World waits to learn how Obama will pay for Plan B

THE question that arises from Barack Obama’s £280 billion “American jobs plan” is how he is going to pay for it. The answer will determine whether or not the Republicans in Congress feel minded to pass it. If they don’t, the gridlock in US economic policy will remain until after next year’s election, and with it any chance of a co-ordinated response to this summer’s slowdown in the world economy.

The essence of Obama’s initiative is a fresh stimulus package aimed at cutting America’s debilitating 9 per cent unemployment rate. In cash terms, the package is worth about half of his first fiscal boost in 2009. It is also 50 per cent bigger than had been trailed, and more targeted than his first effort. The package is split evenly between cutting employee payroll taxes and a range of targeted spending initiatives. The latter cover help to cash-strapped local authorities to maintain jobs and – above all – investment in infrastructure projects.

All this is equivalent to 3 per cent of US GDP, which if delivered in one thump during 2012 would certainly boost growth (which was a miserly annualised 1 per cent in the second quarter). The payroll tax changes could add 600,000 jobs while the infrastructure spending could create 150,000 new jobs in the first year and half a million jobs over three years.

However, that would still leave US unemployment at over 8 per cent on election day. The cuts to payroll taxes impact most on middle-income earners who are likely to save rather than spend. And the infrastructure investment depends on having “shovel ready” projects to build. (Though if you’ve travelled on America’s pot-holed urban roads, that should not be too difficult.)

We will find out the financing details on Monday. Advanced notice suggests a mix of budget cuts elsewhere, though not to be implement until growth is secured, plus making the rich “pay their fair share”. But “delayed budget cuts” are a euphemism for more borrowing now – anathema to Tea Party Republicans, as are tax rises of any kind. That must put a definite question mark over the plan being enacted. Yet Republicans don’t want to be blamed for a double-dip recession – which explains why they responded to Obama’s speech in a neutral vein rather than with instant hostility.

Obama has broken ranks with Europe and gone for Plan B rather than continued austerity. Jetting to the G7 summit in Marseille yesterday, Christine Lagarde, head of the IMF, gave Obama guarded support. She cautioned against too much fiscal consolidation when growth is faltering. But Europe is in no mood to listen, at least until the Obama plan works or a winter of economic discontent changes the political game.

A dead duck, sans quack

ONE innovative proposal in Obama’s jobs package is the creation of a new “infrastructure investment bank”, with a $10bn (£6.3bn) capital injection of public money. The Republican majority leader in Congress, Eric Cantor, immediately poured cold water on the idea, for being too socialist.

Over here, a new CBI survey revealed that 58 per cent of firms believe the UK’s transport and communications infrastructure is worse than that of other EU countries. The CBI is urging the government to boost capital investment. But where will the cash come from? At least £200bn is need in the next five years.

One idea is to create a state-owned Green Investment Bank (GIB) – the British equivalent of Obama’s infrastructure bank. Four British cities are lobbying to be the HQ: Edinburgh, London, Manchester and Bristol. On Thursday they were joined by a fifth – Leeds.

But all is not well with the GIB project. Though initially to be capitalised by the UK government, the whole point was for the bank to be able to borrow in the capital markets at today’s rock bottom rates. In the words of energy secretary Chris Huhne: “The prime minister has said it is going to be a bank. Everybody knows what a bank is. Ducks quack and banks borrow.”

However, George Osborne’s all-powerful Treasury has put the kibosh on this. The GIB’s borrowing powers are to be delayed until at least 2015, and then subject to Treasury approval. That suggests the GIB will go the way of Obama’s proposal – quackless.