Does More Jobs Mean More Government Spending?

Aug 19, 2011

President Obama's bus tour across the Midwest this week could probably be summed up this way: jobs vs. deficits. Americans are clamoring for action on both, but action on jobs might mean more spending, which is a toxic word in Washington, as well as for many small-business owners.

A Small-Business Owner's Struggle

Terry Frank and her husband own a shop that sells everything from sandwiches to desserts on the Oak Ridge Turnpike in Oak Ridge, Tenn.

Frank has been running Nature's Marketplace for 20 years. She and her husband have three boys, two of whom are in college. She tells Laura Sullivan, guest host of weekends on All Things Considered, that since the recession began in 2008, she's had to cut down on her full-time employees.

"No employer ever wants to cut somebody back or let them go," Franks says, "but then when it's also your livelihood and, you know, my husband and I have to take care of our family and our mortgage payment."

Frank says she wants to hire more employees and grow her business, but she's afraid.

"People like me and my husband, we're going to be smart and we're not going to try to expand or do anything like that," she says, "if we don't know what tomorrow holds, if we think maybe the other shoe is going to drop and it's all going to implode."

Is Job Creation Without Spending Possible?

Frank is an example of the kind of person President Obama was trying to reach during his bus tour this week: Americans who are nervous about government growth and spending, and are therefore too anxious to invest their money to create new jobs.

Frank sees the government as the source of the current economic problems.

"I'm not an economist but I know that a lot of the people that I have conversations with know that the government can't continue to spend and the economy grow and do well. It just doesn't work," she says.

Economist Douglas Holtz-Eakin understands Frank's frustrations. He was chief economic policy adviser to Sen. John McCain's 2008 presidential campaign and today he's president of American Action Forum, a conservative think tank in Washington, D.C.

Holtz-Eakin believes that it is possible to create jobs without spending, thus relieving some of the stress that small-business owners like Frank are experiencing all across the U.S. He believes that the answer lies in reforming programs such as Social Security.

"If we did Social Security reform, nothing would happen today. No current retiree would be affected a bit. Future retirees would know what they're going to get, so they'd be more confident about what they have to do," he says. "The world would see the United States fixing a major entitlement program, have greater confidence in our ability to manage our finances, no more Standard & Poor downgrades, and business would say, 'Yeah, yeah, Washington's not broken. They fixed something that needed [to be] fixed. Great, I feel better about the future, let's go.'"

Gary Burtless, a senior fellow at the Brookings Institution, sees things differently.

"We want to spend money. We want to create demand for businesses so that they want to ad to their payroll," says Burtless, a former economist with the Labor Department.

Burtless feels that the government needs to spend money in order to create more jobs and ultimately calm the fears of consumers and business owners. Some of the governments' spending, he says, could come from borrowing money from foreign governments.

"The world is willing to buy government debt, and the government — if it's willing to spend this money — can create additional demand to put people to work," he says.

Obama's Jobs Proposal

The president will present a new jobs proposal after Labor Day, and there is a good chance that might require some more government spending.

NPR's Scott Horsley, who was on the president's tour, says he noticed that Obama had begun to express more forcefully his concerns that cutting government spending in the short run is not necessarily the path to prosperity.

"What Mr. Obama is arguing instead is that the government should spend more money now to try and rev up the economy," Horsley says, "and then recoup that cost later with bigger savings and maybe additional tax revenues down the road."

Horsley says that while we won't see anything on the scale of the stimulus bill that President Obama signed his first year in office, his proposal will reflect some more modest measures such as extending the payroll tax cut and government help for public works projects.

"The White House strategy is basically, 'Let's put something on the table that shows the president is thinking about jobs.' If it works, great, and if Republicans keep it bottled up, well, that will be fodder for next year's re-election campaign," Horsley says.

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