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Mitt Romney: Obama Failed Because We Needed a Larger, Longer Stimulus

6:39 am in Economy, Politics by Scarecrow

Mitt Romney - Caricature

Mitt Romney - Caricature by DonkeyHotey

The Washington Post’s Philip Rucker caught Mitt Romney explaining how to think about economic policy when the labor market is depressed, housing has tanked, households are broke and the Fed is limited by near-zero interest rates:

Romney criticized Obama’s $787 billion stimulus package, saying it did not create long-lasting jobs. He said he would have lowered tax rates, instituted fair trade policies and boosted energy independence to help create sustainable private-sector jobs.

“The challenge with so-called stimulus is it tends to be throwing a little gasoline on the fire,” Romney said. “It causes some heat. . . . It just doesn’t cause permanent heat. It’s not like putting a log on the fire.”

Translation from Chameleon-speak: Romney is hinting that the economy — the fire — needed not just more stimulus, but longer-lasting stimulus. Instead of pouring on a little gasoline to kick start the fire, we’d needed a slow-burning log that would provide fuel for a longer period. Except for the implied nonsense that spending on workers and goods/services by the private sector creates jobs but the same spending by government doesn’t, he almost sounds like all those liberal economists — Krugman, Thoma, Stiglitz, Galbraith, Baker, et al.

But didn’t Obama’s 2009 and late 2010 stimulus packages contain a large percentage of tax cuts, some that have been extended? Are there no trade agreements with Columbia or Korea, or programs to promote domestic energy production?

I don’t follow what Mitt Romney says everyday, because sooner or later a policy chameleon will say everything once, mimic all positions, and then switch back in case you missed something. So I probably missed that other time, back in early 2009, when Mitt insisted the stimulus needed to be big enough to produce some real effect on the economy, and it needed to avoid the “shovel ready” trap and last longer because the economy would take a long time to recover from a finance and credit shock the size we suffered. He surely wouldn’t be making this up now, saying “I told you so,” to prove what a prescient leader he’d make.

But he’s right about the failed leadership in Washington, D.C. From the NYT’s reliable stenographer on the deficit hysteria debate, here’s the White House’ Press Secretary, Jay Carney:

. . . Jay Carney, said Republicans must be willing to consider tax changes, including the elimination of “loopholes” that benefit corporations.

“It’s the only way to get it done if you want to do it right and you want to do it in a way that is fair and balanced and ensures that the economy continues to grow and continues to create jobs,” Mr. Carney told reporters.

What is Carney talking about? Whatever you think about long-run deficits, it doesn’t make sense to be slashing spending for deficit reasons now, and that conclusion doesn’t change if you couple the spending cuts with eliminating tax breaks for oil companies. There are valid reasons for ending needless subsidies for rich people and hugely wealthy industries, but doing that doesn’t make it okay to slash programs to help the elderly, poor women and children, now or later. Read the rest of this entry →

Larry Summers Tells Us How to Fix the Economy He Helped Mess Up

6:48 am in Economy by Scarecrow

Larry Summers, now the burden of Harvard University, is back on the op ed pages to explain what’s wrong with the economy and how to fix it.

It’s all in the technocratic language of macro economics — Brad DeLong approves and will likely retranslate later — but here, I think, is the gist: It seems the financial and housing collapse crushed demand, and it has to be rebuilt with jobs and economic growth over a very long period. And until you do that, you can’t expect deficits to come down, so it’s way premature to pivot to reducing the deficit. Instead we need more stimulus to increase demand, restore jobs and boost the economy. And this is a great time to invest in infrastucture, education, and so on, because we have lots of people who can do that work who need jobs, we need the infrastructure, and interest rates on borrowing are near historic lows. Oh, and we need to restore confidence.

Most of that could have been written by Paul Krugman, the guy the Administration ignored for three years, or by DeLong and many critics of the Adminstration’s far too tepid economic policies. In fact, it has been written by them. So is this Larry’s mea culpa?

Larry Summers is the guy who, when presented in early 2009 with a set of calculations and projections from Christine Romer that showed we needed a stimulus about twice the size the one Summers ultimately proposed to the President, said we should limit fiscal stimulus policy to a mere “insurance policy” against the possibilitiy of another Great Depression. That would be enough to produce a self-sustaining recovery, he told President Obama. And they stuck to that story even when Romer’s starting assumptions proved too optimistic, because we were in a far deeper ditch than she assumed.

When numerous serious economists and dismayed scarecrows insisted the stimulus was far too small and likely too short, and pleaded for jobs programs and another stimulus by the end of 2009 and throughout 2010, Summers dismissed them. He insisted the President and his team had done enough with the policies they had. Eventually, the Administration was forced to admit in December 2010 that the economy needed another $300 billion or so in unemployment insurance and added stimulus via a payroll tax cut. Not to mention a shameless gift of over a hundred billion for the richest people in America.

Once again, serious economists and scarecrows said this would not be enough, reminding the Administration that simultaneous deficit reductions and layoffs at the Federal and State levels would negate any stimulus effect. Summers and his boss dismissed these warnings, too.

Now Summers tells us we need another $200 billion in extended payroll tax cuts. He explains that this is the nature of recessions connected with financial collaspe, that this inherently crushes demand and it takes a lot of money — from borrowing and spending — and an long time to build demand back up to the level at which economic growth and significant job creation are self sustaining. Well, no kidding, Larry. Except you pretended for two and half years that wasn’t true and the rest of us were stupid.

He now tells us, as Krugman et al have been warning for years, that we’re in the middle of a “lost decade,” a predictable era we learned about from the Japanese financial crash and their lost decade. Unfortunately, Summers took until the fifth year to realize his economic advice left America in the midde of a terrible economic decade.

At no point in Summer’s op ed does he own up to the huge blunders for which he and his boss are chiefly responsible. We don’t read of all the lectures he gave to the skeptics about how the Administration had done all that should and need be done. And where was Larry when the scarecrows warned that Ben Bernanke, whom we pleaded with the President not to reappoint, was signalling his predictable unwillingness to meet the Fed’s obligations to pursue full employment?

He now warns us against a premature pivot to deficit reduction, but he neglects to mention it was the President and his team who sanctioned that premature pivot over a year ago; his team made up excuses, and continues to make up excuses, for empowering the Cat Food Commission then and the Joe Biden Dining Table surrender now.

Yet even now, Summers can’t let go of his own and his President’s mistakes. He and his President insisted that any investments funded in the 2009 stimulus needed to be “shovel ready,” because they didn’t want the stimulus to last too long. We argued the recovery could take many years, so that extended investment programs would be needed. And we said it was the right time to invest: we had infrastructure that needed to be rebuilt, millions out of work willing to do it, and interest rates were low. It’s more than two years later, and now Larry Summers says, gosh, it makes sense to be making infrastructure investments now, because we need them, we have people who can do it and need the jobs, and interest rates are low.

Where have you been all these years, Larry?

And what’s the point of using the word “confidence” as part of what we need to restore? You know that’s Tea-GOP code for restoring “business confidence” among the group that simply wants to cut corporate taxes and slash regulation — like the stuff that EPA does, or OSHA, or the folks who oversee drilling permits in the middle of the Gulf. And wasn’t it Larry Summers who insisted we needed those efficient TBTF banks to remain competitive? You just can’t seem to stop doing damage, can you?

You screwed us with financial deregulation. You screwed us with an inept, inadequate stimulus. You screwed us with the unnecessary “pivot” from jobs to deficit reduction. And now you want us to believe in the confidence fairy?

Just go way.

Moody’s Blues: How to Kill any Economic Recovery

7:29 am in Economy, Government by Scarecrow

In her post last night, Jane Hamsher wonders how the economists at Moody’s explain their about face in first claiming the Obama-McConnell Tax Cuts for the Rich Act would not pose significant risk to America’s credit rating and then only a week later claiming the opposite. Let us count the ways.

First, let’s review the flip-flop from Moody’s economist, Steven Hess. Here’s Hess quoted by Bloomberg on December 7 [my bold]:

“The extension of the current tax rates is for a temporary period of two years and we think that if that’s all there is to it — it does not have ratings implications,” Steven Hess, senior credit officer at Moody’s in New York, said in an interview today. “We have a stable outlook. We don’t feel it will get changed downward in the next year or two.”
. . .
“We think it will be positive for economic growth in 2011 and 2012,” Hess said.

“That helps government revenue growth. However, it will not nearly offset the reduction in revenues coming from these measures and therefore it’s a negative for government finance if nothing else is done,” he said. “It would not be favorable for any effort to reduce the deficit and reverse the debt trajectory.”

And here’s Moody’s Steven Hess quoted by The Hill just a week later:

Moody’s Investors Service said in a Monday report that the tax-cut deal hammered out between President Obama and congressional Republicans jeopardizes the Aaa credit rating enjoyed by U.S. Treasury bonds. The package could add $900 billion to the national debt, if it is made permanent, and this increases the chances the U.S. would one day default on its debt.

“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government’s Aaa rating during the next two years,” Moody’s analyst Steven Hess writes.

So let’s get this straight. The US credit rating agencies — with Moody’s in the lead — are the guys who allowed themselves to become bought captives of the banking industy. To sustain the profitable ratings fees from the banks, they rated as AAA investments all of those mortgage based securities that were based on massive bank and lender fraud, and never said boo. While their function is to forsee risks, they said little about an implausible $8 trillion housing bubble whose risks they didn’t see Then they were surprised when the bubble burst and those assets plummeted to pennies on the dollar, taking the entire financial system with them. Yeah, those guys.

So now Moody’s Hess is telling us the risk of holding US debt will rise because of this deal, so Congress will assume if we don’t offset this by slashing spending, the US is more likely to default on its sovereign debt. It’s absolute gibberish.

For the umpteenth time, the US, unlike the suffering Ireland, Portugal, Spain, etc in the Euro zone, has its own currency and fiat money. It can’t be forced to default. Unless the people who run the country are complete idiots [insert news stories here], and refuse to use the tools and powers they have, the US is not at any risk of defaulting on its debt.

Moreover, the tax package is for two years. If one assumes that’s it, then there is no long-term structural deficit to cause us problems in the long run. But what happens if the tax cuts are extended?

What Hess should tell us is the truth: The problem the deal creates for US deficits is that the tax cuts are mostly a waste of hundreds of billions, because they’re the least effective way to boost the economy. That means we don’t get nearly the stimulus we could have gotten from intelligent deficit spending on things that actually boost demand and create jobs, and thus reduce government spending for safety-net programs and boost government revenues.

I know this will make Dana Milbank and Mark Penn cry, but the way to improve the picture is to fix the package in ways Obama’s liberal critics are demanding. And we should stop praising Obama for agreeing with people who insist hacking federal revenues by nearly a trillion dollars doesn’t impact the deficit. Every third grade math student knows this is nuts.

But let’s follow the logic of how Washington will interpret Hess: since the economy doesn’t pick up enough to increase tax revenues to offset the massive hit to deficits, we should offset the tax cuts with spending cuts. How convenient for the foolish proposals from the Deficit (aka Catfood) Commission.

The illogical message the Beltway Hacktopolis will take from this is that having failed to stimulate the economy via wasteful tax cuts, we should make the economy worse by slashing spending. It will never occur to them that slashing spending doesn’t “offset” terrible stimulus; it doubles down on the error.

So now expect to hear the White House and Obama’s new allies in Congress (including 83 foolish Senators yesterday) to really screw the economy. They’re about to waste over $800 billion in ineffective tax cuts, and set themselves up for extending the unconscionable tax cuts for the richest Americans by another trillion dollars or so, and to “offset” that madness, they’ll take meat axes to spending and really tank the economy.

Brilliant. Someone should pay Moody’s another nice fat fee for explaining how to destroy the economy, again, and putting millions of people out of work.

John Chandley

More from FinancialTimes blog, Tracy Alloway, Moody’s sees ‘definite negative’ for US rating. NOT.

Axelrod and McConnell Take ABC’s Amanpour and US Down the Rabbit Hole

9:51 am in Uncategorized by Scarecrow

The polls tell us there are more people enthusiastic about voting for Republicans than for Democrats. After watching White House Adviser David Axelrod on ABC’s This Week, one can easily understand the lack of enthusiasm for an aimless Democratic Party that can’t even stand up and fight for what it’s supporters believe because it’s led from the top down by incompetent and corrupt corporatists.

Axelrod chose to pound on the two parties’ difference in tax cuts for the middle class versus the rich. But he offered no explanation for why his own party was afraid to take that difference to a vote in the Congress.

Obama’s team had already failed to offer a Plan B for jobs and economic recovery to replace their sputtering Plan A, and he said nothing about the rest of the more worthwhile job-producing stimulus tax cuts that are due to expire this week. It’s now obvious there’s no one minding the store, and with everyone preoccupied with leaving, we’re not about to get a credible jobs/economic recovery plan from this Administration. Next, please?

So that explains much of the Democrats’ malaise, but you have to inhabit an alternative universe in which up is down, right is wrong, and facts are lies and myths to account for the willingness of voters to even consider voting Republican.

The deeply cynical Senate Republican Leader, Mitch McConnell, managed to evade every question asked by ABC This Week’s Christiane Amanpour. She came armed with videos and quotes showing what a hypocrite he is and how embarrassed any rational person would be by the nutty positions expressed by Republican candidates like Sharon Angle, Rand Paul, Joe Miller, and Christine O’Donnell and the rest of the horror show that has become the Republican Party. But McConnell dodged every question; Amanpour simply gave up trying to get direct, let alone honest, answers.

McConnell avoided defending the nutcases that now define the Republican Party by saying that since Sharon Angle was polling even with the Democratic Senate Leader, why should he question the voters’ judgment? Well, Mitch, it’s because you’re supposed to care about your Party’s integrity and sanity and the country’s interests. But of course, Mitch didn’t want to answer the question Amanpour was asking: how can you defend candidates that are consistently making stupid and dangerous statements? He can’t, so he dodged.

McConnell’s evasiveness on the implicit label of lunacy was to charge the Democrats with extremism, characterizing the Administration’s efforts to rescue the economy from the depression McConnell’s Party left us as "extreme." Amanpour did not think to ask how Republicans would have reversed the depression they created, nor how they could argue tax cuts for the richest Americans would rescue the economy but tax cuts for the middle class, jobs programs, infrastructure investments, and emergency relief to states to avoid layoffs were "extreme." He should have been asked: How can you explain not voting for any of these?

Nor did Amanpour effectively pressure McConnell to unpack his argument that we shouldn’t be increasing taxes in the middle of a recession. The question is what measures work best to stimulate jobs and recovery, and the first answer is, tax cuts for the rich are the least effective. So the issue is between continuing tax cuts primarily for the middle class versus those exclusively for the richest 2 percent, whose revenues could be used in vastly more worthwhile, job-creating ways.

McConnell dodged that by noting that 31 House Democrats and perhaps 5-6 Senate Democrats agreed with the Republican position of further enriching the rich. Thanks a lot, Blue Dogs and conservaDems, for bailing out the man who wants to be your next Senate Majority Leader. You own him.

But that wasn’t the only moment when McConnell used corrupt and foolish Democrats to defend the indefensible. When Amanpour asked where Republicans would cut spending to achieve their preposterous claims of cutting deficits while extending massive tax cuts for everyone, McConnell noted that President Obama’s Deficit ("Catfood") Commission would report in December, and he’d be happy to consider their recommendations. Which translated means: we said Thursday we won’t harm seniors, but on Sunday I’m saying if the Commission says, "let them eat catfood," that’s how we’ll balance the budget. Thanks, Obama.

So once again, we find the White House and conservative Democrats helping Republicans make the argument that Republicans should replace Democrats in Congress and never be required to say or do anything remotely sensible or helpful in addressing the nation’s staggering problems. You’d think the Republicans won the 2008 elections, and maybe they did.

Where Were Tim Geithner’s and Larry Summers’ Stress Tests?

6:28 pm in Uncategorized by Scarecrow

UC Berkeley Econ Prof, Brad DeLong, to whom many of us are indebted for his patient, persistent, and lucid efforts to educate us about macroeconomics, furthers the cause of public transparency by publishing a previously internal February 2009 analysis by Citigroup that was about to disappear. The analysis focused on how difficult it would be for the mega-banks to "pass" the "stress tests" being proposed by Tim Geithner and the Obama economics team.

Citigroup’s answer was: This doesn’t look that hard, and it’s a good idea to ask these questions.

The bank’s internal analysis confirms the views of various outside observers at the time — Krugman, Yves Smith and friends, Mike Konczal, et al — that Treasury’s "stress test" scenarios would not be particularly stressful — and reality was already overtaking the "adverse" assumptions and headed south — and thus wouldn’t really tell us how much risk the banks were facing if things got a lot worse. Indeed, despite all the subsequent industry whining about the Administration being "anti-business," the bank’s analysts seemed to realize early on that Treasury’s purpose in running the tests was not to expose them but to save them, to help the banks convince investors they were not about to collapse and didn’t need to be taken over and would be helped if needed.

Beyond that confidence building goal, the tests were sold to the public as a responsible step to alert banks and regulators to the banks’ need for additional capital to withstand possible adverse changes in economic conditions. Given this guidance, and further efforts to rebuild the banks’ capital, investors could be confident the banks could withstand further shocks or significant forecast errors.

It’s hard to argue with the prudence of that concept: you need to think about and plan for the possibility things could get much worse.

What I find interesting, indeed surprising (shocking?) in light of what’s happened to the economy, the Administration’s stalled economic recovery efforts and the dreadful prospects of extended unacceptably high unemployment, is the economic team’s failure to apply the same stress test concept to their own economic recovery policies.

Certainly, by the time the stress tests were developed, Christina Romer would already have told Tim, Larry and team that the employment and GDP assumptions they used when designing the first stimulus were by then (February 2009) too optimistic. And even if the original forecasts were still holding in February (they weren’t), the argument for testing the stimulus adequacy under worse scenarios would still have applied to the Administration’s original recovery plans.

Indeed, when Summers’ reportedly argued against a stimulus large enough to fill the (by then, under-forecast) expected GDP gap but instead for a smaller "insurance" policy, there must have been some notion of what they were insuring against and how much damage the insurance would leave uncovered.

They needed their own stress tests and a Plan B or C for those contingencies. And that would have included not merely the size and politics of further stimulus, but the sequencing of Obama’s agenda and even thoughts about what they’d need from the Federal Reserve and what types of appointments would support it.

But apparently that didn’t happen, or was never made public. Even if Romer was running what if scenarios internally, I’ve seen little indication Tim and Larry had a Plan B or thought through what Plan B should look like or how (and when) Plan B might be triggered and approved.

With the frustrated Romer’s exit, and Summers’ announced departure, lots of folks are debating Summers’ tenure and indeed the competence of the entire Tim and Larry show. So I think a relevant question is why, given what they were asking the banks, they didn’t ask the same types of questions of their own efforts and have a credible backup plan if they turned out to be badly wrong.

And that question is not just for the economic team. Why didn’t Obama’s political advisers demand their own "political stress tests," knowing that if Tim and Larry’s economic recovery plan stalled after a year of trying, it might tank Congressional Democrats in 2010 and the President’s agenda or re-election beyond?

Since there were very good economists warning them about this from the beginning, not doing such tests/planning looks like political malpractice.

And yet we’re being told that it’s okay for Rahm Emanuel to remain in the White House when he’s reportedly focused on what’s best for his own political future — and thus not what’s best for the country or the Obama Presidency — while the President’s political advisers are already planning their departure to work on Obama’s 2012 campaign.

What all of this tells me is that even now there’s no one working on Plan B even though it’s long been obvious Plan A failed. The mini-Bs they’ve been begging Presidents Snowe and Collins to pass are clearly not enough, but they’re not telling the public.

And with everyone focused on leaving or their next gig, who’s minding the store? In the words of our Vice President, someone needs to wake up.

John Chandley

Larry Summers Leaving White House to Return to Harvard

2:37 pm in Uncategorized by Scarecrow

The White House just released a statement that the President’s Chief Economic Adviser, Larry Summers, will leave the Administration and return to Harvard University by the end of the year:

Dr. Lawrence H. Summers, Director of the National Economic Council, to Return to Harvard University at the End of the Year

WASHINGTON – Dr. Lawrence H. Summers, Director of the National Economic Council and Assistant to the President for Economic Policy, announced his plans to return to his position as University Professor at Harvard University at the end of the year.

Dr. Summers is the chief White House advisor to the President on the development and implementation of economic policy. He also leads the President’s daily economic briefing.

“I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team. Over the past two years, he has helped guide us from the depths of the worst recession since the 1930s to renewed growth. And while we have much work ahead to repair the damage done by the recession, we are on a better path thanks in no small measure to Larry’s wise counsel. We will miss him here at the White House, but I look forward to soliciting his continued advice and his counsel on an informal basis, and appreciate that he has agreed to serve as a member of the President’s Economic Advisory Board.”

Dr. Summers said “I will miss working with the President and his team on the daily challenges of economic policy making. I’m looking forward to returning to Harvard to teach and write about the economic fundamentals of job creation and stable finance as well as the integration of rising and developing countries into the global system.”

Dr. Summers overseas the coordination of economic policy making across the Administration, leads the President’s daily economic briefing and has been a frequent public spokesman for the Administration’s policies.

Under Dr. Summers’s leadership, the National Economic Council has been at the center of economic policy making in the Obama Administration. He served as an architect of the Recovery Act and other job creation measures and the Financial Stability Program. As co-chair of the President Auto Task Force, he led the restructuring of the U.S. automobile industry. He has also played a leading role in managing our international economic relationships including China, developing the President’s health care plan, opening the broadband spectrum, and in international climate negotiations.

Just before the announcement, we got this leak via Bloomberg:

Administration officials are weighing whether to put a prominent corporate executive in the NEC director’s job to counter criticism that the administration is anti-business, one person familiar with White House discussions said. White House aides are also eager to name a woman to serve in a high-level position, two people said. They also are concerned finding someone with Summers’ experience and stature, one person said.

Great. I think the base will be thrilled to have a Chief Economist that pleases the business community, and I’m sure there are plenty who share Summers’ experience in promoting financial deregulation, missing the systemic financial risks of derivatives, lax leverage rules and bubbles, and saving the banks and corporate profits without an effective jobs program. Sounds like Carly Fiorina.

NYT: Facing Mid-terms Blowout, White House Wonders If It Needs a Political Strategy

8:55 am in Uncategorized by Scarecrow

At some moment just before or after the 2006 midterms, when Republicans first realized that Karl Rove and the Bush White House team were not political geniuses but rather just cynical political operatives with more ego than sense, a few of them must have figured out that continuing to follow the Bush White House could destroy the Republican Party’s brand and risk losing both Congress and the White House two years later.

Let us hope there are enough sensible progressives left to realize that same moment has come for them.

One hardly knows whether to laugh or cry at this astonishing opening in todays NYT lead story:

WASHINGTON — President Obama’s political advisers, looking for ways to help Democrats and alter the course of the midterm elections in the final weeks, are considering a range of ideas, including national advertisements, to cast the Republican Party as all but taken over by Tea Party extremists, people involved in the discussion said.

Really? How good of the White House to notice their party is about to be wiped out by one of the most anti-democratic political movements in our lifetimes. When did they notice?

Everyone except the President’s genius team understood that when Republicans began to obstruct every Democratic proposal from day one, that it meant the Republicans had become irresponsible nihilists willing to destroy the economy and the middle class to regain power. It was clear from the birthers’ first cries of "socialism" and "death panels" they would inflame their followers with lies, demagoguery and fear mongering. Sentient observers knew the demagogues and their hate-talk media would do everything they could to convince voters that any Democratic Administration, let alone that of a Muslim/Kenyan, was illegitimate. They were at war, and only now the White House thinks maybe it should respond, with, uh, some ads.

The resulting emergence and success of openly crazier candidates should not have surprised anyone. And yet the White House is just now leaking to the Times that it might be useful to warn the nation it’s in danger of being taken over by the worst of America’s crazies.

The self-proclaimed political geniuses in the Obama White House, starting with the President himself, Rahm Emanuel’s political shop of horrors and extending to all of the emperor’s naked loyalists in the Party’s leadership — has there ever been a more inept crew than Tim Kaine, Van Hollen, Harry Reid, Steny Hoyer? — are systematically destroying their Party, and given what they’ve become, few are shedding a tear.

But the Obama conserva-Dem Team is also setting back for the next generation liberals/progressives and their causes, damaging the credibility of a progressive democratic brand that was born in the Great Depression and gained voters’ trust by recreating government to put the public interest first, even if that meant taking on the most powerful economic interests.

And it retained that trust by saying about the those interests, "I welcome their hatred." The Obama regime has lost that trust by ignoring all the lessons of that era. Its motto is, "let’s make a deal." Or "what do we need to do to get your campaign contributions?" As Obama keeps telling us, his hero is Ronald Reagan, not FDR; he should have told us that the guiding ideology of the Conservative-Reagan era wrecked the economy, created the worst inequality in our history, and is still destroying the middle class.

The Republican brand was virtually dead by 2008. To accomplish such a turnaround, after being handed a huge mandate to change the country’s fundamental direction, this Administration has approached every one of the nation’s staggering problems as though all that was needed was a modest redirection in focus, an adjustment in priorities, a few more billions here instead of there, better regulation by the same regulators who were asleep and disinclined to act the last time, but nothing that would fundamentally change the structure of how the country’s most powerful and damaging institutions operate. Faced with the need for boldness and courage, they worshipped timidity and preached first patience and then acceptance and docility among worried citizens.

The President repeatedly told us that many of the solutions were "Republican ideas" and that responsible Republicans were acting in good faith. How many times do you recall this White House saying, "what this problem needs is a strongly progressive solution"? Or the dismantling of powerful interests? Any yet if you look at the measures the White House and apologists now point to as "achievements," they were more often deeply popular holdover progressive ideas that Congress passed in the momentum following the elections. They did not pass as a result of the White House overcoming massive opposition.

While taking credit for what he did not achieve with much effort, the President and his men have repeatedly denigrated and belittled progressives and ignored their ideas. The measure of this is how unusual it is to have Liz Warren gain a position in the Administration over the objections of Obama’s closest advisers.

Now the White House strategy is to blame progressives and voters themselves for their lack of enthusiasm for a regime that has left 15 million unemployed, permitted record levels of poverty and decimated state public programs, threatens social security and teeters on the edge of a second recession with no credible plans for near-term relief. Fittingly, his new chief economic adviser doubles as a stand up comic.

And they still don’t get it. The Times article tells us this White House is having trouble focusing on a plausible political strategy for the midterm elections only weeks away, because they’re preoccupied with Rahm Emanuel’s expected run for mayor of Chicago. Are they serious?

The Chief Of Staff is the Obama White House’s senior political adviser, but the Times hints he and his aides are worrying about what’s best for him and not his country, Party or President? There’s a solution for that one.

Stimulus Is Not a Bad Word and John M. Keynes Was Smarter than John Boehner

1:17 pm in Uncategorized by Scarecrow

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 million

Youth Employment Programs.
Cost: $46.5 billion
Pay-for: Financial Speculation Tax
Jobs created: 3.1 million jobs

Total $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 jobs

Total $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.

4. NYT article noting that tax cuts for the rich provide the least "bang for the buck."

Peter Orszag Thinks the Rich Need Tax Breaks More Than the Unemployed Need Jobs

8:54 am in Uncategorized by Scarecrow

Former Obama Budget Director Peter Orszag’s maiden column as a New York Times op-ed contributor undermines Brad DeLong’s hope that Orszag’s addition would make the Times op ed pages better. That might have been true if Orszag replaced a clown or someone not worth reading, but he didn’t.

Instead, Orszag gives us an illogical argument for why we should extend Bush tax cuts for the richest two percent of Americans for another two years but end the Bush tax cuts for everyone by 2013. To get there, Orszag has to ignore both economics and fairness, and use logic and political arguments only when convenient.

Orszag’s hook is to argue we have two unacceptable deficits — one for jobs and the other for the federal budget. So we need to keep the cuts for now for stimulus reasons, but end them soon to reduce the deficits. But he quickly reveals he doesn’t care about the jobs deficit, because nothing he advocates would alter government (including his own) forecasts that today’s 9.6 percent unemployment will decline only slightly over the next few years. Instead he reveals he’s a believer in invisible bond vigilantes — lucky for him, vigilante slayer Krugman is en route to Japan — and reveals his belief that only the budget deficit is truly unacceptable. The unemployed don’t matter.

He worries that we face budget deficits that may be 4 to 5 percent of GDP, asserting we have to get that down to an arbitrary 3 percent by 2015 or so, but he seems completely unconcerned about the harmful drag on GDP from leaving 10 to 20 percent of the nation’s labor resources unemployed or underutilized.

So what’s wrong with Orszag’s "political compromise" of extending all cuts for two years, then ending them all? The main problem is the error we see over and over in reporting on the economic stimulus value of tax cuts.

For the thousandth time, tax cuts aren’t very effective, and those applied to rich people suck. When the government gives a tax cut — essentially a gift — to the richest Americans, they spend proportionally less to stimulate Mainstreet’s economy and gamble a lot more on Wall Street’s casinos. Everyone should know this by now. Transferring money from the middle class to the rich impoverishes Mainstreet and enriches Wall Street. So retaining lower taxes for the middle class is as much a democratic equity argument to help redress the egregious distribution of wealth to the richest people as it is an economic stimulus plan.

But if you’re going to defend extending tax cuts as an economic stimulus and re-employment measure on the op-ed pages of the New York Times, your readers expect you to acknowledge Christy Romer’s work on stimulus multipliers, and CBO’s or at least Mark Zandi’s studies on stimulus effects, never mind OMB’s own budget forecasts. All of these tell us many tax cuts suck as stimulus compared to direct spending, especially spending on the unemployed or those less well off or even the middle class. Tax cuts for the less well off are fair, but tax cuts for the richest are just fiscally irresponsible and economically wasteful gifts to people who don’t need more federal entitlements or bailouts. There was no excuse for them before and none now.

Any honest op-ed on this subject would tell us these facts in the first few paragraphs and then explain why any compromise package that deviates from those fundamental priorities is still justified.

So if former OMB Director(!) Orszag’s "compromise" is economically foolish and harmful, what’s his political excuse? Here he finds it convenient to argue Republicans would never agree to extending tax cuts only for the middle class while leaving out gifts for the rich — probably true — but inconvenient to note that the same Republicans would likely reject ending the tax cuts for everyone in two years. Similarly, he says Obama could enforce this unlikely compromise by vetoing any bill to make the cuts permanent in 2013, but he assumes Obama cannot fashion an intelligent veto threat in 2010.

Next we get Orszag’s dissembling on where to find spending cuts:

How much savings is plausible on the spending side? Medicare, Medicaid and Social Security will account for almost half of spending by 2015. Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries — and so would generate little savings over the next five years. The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.

Translation: to "reform Social Security" means to cut benefits for future beneficiaries. And you can’t reduce health care costs because, uh, he sat in the Senate’s Big Six meetings to protect Obama’s deals with PhRMA and hospitals, mandating private insurance while killing the public option, nixing drug imports and negotiations and taking Medicare for all off the table. And that’s why "there aren’t further big reductions available."

The nation’s number one economic problem is not Peter Orszag’s fear of invisible bond vigilantes or even the prospects of deficits in 2015 or 2018 still at 4 to 5 percent GDP. It’s the loss and waste of 15 million of America’s most important resources and the costs that imposes on us for decades. They need jobs, and just as important, America needs to put them to work, because America has public investment needs in the trillions — yes, trillions, not the $50 billion Obama proposes for starters.

If Congress allows the Bush tax cuts for the richest Americans to expire, just as current law provides, that will give OMB $700 billion more over the decade to use for much needed economic expansion now — e.g., a way to "pay" for an Infrastructure Investment Bank that doesn’t require you "work with Republicans" — or short run enhancements to Social Security, and, if they choose, deficit reduction later.

It also means the phony budget hawks who have no plans to cover the tax cut extensions, will have $700 billion less in deficits to use as an excuse for leaving 15 million American workers unemployed.

That’s good policy, good politics, smart economics. By undermining all three, Orszag’s first op ed gets an "F". Well, Prof?

John Chandley

Krugman on tax cuts and the need for public investment

WaPo’s Pearlstein Catches Deficit Fever, Becomes Incoherent

7:06 am in Uncategorized by Scarecrow

Until today’s column, the Washington Post’s usually sane Steven Pearlstein had been largely immune from the mind numbing symptoms of deficit hysteria syndrome. That disease has already incapacitated the brains of the Post’s editors. But now it seems he’s becoming incoherent, giving equal credence to opposite views.

Today he lectures the 15-20 million Americans who need jobs and the millions of struggling small businesses that they should give up on economic recovery. Instead, he warns it’s time to pay up for their profligacy.

Perlstein tells us "some" economists (unnamed) say this, and some economists (unnamed) say that, without bothering to sort out who makes sense or noting that the nation’s best economists, including those who got it right the first time, like Stiglitz, Galbraith, Baker, Johnson, Mosher, DeLong and that Krugman fellow, are not confused or suffering from the logic- and fact-free fever infecting the opposing "some."

The better/best economists have repeatedly told us the economy clearly needs more/continued stimulative policies in the short run and that the alleged risks cited by deficit hawks are minimal or non-existent, or at best, matters for future but not current concerns. They generally agree the nation should, for the long run, but not now, not until employment has recovered and the recovery is sound, begin to solve our structural budget problems.

But those structural problems are almost entirely composed of escalating costs for health care — the excessive prices we pay for doctors, hospitals and drugs — and what continued escalation will mean 10, 20 and 30 years out. We simply pay far too much compared to other nations with equal or better health results. And we might add, we have a dangerous appetite for excessive military spending plus an unwillingness to set taxes on the wealthy to what they used to be.

The proper challenge to Pearlstein’s opposite "some economists" is that there is no coherent story of any "deficit crisis" except that connected to the health care cost problem and the misallocation of national resources for war.

Fortunately, Pearlstein is NOT among those aiming at entitlements. Unlike his editors, he knows Social Security is not even remotely in crisis nor contributing to any deficit, no matter how many times the deficit buzzards and the Post lie about it. Social Security has a huge surplus fund, invested in the safest bonds on earth. That fund and ongoing payroll taxes can cover all required benefit payments until at least 2037 (CBO) or 2044 (others), under conservative assumptions, and longer under modest economic growth assumptions. Or it could extend even longer if the payroll tax limit were expanded to cover higher incomes.

Anyone who says Social Security is in serious trouble or contributing to our deficits/debt is egregiously misinformed or lying. That means the entire premise of Obama’s ill-conceived Deficit Reduction Commission, a.k.a. "cat food commission," with Pete Peterson’s focus on "unsustainable entitlements," is a massive propaganda fraud to disguise another shameless looting by the elite of the middle class and elderly.

Unfortunately, Pearlstein doesn’t say that half of the "some say" construct is a fraud. Instead he seems to suggest ordinary Americans haven’t suffered enough:

The controlling reality is that the global economic system is rebalancing itself after years in which the United States was not only allowed but encouraged to live beyond its means, consuming more than it produced and investing more than it saved. Now the bill for that is finally coming due — all the clever and seemingly painless ways for postponing that day of reckoning have pretty much been played out. The only question now is what form that payment is going to take. Will it be an extended period of subpar growth and high unemployment, inflation that erodes the purchasing power of our income and the value of our assets, a deflationary spiral that grinds down wages and salaries and increases our debt burden — or, as I suspect, some combination of all three?

I don’t think he means that Americans have had it painless recently – that is, since the recession began. Surely he knows they’ve just lost $6-8 trillion in wealth when the housing bubble burst, lost 8 million or more jobs, while millions lost health care, lost their homes, gave up college. Their state governments are creating 50 state Hoovervilles, decimating public services, slashing Medicaid, abandoning state parks, laying off hundreds of thousands of teachers, police, firemen, health and safety workers and on and on.

So why does he disparage further "borrowing and spending," the only mechanism he cites for fiscal stimulus (surely he knows the Fed can create money)? And he also disses the Fed’s efforts at monetary expansion.

But he then turns on a dime to advocate a massive infrastructure investment program, because, he says (and the good economists all agree), this is a very good time to be buying stuff like schools and bridges and mass rail, etc. That means half of the "some economists say" crowd must be wrong.

He could have written that last sentence or two and left the rest of his unhelpful "some say this, but others say that" and "we need to punish Americans" musings to the delete key.

John Chandley

Revised, 11:20 Eastern. I think my original take misread Pearlstein’s point about further pain. .

More Sightings of Deficit Hysteria Syndrome

Dean Baker, David Brooks and the Power of Magical Thinking
Paul Krugman, The Seductiveness of Demands for Pain
Yves Smith, Pete Peterson Has Won . . .
Brad DeLong hasis also perplexed that the thoughful Pearlstein has a wrong theory . . .; also, Clive Crook fails to read Krugman.
DeLong, Ryan Avent wonders why David Brooks has a job