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Saturday, February 06, 2010

Stiglitz: Muddling Out of Freefall

Joseph Stiglitz wants to see changes in Obama's policies and his leadership, particularly his tendency to try to please everyone:

Muddling Out of Freefall, by Joseph E. Stiglitz, Commentary, Project Syndicate: Defeat in the Massachusetts senatorial election has deprived America’s Democrats of the 60 votes needed to pass health-care reform and other legislation... But what does that vote say about American voters and the economy? It does not herald a shift to the right, as some pundits suggest. Rather, the message it sends is...: “It’s the economy, stupid!” and “Jobs, jobs, jobs.” ...
The US economy is in a mess... More than one out of six Americans who would like a full-time job cannot get one; and 40% of the unemployed have been out of a job for more than six months.
As Europe learned long ago, hardship increases with the length of unemployment, as job skills and prospects deteriorate and savings gets wiped out. The 2.5-3.5 million foreclosures expected this year will exceed those of 2009, and the year began with what is expected to be the first of many large commercial real-estate bankruptcies. Even the Congressional Budget Office is predicting that it will be the middle of the decade before unemployment returns to more normal levels...
President Barack Obama took a big gamble at the start of his administration. Instead of the marked change that his campaign had promised, he kept many of the same officials and maintained the same “trickle down” strategy to confront the financial crisis. Providing enough money to the banks was, his team seemed to say, the best way to help ordinary homeowners and workers. ... Had Obama’s attempt at muddling through worked, it would have avoided some big philosophical battles. But it didn’t work...
Obama wanted to bridge the divides among Americans that George W. Bush had opened. But now those divides are wider. His attempts to please everyone, so evident in the last few weeks, are likely to mollify no one.
Deficit hawks ... use worries about the growing deficit to justify cutbacks in spending. ... Cutting spending now will weaken the economy. ... Trying to “square the circle” between the need to stimulate the economy and please the deficit hawks, Obama has proposed deficit reductions that, while alienating liberal democrats, were too small to please the hawks.
Other gestures to help struggling middle-class Americans may show where his heart is, but are too small to make a meaningful difference. Three things can make a difference: a second stimulus, stemming the tide of housing foreclosures..., and reshaping our financial system to rein in the banks.
There was a moment a year ago when Obama, with his enormous political capital, might have been able to achieve this ambitious agenda... But anger about the bailout, confusion between the bailout (which didn’t restart lending, as it was supposed to do) and the stimulus (which did what it was supposed to do, but was too small), and disappointment about mounting job losses, has vastly circumscribed his room for maneuver... Indeed, there is even skepticism about whether Obama will be able to push through his ... long overdue efforts to curtail the too-big-to-fail banks and their reckless risk-taking. ...
Unfettered markets may have caused this calamity, and markets by themselves won’t get us out, at least any time soon. Government action is needed, and that will require effective and forceful political leadership.

    Posted by on Saturday, February 6, 2010 at 01:10 AM in Economics, Politics | Permalink  Comments (58)


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