Would Obama's jobs plan help avoid a recession?

Economists from 28 firms offered estimates about the jobs plan to Bloomberg News. They disagreed on how effective it would be – and the cost could be high.

President Obama's jobs plan might create employment for half a million workers next year. Or maybe it would create 2 million jobs. Or none.

Those numbers are among the estimates in a new survey of forecasters, conducted by Bloomberg News and released Wednesday.

The survey, coming as the president is urging Congress to pass his $447 billion American Jobs Act, reveals sharp divides among economists regarding the merits of the package. The estimates also come as economists warn that the nation could be dangerously close to entering a new recession.

"I don't think anybody has airtight answers" on what Mr. Obama's plan would accomplish, says Asha Bangalore, an economist at Northern Trust Co. in Chicago. "Each one has a different model."

Obama is pitching his plan as a clear-cut way to boost employment. In Colorado on Tuesday, he said, "It’s been two weeks since I sent it to Congress.... I want it back, passed, so I can sign this bill and start putting people back to work."

In all, economists from 28 firms offered job estimates to Bloomberg. About one-third estimated the package would create more than half a million jobs. Moody's and MacroFin saw 1 million new jobs in 2012, and Manulife was the most optimistic, with a forecast of 2 million jobs next year.

But two-thirds of the firms saw job growth of half a million or less, with several seeing zero new jobs.

Where optimists see the jobs plan as helping to revive a weak economic recovery, others argue that any positive impact in 2012 would come by imposing a price on the economy in 2013. The Obama plan would spend additional money on infrastructure and for aid to states and the unemployed, and it would offer expanded tax cuts for consumers and businesses in 2012. But that would mean the US faces higher debt and higher taxes in following years.

Forecasters at BNP Paribas and State Street told Bloomberg they expect Obama's jobs bill would improve the outlook for 2012, while having a negative impact on jobs and gross domestic product in 2013.

Beyond the question of whether the jobs plan would work is another debate: Would it be worth the cost?

Proponents say that, with the economy barely growing, the jobs plan could be a kind of insurance policy. It wouldn't assure that a recession is avoided, but it could reduce the odds.

Many who are skeptical of the jobs plan argue that it wouldn’t remove important obstacles to job creation, such as frayed consumer confidence and frustration over political gridlock in Washington. And the cost appears high. Even using high-end estimates of job creation, the cost could be $200,000 per job. If only half a million jobs are created, the cost jumps closer to $900,000 per job.

In an interview on ABC News on Monday, Treasury Secretary Timothy Geithner said a cost-per-job focus is "the wrong way to look at it.” He added, “You’ve got to think about the costs of the alternatives. If government does nothing, it does nothing now because they’re scared by politics or they want to debate what’s perfect. Then there will be fewer Americans back to work; the economy will be weaker."

Ms. Bangalore's view, not captured in the Bloomberg survey, is that the economy has a fairly high risk of falling back into recession – perhaps a 1 in 3 chance. She supports new fiscal policies, such as those in the American Jobs Act. But the economic benefits won't be significant, she argues, unless the plan is also accompanied by extra monetary easing from the Federal Reserve.

The Fed, she says, can add money to the economy "out of thin air," which can help fuel new demand in the economy. By contrast, if new federal spending is financed by Treasury bonds purchased by the private sector, the effect is mainly to shift spending power from private-sector participants, such as households, to the public sector, she says.

Further monetary easing from the Fed is the subject of its own controversy among economists – including within the Fed itself.

"You can't expect the Fed to deliver all the goods," lifting the economy by itself, Bangalore acknowledges. But she's in the camp arguing that the Fed can do more, without creating destabilizing inflation.