Unemployment: How to Slow the Bleeding

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Creating Green Jobs

However, other economists say these types of investments have another purpose: to add long-term stability to the economy. "For 20 to 30 years the government neglected to build and maintain infrastructure, and now it's shabby," says Rajeev Dhawan, director of Georgia State University's Robinson College of Business. "With infrastructure, you are creating more work for contractors, engineers, and architects—well-paying, middle-class jobs."

Dhawan says that Obama's and Pelosi's proposals are a step in the right direction, but potentially not enough of an investment. "One hundred fifty billion over 10 years is nothing," he says. "You have to have investment of a substantial magnitude to make a dent in a $14 trillion economy." He says Japan spent up to 10% of its gross domestic product on infrastructure in the 1990s to aid its economy. For the U.S., that would amount to $1.4 trillion.

Obama also says he wants to create 5 million green jobs by investing in renewable energy. He wants to spend $150 billion over 10 years to advance biofuels and their infrastructure, accelerate the commercialization of plug-in hybrid cars, develop commercial-scale renewable energy, invest in low-emission coal plants, and begin transition to a new digital electricity grid.

Looking for Stabilization

Some economists and analysts support the plan, saying it could spur skilled employment in research and development and eventually boost blue-collar production jobs to replace some of those that have been lost to lower-wage countries. They argue that the government must play a more active role in job creation, as the private sector loses its ability to do so.

"Extending unemployment insurance may be the right policy decision, but it doesn't create jobs," says John Challenger, CEO of Chicago outplacement firm Challenger, Gray & Christmas. Challenger says putting people to work on infrastructure and energy jobs as Obama has proposed would help the economy rebound and stabilize.

But others are skeptical; they worry that the jobs won't be sustainable if they're in industries that aren't competitive with less costly alternatives. With oil prices dropping sharply to below half of their July peak, there is already concern that some investment in green technology will become uneconomical.

Factoring in Falling Oil Prices

"It seems to me that it's a brilliant political move to deflect attention from the economic downside of Obama's energy and environmental proposal," says Max Schulz, energy policy analyst at the Manhattan Institute, a free-market-oriented think tank. "Mandates that insist on renewable energy that is more inefficient and expensive than coal and nuclear won't help the economy."

In any case, the economy can't wait for building or energy projects that take years. Consumer spending and confidence have dipped, which threatens the overall functioning of the U.S. service-based economy. So we are likely to see a rapid injection of funds directly into the hands of people who are most likely to spend it and get it circulating in the economy.

"We need to do something immediately to help stimulate demand," says Andrew Stettner, deputy director of the National Employment Law Project (NELP), a low-wage-worker advocacy organization. "We need to do something that gets money into people's hands that they will spend." NELP advocates both the unemployment assistance extension and the Unemployment Insurance Modernization Act, which would award states more money for unemployment benefits and provide assistance to 500,000 additional workers.

Good "Bang for the Buck"

An extension of unemployment benefits has one of the highest pass-through rates of any federal spending choice, says Mark Zandi, chief economist and co-founder of Moody's Economy.com, a subsidiary of Moody's Corp. (MCO). The June passage of 13 weeks of additional unemployment benefits, for those who had exhausted the maximum 26 weeks of benefits, cost $20 billion. Now, Zandi says, another $20 billion is needed for a second extension.

In testimony before the U.S. House of Representatives in June, Zandi offered estimates of how much each dollar of government spending in different forms would produce in real GDP each year. He said extending unemployment benefits would yield $1.64 of GDP, a temporary increase in food stamps $1.73, aid to state governments $1.36, and increased infrastructure spending $1.59. "The bang for the buck is very high," Zandi said of extended jobless benefits.

Some economists and politicians would rather debate whether to spend hundreds of billions of taxpayer dollars at all. "The federal government does not have unlimited resources to borrow and spend on whatever," says James Hamilton, professor of economics at the University of California at San Diego. "We need to reflect on what went wrong [to create the financial crisis], and not run off in every direction."

Filling the Void

The problem is that without some sort of huge stimulus, the U.S. recession could turn into a depression. "Consumers are retreating, people are losing their jobs, and only the government can fill the void," says Zandi.

Herbst is a reporter for BusinessWeek in New York.