he must:

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