Obama Aides Act to Fix Safety Net - NYTimes.com

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By JACKIE CALMES

WASHINGTON — With unemployment expected to rise well into next year even as the economy slowly recovers, the Obama administration and Democratic leaders in Congress are discussing extending several safety net programs as well as proposing new tax incentives for businesses to renew hiring.

President Obama’s economic team discussed a wide range of ideas at a meeting on Monday, following his Saturday radio address in which he said it would “explore additional options to promote job creation.” But officials emphasized that a decision was still far off and that in any event the effort would not add up to a second economic stimulus package, only an extension of the first.

“We’re thinking through all additional potential strategies for accelerating job creation,” said Mr. Obama’s senior adviser, David Axelrod.

The latest deliberations, and Mr. Obama’s added phrase in Saturday’s radio address, occurred against a backdrop of worsening joblessness. While some economists and policy makers say the recession is easing, a report on Friday showed unemployment in September inched up to 9.8 percent, a 26-year high.

Among the options for additional steps is some variation on Mr. Obama’s proposal during the stimulus debate to give employers a $3,000 tax credit for each new hire, which Congress rejected last winter partly out of concern that businesses would manipulate their payrolls to claim the credit. Another option would allow more businesses to deduct their net operating losses going back five years instead of the usual two; Congress limited the break to small businesses as part of the economic stimulus law.

The search for further remedies is part of a two-track effort in the White House and Congress. Democrats are also considering plans to continue through 2010 the extra unemployment assistance and health benefits available to people who are out of work for long periods. Also likely to be retained, some officials say, is a popular $8,000 tax credit for first-time homebuyers that was included in the $787 billion stimulus law and has helped rouse a housing market that nonetheless remains shaky.

The unemployment and health benefits are otherwise due to expire at the end of this year, and the homebuyer’s credit at the end of November. Extending the unemployment and health benefits alone through next year could cost up to $100 billion. Additional measures would raise the price at a time when the White House and Congress are confronting growing pressure to avoid adding to already high deficits.

Yet Democrats are more anxious about stemming the loss of jobs and creating new ones.

With economists forecasting that unemployment could hit 10 percent before job growth returns, perhaps in mid-2010, Democrats face month after month of bad news on the jobs front in a midterm election year, when a president’s party typically loses Congressional seats. Charlie Cook, a longtime nonpartisan election analyst, said last week that he was raising the odds of Democrats losing their House majority to about 50-50.

Even a modest stimulus package that mostly maintains current programs would ignite a debate about the effectiveness of the original $787 billion plan, stoking Republicans’ arguments that the package of spending and tax cuts was a waste of taxpayers’ money. While most economists agree with Democrats that job losses would have been worse without the stimulus, Mr. Obama remains on the defensive for his initial promise that it would save or create 3.5 million jobs.

Despite the bad jobs figures, Democrats in Congress generally agree with the White House that a second full-blown stimulus package is not needed, barring an economic relapse.

The $787 billion recovery plan was intended to stretch over two years, partly in anticipation that the downturn would be prolonged. About 60 percent of the total is yet to be released, and much of that will go toward projects like road-building, other construction and research that save or create jobs.

Mark Zandi, an economist who occasionally advises Congressional Democratic leaders, and before that advised Senator John McCain, Republican of Arizona, in his two presidential campaigns, has projected an additional 750,000 job losses through next March, which would bring total losses to almost 9 million since December 2007. Mr. Zandi predicted that the unemployment rate would peak at 10.5 percent next June.

It is “very important,” he said, for the government to “continue to provide significant support to the economy through next year.” At the least, he said, that should include extending the homebuyer’s credit, various business tax breaks and mortgage relief programs.

But the demands on the federal government are likely to expand beyond that in the coming year.

Continued job losses only add to the plight of the states, which already are reeling from reduced tax revenues and increased demand for social services. Most states were able to balance their budgets this year, as they are required to do, only with billions of dollars in infusions from Washington. And the fiscal outlook for the states is now worse than a year ago, according to agencies that monitor them.

As the White House and Congress proceed with discussions of what to do next, Congress is working to stretch unemployment compensation for people who have been out of work for up to 79 weeks, or a year and a half. The House passed a bill for 13 additional weeks of aid for jobless workers in the 27 states with unemployment rates of 8.5 percent or higher, but some senators want an extra 12 weeks of benefits available in all states.

With the safety net programs due to expire after Dec. 31, the White House and Congress have contemplated for some time that they would probably have to renew them.

Besides the extended unemployment and food stamp benefits, they would keep alive a subsidy for people who lose their jobs and opt for the Cobra program, which lets them buy continued health care coverage under their former employers’ insurance plans. The subsidy covers up to 65 percent of the insurance premiums for most workers.

As Democrats have found, aiding those who have lost their jobs is simpler than preventing more layoffs and creating new jobs.

“There may not be anything we can do,” said a Democratic Congressional leadership aide who spoke on condition of anonymity because he was not authorized to discuss the matter. “Under any circumstances, it’s going to take a while for jobs to recover.”

John Harwood contributed reporting.

Asian Nations Revisit Safety Net in Effort to Bolster Spending

By PATRICK BARTA

Bangkok

Asian countries are beginning to build extensive social-welfare programs like those that long have existed in the West, a move they hope will encourage their people to save less, spend more and help put the region -- and the world -- on a stronger economic footing in the years ahead.

But creating a reliable social safety net is hard work, and it may be a long time, perhaps decades, before Asia sees results.

Analysts have long worried that Asians lack sufficient health, unemployment and other benefits to tide them over when downturns or emergencies occur, or to prepare for old age. Only about 30% of Asia's elderly receive a pension, according to the United Nations. Just 20% of its unemployed have access to unemployment benefits or other work-related social programs.

Partly as a result, Asians tend to save more and spend less of their income than their counterparts in the West. That contributed to the global imbalances that are one cause of the current world recession: U.S. consumers went deep into debt to finance consumption while Asians socked away money and relied on exports to Western consumers.

Social-welfare programs are one way of addressing those imbalances. The idea is that if Asian consumers have more confidence in their governments to take care of them in times of trouble, they will be more willing to spend today, igniting new demand for consumer goods and leaving the world economy less dependent on Western shoppers.

China recently said it will invest $120 billion to improve health care by building clinics and extending basic medical coverage to 90% of its 1.3 billion people within three years. Vietnam is implementing a national unemployment-benefits system. India has unveiled a voluntary pension system for up to several hundred million people who work at small companies, and is developing a nationwide identification database to better provide health care and other benefits.

Those programs build on efforts undertaken in recent years. Thailand launched a national health-care program in 2001 that offers basic medical care for just 30 Thai baht, about $1, to most citizens. India's latest national budget expands a program begun in 2005 that guarantees 100 days of work per year for rural laborers.

Public health expenditure* as a percentage of GDP in 2006

India	0.9
Indonesia	1.3
Philippines	1.3
Cambodia	1.5
Malaysia	1.9
China	1.9
Vietnam	2.1
Thailand	2.3
Australia	5.9
Japan	6.6
United States	7.0
High-income OECD	7.0
New Zealand	7.2

*Includes recurrent and capital spending from government, borrowings, grants and social insurance funds

Source: World Bank

The expansion of Asia's safety net "is happening, and it will help" wean Asia from an over-reliance on exports, says Robert Subbaraman, chief Asia economist at Nomura International in Hong Kong.

But many governments, including India, suffer from large budget deficits or lax tax collection, and may find it hard to finance expanded welfare programs.

In addition, a stronger safety net is no guarantee Asians will consume more. Europeans enjoy one of the world's most robust safety nets, and they tend to save more than Americans.

And it can take years, maybe decades, before consumers build up enough trust in welfare programs to modify spending behavior. In many Asian countries, such as Indonesia, services provided by social programs are dismal, with many residents avoiding government medical clinics altogether.

"The credibility of the systems has to be tested, and people have to be comfortable" that they still will be around after changes in government or economic crises, says Joseph Zveglich, an Asian Development Bank economist. Although he supports efforts to expand social safety nets, he says, "it's going to take time for people's activities to change."

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Consumer spending has fueled growth in South Korea, which reported its best quarterly performance in more than five years.

Some analysts say a better way to wean Asia off exports and encourage domestic consumer spending would be to let Asian currencies appreciate. That would make Asian exports less attractive to foreign consumers, give local consumers more spending power to buy imported goods, and force Asian business to diversify beyond exports. But Asian authorities may be unlikely to risk putting exporters in jeopardy by allowing their currencies to rise.

Those countries that have expanded their safety nets over the past decade have seen mixed results. In Thailand, residents were quick to take advantage of the country's new national health-care program. More than 45 million people registered to participate by mid-2003. Consumer spending shot up soon after the program was introduced, but economists believe the surge was driven more by an expansion of consumer credit and a sharp uptick in growth that occurred as Thailand's economy rebounded from the 1997-98 Asian financial crisis.

Growth in consumer spending later slowed, and in recent years Thailand's savings rate has begun climbing again after several years of declines, according to the Asian Development Bank. Most other major Asian countries have likewise seen their savings rates increase or stay about the same since the late 1990s, including Vietnam, where savings climbed to about 32% of gross domestic product in recent years from roughly 18% in 1995. Those trends could intensify in the future as the region struggles to fully recover from the current recession.

"In this economy, I'm trying to save as much as I can," says Banyen Sriwongrak, a 43-year-old vendor in central Bangkok who makes about $12 a day selling jasmine garlands near a religious shrine. She says she used Thailand's 30-baht health-care program to have a lump removed two years ago in a surgery that normally would have cost 16,000 Thai baht, or about $475. Having that protection was helpful, she says, but it hasn't fundamentally changed her spending, which includes squirreling away two or more days' worth of income each month and sending an additional $60 or so to support her mother in rural Thailand. "We don't know what the future will bring," she says.

None of that means Asian governments should stop investing in welfare programs. Such programs can greatly improve residents' lives even if they don't ultimately affect spending patterns. And the benefits in terms of changed consumer behavior may show up later.

Upgrading safety nets "isn't something that's going to get us out of the [current financial] crisis," says Mr. Zveglich, the Asian Development Bank economist. But if investments in the social safety net are made now, it may help the next time.

Write to Patrick Barta at patrick.barta@wsj.com