By Edward Luce and Krishna Guha
Barack Obama, the US president, said that yesterday’s rise into double-digit unemployment - the first time the figure has breached 10 percent for 26 years - underscored “the economic challenges that lie ahead”. That may prove to be an understatement.
Rising US joblessness poses increasingly urgent political and policy challenges for Obama.
Job numbers came hard on the heels of the electoral drubbing the Democratic party suffered on Tuesday, when it lost the governorships of New Jersey and Virginia.
Those defeats were caused by a switch of independent voters from the Democratic to the Republican column and by a low turnout among the liberal voters who carried Obama to thumping presidential poll victories in the two states a year ago. Among both groups, concern over economic direction was a big factor.
Democratic centrists on Capitol Hill - particularly those elected by thin margins last year - are taking note.
Yesterday, the Democratic leadership in the House of Representatives said it would probably postpone a vote on the healthcare bill that had been scheduled to take place today - admitting that it did not yet have sufficient votes to achieve its passage.
Only two weeks ago, few would have predicted that Nancy Pelosi, the House speaker, would have been unable comfortably to cross the threshold of 218 votes necessary to pass the bill.
This week’s double shock - the election defeats on Tuesday and yesterday’s jobless numbers - is likely to have had an impact on Pelosi’s calculations.
In particular, many centrist legislators are questioning why they are spending so much time on healthcare and carbon cap-and-trade legislation when voters are predominantly concerned with their personal economic anxieties.
Obama’s personal approval ratings remain high. But the proportion of voters expressing trust in government has fallen since he took office.
“The Democrats are too invested in healthcare to give up on it now,” said Bill Galston, a political scientist at the Brookings Institution. “But it is far from apparent that enactment of a bill will lead to a big change in how voters perceive their own fortunes. The benefits of the healthcare bill will only come on stream several years from now.”
Obama’s political challenge is reinforced by what appears to be a bipartisan paucity of ideas about how to create a new generation of jobs. Obama signed a bill that will extend unemployment insurance, making another 700,000 more people eligible for the average $300 (€200, £180) a week in benefits. The bill also extended an $8,000 credit for first-time homebuyers.
Obama also said he was considering a new tax credit for jobs and more spending on “ageing roads and bridges”. Given the public’s scepticism about the administration’s claim to have created or saved 1m jobs with its $787bn stimulus, and the low level of trust in government, Obama is effectively debarred from creating a second large-scale stimulus to boost the economy.
“What is striking about the debate over jobs is that neither party has any brilliant ideas on job creation, but the Democrats are taking all the hits,” said a Democratic economist who sometimes advises the White House.
“All the measures under discussion are piecemeal and short-term.”
There is also a debate in the White House over the efficacy of the proposed new jobs tax credit. Some officials are sceptical on the grounds that at least four out of every five dollars spent would go on jobs that would have been created anyway.
Under conservative assumptions, the cost per job created might be about $50,000 per year.
This looks expensive to many voters, but it is much less than estimates for the current stimulus, which will deliver one job-year per $92,000 in government spending.
The debate about further jobs initiatives is also constrained by the dire state of public finances.
Discussions are taking place alongside planning for next February’s budget, which many analysts believe needs to demonstrate a firm commitment to lower deficits or risk pressure on the dollar and in the bond market.
