Democrats say the recession would have been worse if the government didn't step in with those programs to prop up the economy.It's not Democrats, it's the CBO. Why doesn't AP simply tells its readers the truth, rather than playing this false he-said-she-said? Read More......
[A] lot of the Obama administration's accomplishments were pipe dreams.Near universal care health care system? Okay, I'm no expert on health care reform, as compared to Ezra, but we're now to believe that what got passed is "near universal care"? Seriously?
A near-universal health-care system? Why would Obama and the Democrats succeed when Truman, Nixon, Carter, and Clinton had all failed, and politicians as adept as FDR and LBJ refused to even make the attempt? They've seen the numbers, right? The health-care industry is bigger now, and richer, and there are no more liberal Republicans. There's no way.
A $787 billion stimulus? Yes, it was too small. But everything Washington does is always too small. And within the confines of that stimulus, the Obama administration and the Democrats in Congress managed to make a host of long-term investments that would've been considered huge accomplishments in any other context, but are largely unknown inside this one. Huge investments in green energy, in health information technology, in high-speed rail, in universal broadband, in medical research, in infrastructure. The Making Work Pay tax cut. The Race to the Top education reform program. No recent president has invested in the country on anything like that level.
But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.Read More......
The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.
The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.Read More......
I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it. And if, as expected, the G.O.P. wins big in November, this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we’ll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong.
But politics determines who has the power, not who has the truth. The economic theory behind the Obama stimulus has passed the test of recent events with flying colors; unfortunately, Mr. Obama, for whatever reason — yes, I’m aware that there were political constraints — initially offered a plan that was much too cautious given the scale of the economy’s problems.
So, as I said, here’s hoping that Mr. Obama goes big next week. If he does, he’ll have the facts on his side.
John Boehner wants a lot of people to lose their jobs.Read More......
We were awfully surprised to hear Rep. Boehner come out for killing jobs en masse in his own state and district by stopping the Recovery Act on last Sunday’s news shows.
Though we’re sure he didn’t know it, the Congressman is advocating to kill the expansion of the Butler County Community Health Center and bring some of the twenty-five highway projects across the district to a grinding halt. Across the state of Ohio, he said that approximately 4 million working families should get an unexpected cut in their paycheck as the Making Work Pay tax credit disappears, unemployed workers should go without unemployment benefits, and major Ohio road projects like the US-33 Nelsonville Bypass project and the Cleveland Innerbelt Modernization project should be stalled or stopped. Oh, and some of the more than 100 clean energy Recovery projects employing workers across the state should be shut down.
In the wake of today's disappointing jobs numbers, a bunch of people around the Web have been lamenting that Dems will take it on the chin for the bad economy even while Republicans have done everything they can to block Dems from implementing their solutions.I do seem to recall being upbraided at the White House a few months back by top VP economic adviser Jared Bernstein for this blog having repeatedly criticized the administration's handling of the stimulus (the size of it, the contents of it (tax cuts!), and the selling of it before and after passage). And now it seems, we were right. And Stiglitz was right. And Krugman was right. Krugman outright predicted everything that was going to happen, politically and economically - and no one at the White House wanted to listen to the DFH with the Nobel prize (either of them). I take you back to Paul Krugman, January of 2009:
That's true. But there's another layer of perversity to consider here that makes the situation even worse: The sputtering recovery is actually making it tougher politically over time for Dems to take new steps to solve the problem. The sluggish recovery has undermined public confidence in the Dems' general approach to solving the problem, making Dems more reluctant to attempt the next round of ambitious solutions. That, in turn, insures that the jobs numbers remain grim. And so on.
As Josh Marshall notes today, it's getting tougher to avoid the conclusion that Dems erred badly by not passing a larger stimulus package:[I]t was always clear there was only going to be one real bite at this apple. And it just wasn't enough. Why the White House predicted a max out at 8.5% unemployment I'll never know since that was not only a politically unhelpful number, it was also deeply unrealistic. I suspect a lot of Democrats are going to go down to defeat because of it.What makes this even worse is the perverse dynamic I noted above. Republicans have pursued a very deliberate strategy to feed public pessimism about Big Government's ability to lift us out of the doldrums, pointing to the sputtering recovery as proof that the Dems underlying philosophy has been discredited.
The result is that it's even less likely that Dems will risk taking "another bite at this apple," as Josh puts it.
This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.And the only head that seems to have rolled as a result is the person who argued for a larger stimulus, and lost: Christine Romer. Read More......
I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”
Let’s hope I’ve got this wrong.
For me, the really interesting [of Ryan Lizza's article] passage was this one:Once, again, before folks at the White House say "$800bn (really $600bn, as Krugman points out), is all we could get politically," let me remind you - $500bn was Congress' opening offer in the negotiation. You don't just cave at the beginning of the negotiation because the other guy says "no." You especially don't cave when the life and death of the entire country's economy is in the balance. You tell the other guy, "if you won't do what's necessary to save the country from going into a second Great Depression, we'll go to the American people and tell them."The most important question facing Obama that day was how large the stimulus should be. Since the election, as the economy continued to worsen, the consensus among economists kept rising. A hundred-billion-dollar stimulus had seemed prudent earlier in the year. Congress now appeared receptive to something on the order of five hundred billion. Joseph Stiglitz, the Nobel laureate, was calling for a trillion. Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.” At the meeting, according to one participant, “there was no serious discussion to going above a trillion dollars.”So Christy Romer’s math looked similar to mine: even given what we knew last December, the straight economics said that we should have a stimulus much bigger than the Obama administration’s initial proposal. And given what happened to that proposal in the Senate — we actually ended up with only about $600 billion of actual stimulus — what we eventually got was half of what seemed appropriate in December.
[W]e have seen the stimulus dollars that have been spent have not produced jobs. The stimulus was designed to lower the unemployment rate, to keep it from going over 8 percent. We know nationally now, it still hovers around 10 percent; here in our area, it’s 7 1/2 percent. So, obviously, government spending money doesn’t create jobs.Cantor is too smart to know that what he just said isn't true. First off, CBO already said the stimulus created and/or saved millions of jobs. Second, the fact that unemployment remains at 10% does not mean the stimulus did not create jobs. Unemployment might have been at 12% without the stimulus, for example. Did the stimulus create enough jobs? No. Simply because it wasn't big enough. But to suggest it hasn't created any is a lie.
Public confidence in President Obama has hit a new low, according to the latest Washington Post-ABC News poll. Four months before midterm elections that will define the second half of his term, nearly six in 10 voters say they lack faith in the president to make the right decisions for the country, and a clear majority once again disapproves of how he is dealing with the economy.I do think the President has finally realized that he needs to fight, at least use fighting words, which is a step forward. But the albatross around his neck is the economy, and specifically, the unemployment rate. That rate is directly attributable to the President's decision not to push for a full stimulus, but rather cut the stimulus in half and then give 35% away to the GOP in the form of useless tax cuts. The result is exactly what Krugman and Stiglitz predicated at the time: high unemployment and a limping recovery, mixed with a threat of a double dip recession.
Under the leadership of President George W. Bush, science, empirical evidence and expert advice struggled to be heard above the din of politics. It's one thing to prioritize politics over good policy; it's quite another to let bad politics drive the agenda. But that's what the Bush administration did during its Terry Schiavo era and his congressional majorities paid the price.
Today, a new band of Mayberry Machiavellis has gained control, counseling President Obama to ignore the advice of his economic team and press forward with deficit reduction ahead of job creation.
Academics Benjamin Page and Lawrence Jacobs, in the recent paper, "Understanding Public Opinion on Deficits and Social Security," have identified an additional reason that the deficit continues to rank high in polls as a prominent concern. "The 'most important problem' question responds heavily to whatever is being emphasized in the media, apparently because many respondents interpret it as asking what other people consider important," they write. "They look to the media for evidence. So a well-organized and well-funded campaign against deficits (like the one led by Peter Peterson) can grab the attention of pundits and politicians, win coverage in the media, and produce a temporary spike in responses that deficits constitute our 'most important problem.'"
The more that the president highlights deficit concerns, the more concerned the public gets, and the more his advisers warn him that the public is concerned.
The Obama political team's focus on the deficit raises the question: Just who is this hypothetical midterm voter who was leading to the GOP because of deficit concerns, but will vote Democratic if only Congress trims a spending bill from, say, $250 billion down to $80 billion? Most voters -- and most reporters, for that matter -- can't guess within a few hundred billion what the budget deficit is, and would struggle to put a dollar figure on the latest jobs-bill proposal. So how is it, then, that a voter would cheer saving a few billion dollars by cutting off COBRA subsidies?
Despite all of that spending, unemployment has hovered around ten percent, leading voters to assume and leaving Republicans to argue that the stimulus didn't work. The reality is that it did save or create hundreds of thousands of jobs, if not millions, but was too small -- as economists warned at the time -- to fill the economic hole left by the housing collapse and financial crisis.Read More......
When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn’t booming — again, there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work — but they can’t take jobs that aren’t there.Read More......
Wait: there’s more. One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months.
But won’t extending unemployment benefits worsen the budget deficit? Yes, slightly — but as I and others have been arguing at length, penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided.
Michael Steele’s comments on Afghanistan remind me of my favorite definition of a gaffe: “saying the truth in the worst way possible.”Ian then makes a second point I'll bet many of us hadn't considered (again, my emphasis):
To whit, Steele said that Afghanistan is a war of Obama’s choosing, and that everyone who’s occupied Afghanistan has come to grief over it. Now one can quibble a bit over the details of who came to grief and who didn’t, but basically he’s right. Afghanistan went badly for the Russians and the British, most recently. There’s a reason Afghanistan is called the “graveyard of Empires” and if the US isn’t careful it’ll be the graveyard of the US empire.
Likewise, yes, this is a war of choice for Obama. He could have done his review, said “hey, there are almost no al-Q’aeda fighters in Afghanistan anymore, so we won, let’s go home.” He could have said “fighting in Afghanistan is seriously destabilizing Pakistan, which is far more important than Afghanistan, so let’s go home.” He could have said “yes, if we leave, some al-Q’aeda camps might spring up but we can always bomb them and anyway there are plenty of failed states where al-Q’aeda can set up camps and we can’t occupy all of them.”
Now here’s a truth that Steele didn’t tell. Obama has to stay in Afghanistan because war spending is one of the only reliable forms of stimulus he has. The economy is in bad shape, and it needs that stimulus. Since he can’t get a new large stimulus through Congress that means he MUST keep the Afghan war going if he doesn’t want an economic disaster, which would then lead to an electoral disaster. . . . Instead of hiring tens of thousands of teachers, building a high speed rail network across the country, refitting every building to be energy efficient and doing a massive solar and wind build-out to reduce dependence on oil, well, the US would rather turn Afghans and Pakistanis into a fine red mist.A fine red mist designed to keep the "good guys" in office, as Ian points out.
President Obama signaled on Friday that countries in Europe should not withdraw their extraordinary spending programs too quickly.There's more:
In a public letter to other leaders of the Group of 20 nations in advance of a summit meeting in Toronto next week, Mr. Obama wrote, “Our highest priority in Toronto must be to safeguard and strengthen the recovery.”
The United States is trying to pare its own substantial deficit. Mr. Obama reiterated a pledge to cut the deficit, now about 10 percent of gross domestic product, in half by the 2013 fiscal year, and to 3 percent of G.D.P. by the 2015 fiscal year, a level he said would “stabilize the debt-to-G.D.P. ratio at an acceptable level” by then.Do as we say not as we do?
But American officials are concerned that fiscal retrenchment by too many countries at once could imperil the global recovery.
Mr. Obama warned of the risks of a double-dip recession, which most economists consider unlikely but not impossible.
“In fact, should confidence in the strength of our recoveries diminish, we should be prepared to respond again as quickly and as forcefully as needed to avoid a slowdown in economic activity,” he wrote.
[F]or stimulus, a dollar that's spent, say, building a museum about Woodstock is as good as a dollar spent building a bridge to get people to a museum about Woodstock. From a stimulus perspective, waste happens when a dollar is saved rather than spent, as that dollar doesn't immediately stimulate the economy. That's why tax cuts are often ineffective: If you give a middle-class worker a tax break at a time when he's not unable to pay the bills but is trying to replenish his gutted 401(k), he'll save it. And that, from the stimulus's perspective, is waste.As we've written before, the stimulus wasn't big enough, the President knew it, but for some unknown reason he caved out the gate and agreed to a much less stimulating bill than was necessary.
One of the failures of the stimulus was that it included an enormous amount of tax breaks. Roughly a third of the total, in fact. And some of those breaks, like the $70 billion AMT patch, were not effective stimulus under any definition of the term. But they were there to get votes, and to show Obama was being bipartisan in his construction (though in Jon Alter's book "The Promise," Obama says that giving these breaks up-front rather than negotiating with the Republicans for them was a massive mistake). The problem is that they made the stimulus less effective than it could've been, and that made it easier for Republicans to attack down the road.
This really does look like a [stimulus] plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.Read More......
I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”
What’s going on here? I don’t think you can resort to class-warfare arguments. What I think is happening is that we’re seeing the deep seductiveness, for many economists (and others), of taking what sounds like a tough-minded position in favor of inflicting pain on the economy — and the people who make up that economy.Maybe. Krugman concludes:
Keynes knew all about this. Writing about the peculiar appeal of classical economics even in a world in which it had manifestly failed, he arguedThat it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue.
[W]hat’s so striking is that in all three cases I’ve cited you had highly trained economists — that is, people who have spent their whole lives arguing in terms of carefully laid out models — making arguments that aren’t backed by any model I can see.Or maybe not. Consider — world-class academic economists, people who serve up reasons for those in power to act in certain ways, are now offering noticeably un-academic arguments why Europe should jump on the Pete Peterson bandwagon and stop feeding the new-born recovery, just when the recovery needs its next drink of milk. And the reason is — virtue?
And may I say, I think that by giving in to the seductiveness of calls for pain, some of my colleagues are doing a lot of damage; at a time when we really need clarity of thought, they’re adding to the intellectual murk instead. [my emphasis]
The massive U.S. stimulus package put up to 3.4 million people to work and boosted GDP by up to 4.6 percent in the first three months of 2010, the nonpartisan Congressional Budget Office said on Tuesday.Read More......
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