JONATHAN COHN JUNE 9, 2011
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Are President Obama and his advisers alarmed about the tepid recovery? Are they working feverishly to think up new interventions, the kind that involve increasing short-term deficits, to strengthen it? I would like to think the answer to both questions is "yes." But public signals from the president and his advisers remain ambiguous, while even some of the administration's more well-connected friends are getting nervous about how White House rhetoric is shaping the debate.
By now, you've probably heard about the comments that Austan Goolsbee, chairman of the Council of Economic Advisers, made on Sunday’s edition of "This Week." He downplayed the significance of last week's dreary employment report and suggested "government is not the central driver of recovery." In addition, you've probably heard about the Washington Post profile of Tim Geithner. That profile suggested Geithner was now the president's most influential economic adviser and that his emphasis on deficit reduction, over further stimulus, had become the prevailing White House view.
But there's more. At a White House forum on Monday, Goolsbee apparently said the same things he had said on Sunday. Ryan Avent, who wrote about the forum for the Economist, came away convinced that ongoing talks over raising the debt ceiling will lead to immediate spending cuts--a move that, according to every respectable economist I know, would actually slow economic growth even more.
On Tuesday night, the Administration released an official policy statement declaring that a new Senate jobs bill was too expensive. The bill, which Majority Leader Harry Reid had endorsed, would have boosted spending on infrastructure, albeit very modestly. The administration lauded the bill’s goal but made clear that it opposed the specifics, because they would mean slightly more deficit spending. "The need for smart investments that help America win the future must be balanced with the need to control spending and reduce the deficit," the administration announced.
Also on Tuesday night, Bloomberg News reported that administration officials were discussing the possibility of a new payroll tax cut, in order to boost consumer demand. Obama hinted at similar interest during a press conference earlier in the day. Many of us, including my colleague Jonathan Chait, thought this meant the White House was finally "pivoting" towards a focus on jobs. But, during the daily White House briefing on Wednesday, press secretary Jay Carney declined to endorse or even talk up the idea, noting that "there are a lot of ideas that get bandied about, both within the administration and outside."
As I've noted previously, my White House decoder ring isn't the most reliable. For example, a senior administration official told me the statement about the Senate jobs bill was primarily making a technical point: That the proposal didn’t have offsetting revenue or spending cuts, a principle the president set forth in his budget. In other words, I could be reading way too much into these episodes.
And there are any number of sensible reasons, political and substantive, why the administration might be deliberately understating its concern about the economy or its interest in stimulus. Talking up the economy could itself boost confidence. Endorsing an idea like the payroll tax holiday explicitly might scare off Republicans, who instinctively oppose anything with the word "Obama" attached to it. Administration official have noted, correctly, that Obama secured a payroll tax holiday in the final 2011 spending agreement without making it a high-profile cause beforehand.
But there's also reason to think the administration really hasn't invested much energy in developing new ideas for stimulus--at least until last week, when the unsettling jobs report refocused Washington’s attention on employment. Here’s what one senior Democrat, familiar with ongoing talks over the debt ceiling, told me on Wednesday:
Until the recent jobs numbers hit they -- like nearly every other mainstream economist -- believed that the jobs numbers were moving in the right direction. Additionally, they've reasonably assumed that their limited bandwidth was better spent negotiating a solid extension of trade adjustment assistance -- to go along with job producing trade agreements -- and a reasonable deficit reduction package rather than bang their head against a wall trying to get more stimulus from the nutty house Republicans.
Nobody disputes that the political constraints facing the president are real. The Republicans won't pass anything that involves spending, the public largely rejects Keynesian thinking, and bipartisan talks on the debt ceiling could easily break down. More than one political strategist has suggested Obama's best shot at securing a payroll tax cut may be to move slowly and, perhaps, to let somebody else take the lead on it. By contrast, provoking a fight that scuttled debt ceiling talks could spook the markets (for real) or lead to default, either of which could cause a whole new economic crisis.
But some administration allies fear the administration is doing more than keeping a low profile or biding its time -- that it is actively reinforcing conservative dogma, at a moment when the jobs report may have created an opportunity to shift the economic debate away from budget imbalances and towards employment. "I understand the constraints of the moment," says another senior Democrat, "but I'm not sure what's gained by giving any oxygen to the incorrect idea that fiscal austerity right now would be expansionary."
It's the exact same point Paul Krugman made on his blog Wednesday afternoon:
Obama has operated under severe political constraints, and those of us who criticize the inadequacy of the stimulus and other policies have to be mindful of that. But the White House did not have to concede the economic argument the way it has.
Update: I originally cited comments by Gene Sperling, director of the National Economic Council, in Monday's White House forum. But those comments aren't as clear as I first thought, so I removed the reference. Also, I changed "short-term deficit spending" to "increasing short-term deficits" in the first paragraph, since a payroll tax holiday -- the most likely form of stimulus to pass -- would raise deficits but not deficit spending.
19 comments
This article on jobs is interesting. It cites increasing efficiency/productivity combined with globalization as a large part of the problem. http://www.theatlantic.com/business/archive/2011/06/the-easiest-way-to-understand-why-we-cant-create-jobs/240191/ Is there such a thing as too much efficiency? I think so and maybe we've reached it. We need to think about work and its role, the role of jobs and a dignified life, within a society and not just the virtue of money.
- Sophia
June 10, 2011 at 1:15am
"Is Obama Finally Ready to Make the Case for Additional Stimulus?" When I saw this title/summary at the top of the page, I had a brief bit of hope that Obama was coming to his senses on this issue. Then I read the article and fell back down to earth.
- Thunderroad
June 10, 2011 at 2:44am
Timing is everything. The election is almost a year and a half off. Why do now what would have a much greater political impact later. So they float an idea now, the payroll tax holiday, to flesh out any opposition from the other side. And then when the real tax fight emerges in the campaign, over the fate of the Bush tax cuts, they propose a deficit reducing end to the Bush tax cuts coupled with an economy stimulating payroll tax cut aimed at the lower to middle class (that, for those taxpayers at least, more than offsets the meager cuts they received from the Bush tax cuts) and, perhaps, a small stimulus. I know, it's groundhog day, for it's the same proposal I promoted endlessly in 2010. Do I really believe that's what Obama and his advisors have in mind for 2012? No, not really. It's way too complicated for such a meager proposal. I think they believe that the economy is on the mend (green shoots and all), that the recent setbacks are attributable entirely to the spike in oil prices caused by the political events in the middle east and the disaster in Japan, and are temporary, that by 2012 the economic news will be good if not great and voters will be focused on the deficit not unemployment.
- rayward
June 10, 2011 at 7:51am
"Is Obama Finally Ready to Make the Case for Additional Stimulus?" No.
- AaronW
June 10, 2011 at 8:39am
Whoops, I didn't see that you'd already done pretty much the same thing Thunderroad. Also, I recognize that Cohn's post basically equals my "No."
- AaronW
June 10, 2011 at 8:46am
So Obama is going to take the increase to 9.1% unemployment and... leave the card on the table. Typical. Now, I supported Obama, I still do as the least-bad choice. But damn, some of the things he chooses to do both mystify me, and piss me off. He's STILL treating the Republicans as good-faith negotiators, when the last 12 years of Republican influence has demonstrated the opposite, including during his entire administration. How long will he cling to his admirable, but self-defeating, opinion on this?
- AllanL5
June 10, 2011 at 8:56am
Yup, just leaving the 9.1% unemployment figure card lying on the table is a mistake.
- AllanL5
June 10, 2011 at 9:01am
Democratic primary challenger...there needs to be one. Yes, I know it would/will be a futile errand, but it might force Obama to wake up.
- AaronW
June 10, 2011 at 9:18am
See, I believed in all the "Hope and Change" rhetoric. I didn't realize it was "Hope and Change, as long as the Republicans will compromise with us, no matter HOW long it takes the Republicans to decide to compromise with us!" The problem with the country is that, without the Fairness Doctrine, fully 50% have been indoctrinated with right-wing propganda pretending to be "common knowledge". So no one more "moderate" than Obama has a CHANCE of being elected. Meanwhile, the Republican alternative to Obama is getting daily more and more nutty as they throw people as reasonable as Mitt Romney under the bus. So Obama is it, for the foreseeable future. Now, if ONLY he'd realize the Republicans don't want to compromise with him, and pursue rational policies AGAINST their opposition, while making the case for America of the necessity of Keynesian policies. But he hasn't, and he probably won't, and if the economy sinks too much further, double-dip Recession is definitely in the cards.
- AllanL5
June 10, 2011 at 9:34am
You do realize that we can only legitimately lambaste the Grand Old Party as intransigent terrorists that are hell bent on destroying America if they can't have all the power if we aren't doing the same thing? Otherwise it becomes a simple case of "both sides do it so it's ok, quit being a hypocrite"... And a challenger only matters if the challenger has a chance. If they have no chance, it's just a kabuki dance.
- GSpinks
June 10, 2011 at 11:26am
Timing,timing, timing-he needs to get the debt ceiling raised without giving ground on Medicare,Medicaid and Social Security and avoiding a default and any action by the "ratings gurus" (who have been so reliable in the past) to avoid any increase in interest on the debt. Lying low now to facilitate this goal doesn't foreclose any action in the future. However, it is really hard to read the tea leaves as to what he and the administration is thinking. Maybe that is intentional as it is not a great time to pick a fight. Not that he has been great at picking fights up to now but hopefully, as the election shapes up, he will see the need to make a case for how we need to go forward with targeted investments and more revenue.
- bcemore
June 10, 2011 at 1:43pm
If international banking organizations begin to downgrade investments issued by the United States Government because of insecurity associated with the national debt, foreign buyers of US Government debt may look elsewhere for investment opportunities. The President is obviously in a perfect storm. Politicians shouldn't find it difficult to coalesce around strategies that offer deficit reduction without further tax increases. Watch your step as you exit the theater. Thank you for flying with us.
- Doug12
June 10, 2011 at 1:50pm
Productivity, as business uses the term, really means doing more work with fewer employees. While this may lower the cost of doing business, it's not exactly a recipe for solving the unemployment (and consumer demand) death spiral. Ultimately, the only prescription for increasing employment is to create more customers for small business and put more dollars in the hands of working and middle class consumers. Laying off tens of thousands of state and local government employees only creates even more unemployed people who don't have money to buy stuff or pay their mortgages. Why do the Rethugs not seem to get this basic concept from Adam Smith's basic econ 101?
- desertdog
June 10, 2011 at 4:02pm
I agree with desertdog about the importance of consumers. Having plenty of money to invest in a busines does little good without customers
- Nusholtz
June 10, 2011 at 4:42pm
"If international banking organizations begin to downgrade investments issued by the United States Government because of insecurity associated with the national debt, foreign buyers of US Government debt may look elsewhere for investment opportunities." So says everyone in Krugman's "Pain Caucus." But that's just not a significant worry for two main reasons: 1) the US dollar is still the reserve currency and will remain so 2) banks have nowhere else to park their funds. The United States is not Greece. Stop pretending that it is.
- AaronW
June 10, 2011 at 5:50pm
Also, there is very good reason to think that a well-designed stimulus--and by this I mean a stimulus based primarily upon spending on needful goods such as education, state & local government, scientific research and physical infrastructure and NOT on more tax breaks--would pay a large proportion of itself back through increased tax revenues.
- AaronW
June 10, 2011 at 5:56pm
Only right wingers would consider tax breaks a "stimulus" to the economy. An economic stimulus needs to be aimed at job creation. Scientific research in itself isn't going to do it since many companies will take the research results and manufacture their new products overseas. I thought Obama was supposed to put a stop to letting companies move jobs abroad. Why the hell do we have a tax code if it can't be used to tax more heavily those companies that move manufacturing off shore?
- arnon
June 10, 2011 at 8:32pm
arnon, no major disagreement, however I would like to point out that funding scientific research, biomedical research for example (an area with which I have some professional familiarity), leads directly to job creation. A university-based researcher gets an NIH grant which he uses to pay stipends to grad students, somewhat bigger stipends to postdocs, solid salaries to masters-level laboratory technicians as well as administrative support staff. They also use those funds to purchase reagents and equipment a lot of which is NOT produced overseas because its manufacture requires the kind of high-level technical infrastructure not found outside of places like Palo Alto, North Carolina's Research Triangle, and Boston's 128 corridor. Finally for the same reasons, the new technologies generated through biomedical research don't tend to get outsourced overseas. NIH funding levels measured as the proportion of grant applications that get funded are at historical lows, 7% as compared with more than 20% a decade ago. I know tenured clinician-researchers who have closed their labs because they can't find funding and/or can no longer face the constant, demoralizing struggle of writing, rewriting, and defending grant applications that all too often leaves a researcher with no remaining time in which actually to do any research. Each lab closure represents several job positions that have gone out of existence.
- AaronW
June 10, 2011 at 8:59pm
Aaron, I am for scientific research jobs or no jobs at the end of the research project. However, why have so many jobs that were created by R&D project in different companies and at University labs financed by the taxpayer ended up in other countries. We have got to do something about that.
- arnon
June 10, 2011 at 9:31pm