Three (sorta) "positive" stories about economic stimulus all came together in the last couple of days. They suggest that even when the forces of darkness are trying their hardest to make us stupid, it’s possible we can actually sort out the truth.
1. Did the President stumble onto the correct framing for economic stimulus?
You’d think Democratic strategists would have figured out by now that the Republican hopes for the midterm elections rest on keeping the economy depressed. And the way to do that is by preventing Democrats from doing anything sensible to boost the economy and reduce unemployment.
I thought it was obvious that a central Republican tactic is to make the the words/concept of "economic stimulus" politically toxic, and thus discourage Democrats from doing exactly what they should have been doing more of from the moment Obama took office and it became clear that the Bush era had left them with a virtual depression. For 18 months, the political imperative has been: Stimulate the economy, stupid!
But of course, the dumbest Democrats fell for the Republican trap, helped by the political geniuses in the White House who, having squandered their strategic electoral mandate to reverse the colossal economic and financial blunders of the Clinton/Bush deregulation era, allowed Republicans to label another needed stimulus as politically unacceptable.
So with Obama coming out with a new package of "not stimulus" ideas, you could have predicted that someone at the President’s press conference would play gotcha! with Obama to see how well he could evade and mangle English to avoid calling his recent proposals another "stimulus." And sure enough, when the question came, the President’s advisers had him well prepped: if you’re asked, "why aren’t your recent economic proposals another economic stimulus," avoid the word but talk about everything you’ve done to help the economy.
As you can see from the transcript, Obama spent several minutes dutifully following that script.
But watch what happened when CBS’ Chip Reid did his predictable gotcha followup:
CHIP REID: And on the stimulus part, we can’t get people in the White House to say it is a stimulus — $50 billion for roads and other infrastructure, but they avoid the word "stimulus" like the plague. Is that because the original stimulus is so deeply unpopular? And if so, why is it so unpopular?
PRESIDENT OBAMA: Well, let — let me — let me go back to when I first came into office. We had an immediate task, which was to rescue an economy that was tipping over a cliff. And we put in place an economic plan that 95 percent of economists say substantially helped us avoid a depression.
[. . . and Obama went on like that, blah, blah, blah for several minutes without ever saying the word "stimulus" . . . until Reid springs his gotcha:]
Q: So this is a second stimulus? (Laughter.)
PRESIDENT OBAMA: (Chuckles.) You know, the — here’s — here’s how I would — there is no doubt that everything we’ve been trying to do — everything we’ve been trying to do — is designed to stimulate growth and additional jobs in the economy. I mean, that — that’s our entire agenda. So — so I — I have no problem with people saying, "The president is trying to stimulate growth and hiring." Isn’t that what I should be doing? I would assume that’s what the Republicans think we should do: to stimulate growth and jobs. And I will keep on trying to stimulate growth and jobs for as long as I’m president of the United States.
In that possibly unscripted statement, the President not only retrieved the word "stimulus," but he reestablished the legitimacy of pursuing economic stimulus policies and made it the job of the President to pursue those policies in a near depression. By implication he also made it relevant for the media to ask John Boehner, as well as Dems, "where is your economic/jobs stimulus plan?"
It’s about time. Were you listening White House advisers? See how easy that was to change the terms of the debate?
Now, if we can just get the White House economic and political advisers to follow up, to come up with a jobs and economic growth plan commensurate with the massive hole Obama inherited, we might have an interesting discussion and midterm election.
And while they’re at it, how about appointing someone to the Federal Reserve and its Open Markets Committee that takes its full employment mandate seriously; how about offering legislation to reform the way these MOTU are chosen, to make sure they get the point?
2. Credit where due: Dana Milbank does some homework, gets the economics right and debunks Republican nonsense, in John Maynard Keynes: GOP’s Latest Whipping Boy
If the Republican strategy is to tank the economy (and hence the Democrats) by making stimulus efforts politically impossible, then part of the strategy is to denigrate the economists who explained why stimulus was essential. So props to the Washington Post’s Dana Milbank for making the effort to sort out economic history and debunk the Republican’s cynical gibberish.
Perhaps these Republicans don’t realize that some of their tax-cut proposals are as "Keynesian" as Obama’s program. There’s a fierce dispute about how best to respond to the economic crisis — Tax cuts? Deficit spending? Monetary intervention? — but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession.
Or perhaps, more ominously, these Republicans know exactly what they are saying when they reject Keynesian intervention: that the government should do nothing to help the millions out of work or to rebuild confidence in the economy.
The Obama stimulus may have been misdirected by too many tax cuts and insufficient spending, but the general policy was correct. Morever, Milbank echoes the arguments Krugman, DeLong and others have been making about those who criticized the theory out of ignorance or worse:
With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. Will they next demand the abolition of NASA because it’s "Galileo on steroids?" Shut down the National Institutes of Health for being a "Hippocratic mistake?" Strip funding for those "Einsteinian experiments" at Los Alamos? Demand a halt to public schools teaching from the "failed Darwinian playbook?" (Oh, wait. They did that last part already.)
Keynes’s place in economics is similarly unassailable, and the assault on him lends credibility to the charge that the Republicans lack ideas of their own and are merely generating opposition for its own sake. There’s a cogent argument to be made that Obama’s stimulus was ill-designed and ineffective, but dismissing the most important figure in economic thought in the last century says less about Obama than about his accusers. . . .
With business and consumers refusing to spend, Keynesian theory says it’s up to the government to stimulate consumption — by spending more or by using tax cuts to stimulate demand.
There is an alternative to such "Keynesian experiments," however. The government could do nothing, and let the human misery continue. By rejecting the "Keynesian playbook," this is what Republicans are really proposing.
Well done, Dana. And good luck explaining the implications to WaPo’s editorial Board.
3. If Ezra Klein can solicit plausible plans to put millions back to work, what is the Administration’s/Congress’ excuse for not doing so?
Serious kudos to Ezra Klein for soliciting proposals from prominent officials/economists on how to put millions of Americans back to work. That’s exactly the discussion the country needs but the politicians have refused to have.
Now that Obama has figured out how to say "stimulus" without blushing and has reminded himself, his own staff and the country his job is to stimulate economic growth and jobs, maybe his economic advisers can take up Andy Sterns’ challenge to meet or beat Stern’s suggested jobs plan. He proposes a jobs sharing plan, an infrastructure bank, and a youth jobs program (think CCC):
Infrastructure Bank.
Cost: $30 billion
Pay-for: One-time repatriation break for corporate earnings
Jobs created: 8.4 millionYouth Employment Programs.
Cost: $46.5 billion
Pay-for: Financial Speculation Tax
Jobs created: 3.1 million jobsTotal $130.5 billion 11.8 million jobs
Net Cost to Taxpayers = $0
In the latest installment (more will follow), economist Dean Baker picks up Stern’s challenge, explains additional elements, and then summarizes:
So, how does my scorecard look? I’ll take my top two items from Stern, then throw in $100 billion a year for infrastructure spending, and $15 billion a year for home retrofits.[yes!]
Job Sharing $ 54 billion 2.4 million jobs
Youth Employment $ 46.5 billion 3.1 million jobs
Infrastructure $ 100 billion 1.6 million jobs
Energy Retrofits $15 billion 0.5 million jobs
Fed Inflation Target 1.4 million jobsTotal $215.5 billion 9.0 million jobs
This is a desperately needed conversation. Why can’t our public officials engage in it and make that the basis for the midterm elections? As we keep reminding the Democrats, it’s good policy, good politics, good economics — and good for the country.
More:
4. NYT article noting that tax cuts for the rich provide the least "bang for the buck."



41 Comments




The NYTimes actually makes the point that the tax cut with the biggest bang for the buck, a payroll tax cut, has been dismissed by the administration. I actually don’t support the extension of any of the Bush tax cuts. I think a payroll tax cut would have been much more helpful to the majority of Americans.
Another great post, by the way. Thanks!
I thought unemployment for young people was around 5%. I’m not sure those are the people most in need of jobs. I fI had to guess, I’d say men in manufacturing and construction would have higher unemployment, and people over 55.
This is from last September but your guess is way off.
Although you are correct about the un/under-employment of those in their fifties.
Thanks much for that link. Catherine Rampell is usually a good source.
There are places where unemployment is 30% – I believe that Merced, Ca is one of them.
When we’re resolute in continuing governance by method of narcissistic popularity contest; John Boehner, et al. are simply the algorithmic conclusion.
Nobody seems to be surprised that when they double-click on a tiny “Word” icon that eventually a window pops up with a place for them to start typing their thoughts, because that’s exactly what a series of algorithms repeatedly produces; by design. We should be no less surprised when we double-click the “Popularity Contest for Power” icon, that these kinds of shallow, moronic, shameless hucksters are what invariably pop-up on screen.
That’s the design of the thing. I assume we keep it up because we’re happy with the results.
WTF? Is he even living on this planet?
I really do like this neat little chart. Simple, succinct. I’ve even passed it along to a few friends of the wingnut persuasion, and when explained properly, then almost tend to understand it. I don’t know if that can be called “progress” or not, but I keep banging my head against that wall, just the same.
Keynes might have been smarter than
BonerBoehner, but did he have that healthy, orange glow that you can only get from a a high-quality spray-on tan?Hopi is about 50% unemployment. Navajo is about the same. San Carlos Apache is about 75% unemployment.
The reservations have known what high unemployment can do for generations now.
Very nicely stated, Scarecrow.
Hey Democratic Party “Leadership:” Prove you can read.
That is horrible. How can we tolerate such neglect. Was reading today that 1 in 7 Americans are now poor. Think about that.
?? Are you referring to “News Analysis: Tax Cuts May Prove Better for Politicians Than for Economy”?
They lump it in with payments to the unemployed and Social Security recipients. By ‘payroll taxes’ I assume they mean SS/FICA, do we really need to be hitting those buckets at a time when purported shortages are used as an excuse to decimate the programs they support?
Tax cuts are far less stimulative than spending in any case. A dollar is a dollar and will add to the deficit either way; it would be better for that dollar to go as far as possible, and tax cuts don’t go the distance.
Discrimination tends to create have-nots.
Spending either by Government, Public or Corporations creates jobs. Basic Self-Evident fact.
For those who need example if 1 waiter can serve 5 customers and 10 customers show up at door to spend then they need 2 waiters. So 1 job created.
Government is the biggest spender and nobody thankfully has capacity to spend more than them. That is another fact and That fact also shows we are still a democracy.
One can spend by borrowing (If it is government then from future generations) and also selling public assets which is what Pres. Reagan essentially followed. This is fiscal irresponsible spending in my opinion. This approach has lot of detrimental effect with respect to social harmony creating economic inequalities, reducing strength of the dollar, reducing people purchasing power and finally reducing standard of living long term.
One can spend by raising revenue through progressive taxes. This is fiscal responsible spending. What Pres. Eisenhower followed is exactly this simple recipe on a massive scale and what we had was the biggest economic expansion. This approach has positive effects regarding egalitarianism in society, increasing dollar strength, promoting organic growth and finally increasing standard of living long term. As long as we defer going back to the Pres. Eisenhower tax rates we are postponing the tackling of the problem and attacking it the right way. Things will get worse. So sooner we get back to Pres. Eisenhower progressive tax rates better it will be for us all.
BTW this is keynesian approach too.
How can we tolerate such neglect? Um, we were thoroughly content on just entirely exterminating them, so being largely unconcerned about their massive structural unemployment should be supremely unsurprising.
I’m not buying this, I’m afraid. Obama and Co. as con artists still looks like the model that best explains the facts. The alternative is to conclude that Boehner and McConnell are smarter than Obama’s brain trust. Maybe I’m not giving the GOP enough credit, but I don’t think they are.
Meanwhile, if you assume they’re con artists, they realize that it’s long past time when they can actually do something that will annoy their big contributors, but if they don’t talk like they have a plan they’re going to lose really big in a couple of months, and then the gravy train won’t be as rich.
This isn’t the fifties and this is not your father’s economy. The government stimulus is only effective if one wants to work on a road crew or retrofit a house. Obama prattles about the middle class, but road crew jobs and house retrofitters don’t mean anything to accountants, administrators and lawyers.
The simple fact is that many middle class jobs have been outsourced overseas, and they’re not coming back. The old paradigm about getting an education including sitting in a classroom and learning the school solution in preparation to getting a job working in a cubicle in some paternal corporation is dead, dead, dead.
Politically, the idea of piling up more government debt on a dead paradigm are also dead.
People are going have to learn how to create employment for themselves, just like the old, old days.
indiemcemopants has a diary, upstairs!
DADT Repeal Looking Very Bleak
Hmmm, interesting. Thanks.
Yes, that is what I am referring to. Economists such as Stiglitz and Reich have long proposed a payroll tax holiday. My point was, the Times reports the payroll tax holiday discussed is more stimulative than extending the Bush tax cuts for the first 250k of income. Robert Reich has a very fine suggestion of a permanent payroll tax cut paid for by lifting the cap after the first 250k of income. That would be more stimulative. The people at the bottom will spend the money if they have it because they have little discretionary income.
I see folks are interested in the payroll tax cut. How did the one you got last year work for you?
http://www.politifact.com/truth-o-meter/statements/2010/jan/28/barack-obama/tax-cut-95-percent-stimulus-made-it-so/
I am all for spending, particularly direct spending to boost employment. However, what I oppose is extending any of the Bush tax cuts, including those for the first 250k in income. I prefer Reich’s proposal of eliminating payroll taxes for the first 20k in income and raising the cap after the first 250k income.
Not all of it. Due to economic uncertainty and falling house values, the savings rate is increasing. Consumer income has been rising faster than consumer spending due to the increase in personal savings. Result: According to the September survey of 50 forecasters released Friday by Blue Chip Economic Indicators, the consensus outlook for economic growth fell for the third consecutive month.
Wouldn’t a payroll tax cut mean that SS and medicare would be in more trouble?
“Keynes’s place in economics is similarly unassailable, and the assault on him lends credibility to the charge that the Republicans lack ideas of their own and are merely generating opposition for its own sake.”
___________
Unassailable? That’s simply crap. Keynes was no god of economics and the fact that he and his disciples have been calling the tune for so long would seem to indicate that their prescriptions are far from fool-proof if they have any validity at all. The best remedy for an anemic economy is less government meddling, not more. The people that actually do the hiring are so hamstrung by government mandates at every level that there’s no justification for them to expand. Creating trillions of dollars in misbegotten “stimulus” funding will hang a millstone around the necks of generations to come before the money eventually becomes worthless.
Good luck with raising the cap. You will have to give up something in return I fear, like cut SS. But it may be worth a try.
I don’t think Keynes has been calling the shots. But I am not an economist. It does make sense to me that demand is the problem here and the way to increase demand is to spend money. That is where stimulus comes in. The idea is if you create jobs then those people pay taxes and pay off the deficit. Of course, you cannot have rich people siphoning it off the top with lower tax rates. I am not sure what government mandate you have in mind that straps business but a few regs on credit/default swaps sounds like a good idea to me, especially since they almost brought down the house until the gov bailed them out.
Ofcourse, savings rates are up. However, I would be surprised to find savings rates up too much among the working poor.
Look, I prefer direct spending to tax cuts. But again, what I oppose is extending any of the Bush tax cuts, which as the article points out, is not as stimulative as a payroll tax holiday. If we must have tax cuts, I much prefer eliminating payroll taxes on the first 20k of income, than cutting taxes on the first 250k of income.
Many people want to work or go back to work. How is that accomplished? Older workers are replaced by younger workers. How are they reemployed…programs?
Green industries can be stimulated and and tax credits for spending there. Reducing transfer of capital for oil can create competition for that energy. Entrenched industry like coal and oil are not going to help unless they get to drive those engines. Buy in and incentive is needed.
More details than infrastructure building, all sectors need some degree of impetus.
Well, yes, this crew of Democrats is looking to cut social security so they are not going to propose even the best sort of tax cuts. My point was the article points out a payroll tax holiday is more stimulative than not only an extension of the tax cut exclusively for incomes after the first 250k, but also for an extension of the Bush cuts for the first 250k of income. I personally would have liked to see the Democrats propose a elimination of the payroll tax for the first 20k in income as Robert Reich suggested.
I understand but it may not be wise to open up SS or medicare for meddling. I doubt the dems will allow a cut in SS, but if you then say we want a holiday on payroll tax, the repugs will argue why not, since you’re not funding it anyway??
Nobody is talking about government piling on debt. We are talking about progressive taxation to high 90s for the top earners and using that increased revenue to create spending programs for the common welfare.
Only in third world countries people fend for themselves eg like Somalia. Our country was more progressive two centuries back than Somalia is right now.
More advanced countries have created a concept of Democracy and have created progressive taxation so that the Children can be provided a basic education so that they do not become brutes and torment law enforcement laying waste to their innate potential, clean water so that created consumables can be sold, highways so that goods can be moved efficiently instead of pot-holes and then costly repair, army to safe-guard industries and I can go on and on. With progressive taxation oversees investment by our investors will drop to a trickle and jobs will come back due to government internal investment. We are a democracy and so Government has to invest internally.
What the basic issue here keep on asking middle class and poor class to pump money they do not have into a system to improve shared resources but the rich should not be asked to contribute their fair share. How can that be possible. That is why which everybody on this board knows Pres. Reagan started a race to the bottom by regressive taxation with deficit spending which will ultimately drag country into third world status unless corrected. Let us bring back individual progressive taxation of 1950s.
I think the discussion even if started should not be about tax cuts. Then you will have Sen. Nelson, Sen. Lincoln throwing in their spanners in the works by asking tax cuts for everyone whether they need or not. It should be only about the progressive taxation with high 90s for top earners. Please bear in mind none of the FDL bloggers or readers will be affected with it. It is extremely fair. Even the rich will pay same taxes as FDL bloggers and readers for the amount of their income matching FDL bloggers and readers. Only the income above is taxed higher. Then Sen. Nelson and Sen Lincoln will negotiate it down to 70s probably Pre Pres. Reagan levels.
Use that increased revenue to offset Government Spending programs and Congress can increase earmarks spending as they fit keeping in mind their constituent interests and local economy interests too. Congress members know better of their local economy interests than anybody.
Again the fact is due to falling house prices homes are below the price one has brought. So if they go out and sell it they will lose money. So the Savings went down. In other words the owners equity has decreased due to the decrease in asset price. So savings have dropped self-contradicting the initial part of the above made statement.
Obama has finally realized he and the Democrats are going to get beat badly in November unless he gets pretty shrill about how this is all the Republicans fault. But this drumbeat should have been started and maintained while the Republicans were on the ropes in 2009.
There is NOTHING Obama can do economically at this point prior to the elections. All the plans he is proposing would do little to stimulate the economy, and nothing before the elections. He needs to get very bold (and that is not his style) and propose direct job programs, and state that the problems caused by the Republicans were MUCH WORSE than originally estimated and will take much longer to correct (this is too true, the whole “green shoots” crap was just that, crap).
As it is, his economic team continued the Bush plan to MASSIVELY bailout the very same people that caused this crisis. This action angered everybody.
At this point, it looks that the Republicans will win this round, and any government action to buck up the economy for average Americas will pretty much stop. The Wall St bailout can and probably will continue since this is being conducted without public awareness by the Fed and Treasury. The odds are high that the Republicans will overstep (in fact, you can almost count on it) and create additional pain and suffering for all of us.
Lucky us. The real pisser is that this was pretty easy to see coming by about June of last year. How did the Obama WH get this SO WRONG?
This kind of analysis is interesting, but likely won’t be compelling to fiscal conservatives aside from the aspects they already agree with.
One problem is that the very document that produced the table you are quoting also produced comments like:
“The $750 billion stimulus plan would not forestall a sizable decline in real GDP in 2009, but it would ensure that real GDP returns to its previous peak by the second half of 2010 (see Table 3). The fiscal stimulus limits the peak-to-trough decline in jobs to some 5 million, and the unemployment rate peaks at nearly 9% in early 2010.”
It looks like we will miss this “return to peak” time-frame for GDP by about a year if things go well and (obviously) the unemployment projections did not hold up.
The other major problem that fiscal conservatives will have is that they don’t view GDP as a reasonable measure of economic health for the country. A stimulus designed to appeal to fiscal conservatives would emphasize increases in investment and net exports much more than increases in government spending or private consumption (rather than the equal treatment these are given in GDP calculations).
But the biggest obstacle, I think, to convincing conservatives about the virtues of stimulus spending is ideological. They believe that markets need to be allowed to correct themselves and that massive stimulus spending will be yet another futile attempt to override the public’s opinion of how much things are really worth.
No more stimulus? You’re off by 13 trillion dollars. Check your facts.
That’s 130,000 per household stimulus. Check your facts.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=armOzfkwtCA4
As long as we have a top-down economy, we are going to move swiftly to doom.
Each person and family, making choices so as to provide for themselves and produce a bit of a surplus, can aggregate that surplus to be channeled into investment for the future. If that investment is done wisely (by virtuous banks, and/or virtuous government) all will be better off, as long as we don’t overwhelm the planet with our activities.
How frickkin’ hard is it?!?
The fact that Obama & his handlers don’t do that shows that they have another future in mind.
So let’s see, if we all go up to Clinton rates, Govt gets $238 billion/yr more revenue. If the middle class has it’s Bush rates extended, Govt only gets $36 billion/yr.
http://www.washingtonpost.com/wp-dyn/content/article/2010/08/11/AR2010081105864.html
So, a few points to consider…
* The middle class got tax cuts of $202 billion/yr.
* The wealthy were not the main beneficiaries of the Bush rates.
* All Clinton rates were in force during the surplus.
* Giving away $202 billion in revenue is not fiscally conservative, and a huge giveaway.
* Either you believe Clinton rates brought prosperity, or you don’t. It’s time to be clear on this idea.
If I remember my economics correctly. Keynes was against the formation of corporations.