Drifting Toward More Direct Stimulus?

by Mark Muro | November 23, 2009

Vice President Biden’s chief economic advisor Jared Bernstein seemed loathe to make headlines during a forum the Metro Program staged last week in Washington with the National League of Cities (NLC) on the nation’s deepening local government fiscal crisis. Instead, he stuck close to his text, raised smart academic questions about possible courses of action, and emphasized he was not expressing any official administration preferences about how to proceed.

Chicago stimulus project And yet for all that, Bernstein committed news. Most notably, in a sign of gathering momentum for additional economic stimulus, he expressed a surprising openness to more direct federal forays into job creation as unemployment continues to rise.

First, Bernstein seemed to entertain the possibility of some sort of special fiscal relief for cities and other municipalities, acknowledging the possibility raised in a framing paper produced for the Brookings-NLC event that local government service cuts and layoffs could well impose a significant drag on the nation’s economic recovery just as the extraordinary interventions of the $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) trail off. Said Bernstein: “We’ve got to do more to translate economic growth and continue helping states and localities meet the deep fiscal challenges they face so as to [help them] avoid taking steps that make getting out of this mess that much harder.”

Later on, and especially in an exchange with Philadelphia Mayor Michael Nutter, Bernstein went farther, and seemed to provide a significantly more favorable view of recommendations that the nation create a direct public jobs program to create jobs in struggling communities than administration officials had provided to date. This was especially noteworthy, because just a couple weeks ago, Larry Summer--the director of the National Economic Council and President Obama’s top economic advisor—belittled proposals that the nation finance direct job creation, whether through job-sharing or New Deal-style public positions to refurbish deteriorating buildings or provide community service.

But there Bernstein was last week, saying that “it makes sense to target employment more than GDP right now,” given the lag between aggregate economic growth and job creation. And his remarks became even more interesting as the discussion drew to a close. Then, Mayor Scott Smith of Mesa, Ariz. worried that short-term fiscal or job aid might become a short-term “sugar high” and Nutter begged to differ, saying he said he thought there needed to be more federal emphasis on preventing local government lay-offs and getting people to work in cities. Responding to that exchange Bernstein seemed to side with Nutter, saying he was not worried about additional stimulus causing a “sugar high.” Said Bernstein:

I mean, there is a basic logic to helping folks offset deficits, especially people who can’t run budget deficits, in a period like this in the spirit of pure Keynesianism, which is temporary stimulus as you wait for the private sector to come back and things to go--stabilize and go back to normal. So I think while `sugar high’ you know, is-- in a way sugar high could be used as sort of a criticism of Keynesian stimulus in general, you know, I view it more as a bridge over a big gap, and sometimes you need that.

That was intriguing. As Alec MacGillis noted in an interesting post at the Washington Post’s 44 blog, such a stance represented significant movement from where Bernstein stood three weeks ago in a speech at American university, where, as MacGillis related, “he dismissed a question about direct government job creation by arguing that public works programs take longer to get going than people realize.” It sure sounds like there’s now gathering momentum for additional stimulus with a portion reserved for direct job creation in cities.

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