analysis

WILL Obama’s stimulus work to boost jobs in America? And might a similar boost work here? If the fiesty announcement of $450 billion (£282bn) package of tax cuts and spending plans was designed to rally confidence in the markets, it has failed so far. In New York, the Dow Jones Average plunged again yesterday, this on top of a fall on the immediate announcement on Thursday. Bank shares were pummelled on fears of a slump.

There is growing pessimism across Europe and America that events are out of the control of debt-laden governments and that they can do little to rally confidence and halt the slide. Even assuming Obama gets his package through Republican opposition in a bitterly divided Congress there is scepticism over whether it will have much effect.

The centrepiece is a cut in the US equivalent of our National Insurance. Congress approved a cut in the Federal Insurance Contributions tax, a levy paid by employers and workers to fund social security and healthcare for retired workers. This was cut last year from 6.2 per cent to 4.2 per cent. But that measure was due to expire in December. Instead of letting the tax snap back up, Obama wants to lower the tax even further to 3.1 per cent for workers, and extend a similar cut to companies, at a cost of $240bn.

He wants to fund huge construction projects, schools and services, while giving tax cuts to workers and small businesses to boost recruitment. Some $85bn aid is pledged to local and state governments, together with $50bn for infrastructure projects. It is a classic Keynesian ticket – a pocket “New Deal”. But will it raise business confidence? Many are sceptical. Look what happened last time. A huge $800bn stimulus package was passed in 2009. Its supporters said it would cut unemployment, then 7.3 per cent. It is now 9.1 per cent. Economic growth in the US is now forecast to slow from an annualised 2.8 per cent to just to 1.3 per cent in the second half, effectively putting the economy on recession watch for the remainder of the year.

The spotlight now swings to Federal Reserve chairman Ben Bernanke to announce a third round of monetary easing later this month: “QE with a twist” is the buzz on Wall Street. It is all coming to look like desperate throws of the dice.