President Bill Clinton Job-Creation Blueprint Fact Check

Reaction from economists include "overstated" and "preposterous."

June 28, 2011, 3:49 PM

June 29, 2011 — -- Former President Bill Clinton is hosting a conference in Chicago this week and has laid out a blueprint to boost jobs, with assertions a former Treasury official and economist has called "overstated" and "preposterous."

Clinton's 14 proposals, published in this week's Newsweek, focus on boosting jobs in the energy sector, job training, and making the United States more competitive in the global economy.

During the first plenary session today, President Clinton introduced an initiative from Visa and Kiva, a San Francisco-based online microlending firm, to support loans to small businesses in the nation's struggling cities. Kiva Detroit launched today as the first Kiva City.

Clinton's proposals also include a few tax breaks for employers, just as President Obama slammed Republicans today for refusing to accept tax hikes, even for the wealthiest Americans, while trying to reduce the deficit.

In 2005, President Clinton started the Clinton Global Initiative (CGI), which invites heads of state and other global leaders to address the "world's most pressing challenges." The two-day Clinton Global Initiative America in Chicago, focused on job creation and economic growth, will include Treasury Secretary Timothy Geithner, Indiana Gov. Mitch Daniels, Dow Corning Chairman Stephanie Burns, and CEO Tony Hsieh, among others.

ABC News asked labor economists and former government officials to take a look at 10 proposals among the 42nd president's blueprint.

1. Clinton said approval times to start shovel-ready projects can be too long, sometimes taking three years. He proposes that the federal government should be able to give a waiver to states to speed up start times on construction projects.

Cecilia Rouse, economics professor at Princeton and former member of President Obama's Council of Economic Advisers, said she can't speak specifically to whether approval processes across the country are too long but she said states should make sure they have the necessary safeguards.

"We don't want infrastructure projects that will crumble because we didn't have proper materials, for example," she said.

2. Clinton endorses the conversion of tax credits for new green jobs and startup companies into its cash equivalent for every employee hired.

Phillip Swagel, former assistant secretary for economic policy at the Treasury Department from 2006 to 2009 and former chief of staff at the White House Council of Economic Advisers, said he agrees with cutting payroll taxes for employers but does not think it should be done for only green jobs.

"We want stronger growth and more jobs, period," Swagel, now a professor at the Maryland School of Public Policy, said. "It's not a good idea for the U.S. government to pick particular sectors for growth.

"President Obama's policies already dump taxpayer dollars on so-called green sectors, and for little apparent benefit. If President Clinton is serious about enhancing use of renewable energy sources, then he could propose a sharply higher gasoline tax or a carbon tax, for example."

Although there is uncertainty about what the returns of investments in particular sectors will be, Rouse said, Clinton is trying to encourage "smart" investments overall.

"Psychologists have a way of looking at future selves, where would they wish we made investments looking back," she said.

Because the energy sector is changing for various reasons, including innovation and regulations, if the country invested with dollars and jobs in that sector, it would likely make a competitive, global impact, Rouse said.

"In that sense, energy is a way we can make some changes," she said.

3. Clinton attributes a tax-incentive structure "in large part" to the growth of the high-power battery manufacturing industry in the United States.

"This is overstated and partly missing the point," Swagel said. "There are always many reasons why firms and industries thrive or fail. Demand for new battery technology has been driven by mobile electronics and by the shift of motor vehicle production toward electric technologies."

Swagel said the U.S. government has subsidized firms in this industry, but its fundamental success is because of the need for the technology.

"It is not that the U.S. government somehow is picking winners," Swagel said. "Government subsidies might have helped, but it is a vast overstatement to say that this is a case in which the government has picked just the right winner."

Stephen Bronars, senior economist with Welch Consulting, shared in the skepticism. He said it is not clear that capital investment in manufacturing will create "that many" manufacturing jobs.

"Many of his proposals will employ lots of machines and computers in manufacturing," Bronars said.

There are 11.7 million people employed in all manufacturing industries combined, according to Bronars. In 1979, when the U.S. economy was smaller, there were 19.5 million people employed in manufacturing in the United States.

"There are 14 million people looking for work and many more waiting for the economy to recover so they can start looking," he said. "Manufacturing jobs is a small part of the solution to the jobs crisis."

4. President Clinton said job growth is likely going to come from the changing way we produce and use energy. "The U.S. didn't ratify the Kyoto accords, of course, because Al Gore and I left office, and the next government wasn't for it," President Clinton wrote. "They were wrong."

Swagel said the proposal seems like a "non sequitur."

Swagel said a cap-and-trade system such as Kyoto is effective if it acts like a tax on carbon-producing activity. There are ways to mitigate the negative effects of this tax on growth and job creation, such as auctioning the carbon allowances and use the revenue to reduce other taxes, Swagel said.

"In that case, carbon policy is a revenue neutral tax reform. But President Clinton's proposals are to boost spending rather than use the revenue to offset other tax reductions," he said. "So there are ways for the gist of the president's statement to be true. I just don't see him going in that direction."

President Bill Clinton's Blueprint to Boost Jobs

5. Clinton said a million people across the country could be put to work retrofitting buildings to be more energy efficient, like the Empire State Buildings.

"That depends on how many buildings are retro-fitted and how quickly the jobs get done," economist Bronars said. "A million jobs for how long? Six months? A year? Again the retro-fitting should occur if it saves on energy costs, etc., not just because it puts people to work."

6. Another proposal is to allow utility companies to collect money saved from energy cost work and use it to pay their workers, citing a program in Arkansas called HEAL (Home Energy Assistance Loan).

"You get 7,000 jobs for every billion dollars in retrofitting," he wrote.

"Again, the big question is a job for how long?" Bronars said. "If it's a job for a year, that makes sense. President Clinton assumes the cost of retrofitting, which include labor, capital equipment, and materials, is $143,000 per job per year."

Rouse said putting more people to work on retrofitting buildings or larger projects could help build a state-of-the-art infrastructure that is needed for economic growth.

"With the fragile economy, it's not a bad time to put people to work and take advantage of low interest rates for public-sector borrowing," she said.

7. The former president's seventh proposal is to lower corporate tax rates to attract companies to the United States, "but reduce the loopholes that cause unfair disparities."

Rouse said Clinton supports lowering the tax rate but broadening the base. In theory, this would increase competitiveness because of the lower rate. But in a budget-neutral or lower-cost way by broadening the base.

"The issue here is which loopholes, tax credits or deductions will be eliminated?" she said. "The devil is in the details."

Swagel said boosting the U.S. economy and spurring job creation includes two parts that must be implemented at the same time.

First, cut taxes today to spur near-term demand. Swagel said he prefers cutting both taxes on labor and on investment. In other words, he prefers to cut the employer payroll tax and let firms write off their new investments immediately rather than over time.

Second, he suggests putting in place "a credible plan to address the fiscal imbalance over time."

8. The eighth proposal describes the need to encourage banks who are "jittery about the economy" to lend. He said that if the Small Business Administration had a 10-to-1 loan-to-capital ratio, rather then current 20-to-1 ratio, the government could guarantee $150 billion in loans and create more than a million jobs.

"This assertion is preposterous. Does anyone really think that there are a million jobs to be created if only there was another $150 billion of loans in the economy?" Swagel said. "Yes, many small businesses still report constrained access to lending compared to large corporations. But overall interest rates are very low.

"It is hard to imagine that is really the obstacle to creating one million jobs. And does anyone really believe that SBA has the ability to wisely lend out $150 billion in any near-term time frame? No way."

Economist Bronars said if the president is assuming 1 million jobs, for one year, he is also asserting that for each $150,000 loan a company gets for capital improvements, it will employ someone for a year. Bronars said that proposal includes many assumptions about how capital intensive an industry is and what the loan is for.

"Some capital expenditures could be used to automate production processes and would increase construction employment but could decrease the employment at a plant after the capital is in place," Bronars said. "This does not make it a bad loan."

Bronars said the idea of capital investment is to improve productive efficiency and increase profitability. "It may or may not cause job growth to occur at the rate president Clinton suggests," he said. "It seems reasonable but job creation should not be what banks or the SBA looks at when deciding whether or not to loan money to a business."

President Bill Clinton's Blueprint to Boost Jobs

9. Clinton states that the TARP stimulus should have been "more vigorously defended in the last election." After the GM and Chrysler bailouts, he said, there are about 75,000 more jobs in the industry, preventing the loss of factories and suppliers that would have cost a million jobs.

According to the latest Bureau of Labor Statistics jobs report, there were 697,000 people employed in the motor vehicles and parts industry in May, down by almost 400,000 since May 2006. Bronars said that the industry lost 35 percent of its jobs in five years, according to that data.

"Would it have been worse without the bailouts? Possibly. Does that make it sound economic policy?" Bronars said. "No, because the federal government now has to decide which banks and companies are too big to fail, and which will file for bankruptcy without a bailout."

Swagel said the job loss would have been worse without the bailout of GM and Chrysler, "but that alone does not mean the bailouts were wise or successful."

Swagel the impact on the regional economies would have been especially bad in late 2008 and early 2009 when the overall economy was in recession, which makes for a "good case" for the intervention.

But the bailouts have been costly, said Swagel, while he worked at the Treasury until Jan. 20, 2009.

"They saved jobs but the question is whether they were a cost-effective way of doing it. That is not clear yet," Swagel said.

Generally speaking, Rouse said, although the federal budget deficit must be addressed in the medium and long term, this year is not the time for the public sector to contract.

"When the private sector is not fully healthy, the public sector should kick in," she said. "Otherwise, we're going to have a stalled economy.

President Bill Clinton's Blueprint to Boost Jobs

10. Should employers be able to train people without providing benefits, as president Clinton suggests to build a skilled workforce?

Bronars agrees that such an idea could work because companies are already reluctant to make investments when the recipient of that investment can leave to work for a competitor.

"The Republicans should lobby for a sub-minimum wage during training periods, as well," Bronars said. "The union lobby will fight this, but the skills provided by the training programs are general."

Bronars said workers can apply the skills for other employers who didn't pay for the training.

Rouse said because the economy appears to be in a jobless recovery, employers, for various reasons, are not taking on the costs of hiring.

"We have high number of unemployed workers and employers have so many job applicants that even sifting through those applications can be daunting," she said.

Rouse said that it is also important to safeguard workers in programs such as the one proposed by Clinton, "so employers don't have an incentive to just churn employees."

"As a way to encourage employers to take a chance on workers,they would have otherwise not take a chance on, I think that it's an interesting idea," she said.

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