x Abu Dhabi, UAESaturday 22 July 2017

A crisis economy needs more than just a big speech

Like a preacher, Barack Obama inveighed against thedogmatic stance of his rivals. But with a global recession looming, both the US president and the world needs his jobs and stimulus package to work.

In a much-anticipated speech on Thursday evening, Barack Obama unveiled an ambitious plan to create jobs and stimulate US economic growth. Worth more than US$450 billion (Dh1.65 trillion), the president's American Jobs Act envisages both extra expenditure and tax cuts.

The stakes could hardly be higher, both for the US and the rest of the world. Politically, Mr Obama's re-election in November 2012 depends on whether he can reduce unemployment.

No incumbent has ever achieved a second term at the ballot box with more than 9 per cent of Americans out of a job. Grim US employment data published last week sent global stock markets into a tailspin on fears of a "double-dip" recession.

Economically, Mr Obama's plan needs to jump-start the US economy that has ground to a halt. That, in turn, would help to boost world growth, including in the euro zone and emerging markets that all depend on exports to the US.

Much of what the president announced to Congress was already known. In his public holiday address on Monday, he had indicated that he would press for extended unemployment benefits, payroll tax relief, new mortgage refinancing schemes and a major infrastructure programme.

The full detail will only be known when the White House sends the proposed bill to both houses of Congress. However, the broad line is clear: tax cuts to encourage businesses to hire more workers and raise their wages, coupled with investment in the public sector, notably education and transport.

The president says the main beneficiaries of the proposed measures are small businesses and middle-class Americans who struggle to make ends meet.

If the bill becomes law, then companies get a $4,000 tax credit if they hire someone who has been out of work for more than six months. Likewise, typical working families would receive a tax cut worth $1,500 next year.

Interestingly, Mr Obama was more outspoken than before on big business, saying that corporate profits had come roaring back but that sustainable jobs would depend on small and medium-size enterprises.

That will resonate with many independent voters and even some Tea Party supporters. They are all outraged by banks and corporations that pay their managers huge salaries and their institutional shareholders large dividends while laying off workers or cutting wages.

Crucially, Mr Obama was at pains to stress that his plan is fiscally neutral, in another words the tax cuts and extra expenditure are paid for by deeper cuts elsewhere. Perhaps the biggest announcement was a "more ambitious deficit plan, a plan that will not only cover the cost of this jobs bill, but stabilise our debt in the long run".

All this aimed at the Tea Party and its Republican representatives in congress. Like a preacher, the president inveighed against their dogmatic stance of cutting public spending while maintaining the Bush-era tax cuts for the wealthy.

The chorus line, repeated more than a dozen times, was similarly religious in tone: "You should pass this jobs plan right away".

But he could not resist condemning their dogmatism: "I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes".

However, not all was about domestic politics and partisan bickering. Mr Obama also championed trade agreements with emerging markets while using the potent weapon of economic patriotism to gather support for his plan. Several statements on defending US pre-eminence against China received standing ovations from both Democrats and Republicans.

At least one objection remains - that this is too little too late to avert stagnation or a "double-dip" recession.

If Mr Obama can inject a real sense of confidence and provide leadership, the mood on both Wall Street and Main Street could change. With that, the financial turmoil of recent months is more likely to subside and the world economy might just avert another major downturn that would affect both developed countries and emerging markets.

However, with global growth stalling and confidence plunging, public and private debt reduction programmes are cutting off the oxygen supply to the world economy.

The fledgling recovery is turning into a relapse. In fact, the "great contraction" we are currently seeing suggests that the recession never really ended in many of the developed economies, especially the US and the UK. Manufacturing data and figures on business confidence indicate that China's growth is slowing significantly and that Germany's has ground to a halt.

It will take much more than a speech to fix the global crisis.

Nor will more monetary stimulus, which seems imminent in both the US and the euro zone, be sufficient.

Mr Obama's next initiative should be an emergency summit of the Group of 20 leading economies to coordinate international action.

Adrian Pabst is lecturer in politics at Britain's University of Kent, and visiting professor at the Institut d'Etudes Politiques de Lille, France.