The Senate passed a $15 billion jobs bill Monday with Harry Reid totally wrapped up in the success, not of creating jobs, which the bill probably will not do, but of getting several Republicans to go along with the charade. The bill uses tax incentives, eliminating payroll taxes through December and a tax credit, to create jobs. The bill is so silly one of the few economists I respect in virtually any issue, Mark Zandi of Economy.com, said, in the same interview, that the bill could create up to 250,000 jobs and will probably not create many new jobs - it will probably just provide money for jobs already created or about to be created as small businesses are usually moved to hire by tax incentives.The cynicism of the bill is breathtaking. Leadership touting the efficacy of the first stimulus said the $787 billion dollar package has created two million jobs – $393,500 per job. If the new package is as effective, it will create all of 38,119 jobs. If it really creates 250,000 jobs, it is eight times more effective than the first stimulus package. Somebody has it wrong, or maybe none of the data is real and the current exercise is about election year politics.
Fifteen billion would pay for 750,000 students to go to public universities for free; $15 billion would pay to demolish 1.5 million foreclosed homes and stabilize home prices for a while; the same amount of money would pay for 130,000 foreclosed homes at seventy cents and house more than half a million people in need. I could go on; instead, it will be wasted.
One consolation: the bill is much, much smaller than the original version that was clearly not going to get through the Senate. So investors can learn two things from the process. Beware bullish headlines about new programs coming out of Washington (as if they did not know this already) and two, the fear of overly large spending has finally hit Washington. Forget official GDP numbers – we are in a stagnant economy headed for a double dip recession (see some of my previous posts) – and this combination of political cynicism and political fear means the economy is not going to get any real boost from Washington, not a good thing at all.
And without more stimulus, consumer spending will stagnate or decline. That will impact corporate profits and will spill over into many individual stocks and the market in general in the second half of the year.