US President Barack Obama's $447-billion jobs plan got good reviews from economists on Friday, though several noted one glaring omission: The plan does not include a comprehensive way to address mortgage debt, which many see as the central drag on the US economy.
Before a joint-session of Congress on Thursday night, Obama called on lawmakers to immediately pass his jobs package, which includes tax cuts for workers and employers and direct spending on schools, roads, airports and railways, among several other initiatives.
The plan is a conventional stimulus, much like the one passed at the beginning of the President's term. It is designed to put more money into people's pockets and spur hiring over the next two years, all part of an effort to stimulate spending and reduce the unemployment rate. Many economists agreed that, if passed, it would do just that.
But a contingent of economists said a conventional stimulus is not the best prescription for what ails the economy. They said that while a stimulus can help, the main problem is the overhang of mortgage debt created by the housing bubble that was at the center of the financial crisis of three years ago.
Americans, millions of whom owe more on their mortgages than their homes are worth, are still paying off that debt. Without a plan to reduce that debt, these economists warn, all stimulus can provide is temporary relief.
"Once stimulus fades away, households are back on the street," said Atif Mian, an economist at the University of California at Berkeley. "Once you have removed the debt burden from households, you've taken care of the problem."
The Obama administration said it is continuing to work on a plan to reduce the mortgage burden homeowners face each month, in particular by working with federal housing regulators to support more mortgage refinancings.
But administration officials have rejected big proposals to cancel mortgage debt for fear of rewarding mortgage holders who borrowed far beyond their means.
Economists who strongly support Obama's jobs plan agree that household debt still poses a serious problem. But they say the jobs plan will do quite a bit of good on its own.
The forecasting firm Macroeconomic Advisers said in a report that Obama's plan, the American Jobs Act, would boost economic growth by 1.3 percentage points in 2012 and lead to 1.3 million new jobs.
(In exclusive partnership with The Washington Post)