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Saturday, July 03, 2010

Deficits or Jobs?

Dean Baker:

Washington Post Pushes Myths on the Economy, by Dean Baker: In its article on the June job numbers the Washington Post told readers that:
the chances of a strong, self-sustaining expansion that can significantly improve the job market -- which seemed a real possibility during the spring -- are now slim ..

It is not clear who saw a "strong, self-sustaining expansion that can significantly improve the job market" as a real possibility in the spring. Certainly the Obama administration did not, nor did the Congressional budget office. Both projected very slow growth that would leave the unemployment rate above 9.0 percent by the end of the year. Most private forecasters had similar projections. The Post does not identify anyone who had a more optimistic assessment.

The article then asserts, with absolutely zero evidence, that ambiguity about the economic situation is responsible for the gridlock in Congress over further stimulus:

The confused outlook is causing paralysis on Capitol Hill, since the recovery is neither strong enough to provoke a turn toward deficit reduction, nor weak enough to lend momentum to President Obama's push for more economic stimulus. As Congress prepared to leave town for the week-long Fourth of July break, even funding for the wars in Iraq and Afghanistan was bogged down by the broader election-year squabble over spending

This statement implies that if the data showed a weaker economy that the Republicans and Blue Dog Democrats, who are currently blocking stimulus spending, would somehow be more supportive of it. The article includes no statements from any of these members of Congress or anyone connected with them in any way that would support the claim that their votes on stimulus would change if the economy was weaker. ...

Do reporters really think that the economy isn't weak enough to justify more stimulus? Or is it mostly politics, not economics, that is standing in the way?

From the NY Times via Brad DeLong:

Over the last few weeks, Democrats in the Senate have failed to muster enough votes to pass a new package of measures to address the economic weakness, reflecting what some of them see as the political perils of further deficit spending. Within the White House, all of the Obama advisers, along with many outside economists, agree that both things are needed — additional stimulus this year and, before long, a clear sign that the government will soon take actions on taxes and entitlement spending, phased in over time, to reduce a debt that mounted during the recession to the highest levels since World War II. The advisers’ debate is over the timing and scale of any stimulus or deficit reduction.

Those pressing for more stimulus measures include Christina Romer, the chairwoman of the Council of Economic Advisers; Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr.; and the Treasury secretary, Timothy F. Geithner, who took that message internationally to the Group of 20 summit meeting of developed nations last weekend in Canada. Lawrence H. Summers, who as director of the National Economic Council tries to broker what he calls the “brakes-versus-accelerator” debates, nonetheless makes the economic arguments for an additional stimulus, officials say.

More focused on deficits — or at least on positioning Mr. Obama to show his concern — are his chief strategist, David Axelrod, other political advisers and Rahm Emanuel, the White House chief of staff, according to Democrats. Their lone supporter among the top economic aides is Peter R. Orszag, the budget director, who will leave the administration this month. Mr. Axelrod... said he often argues for emphasizing deficit reduction in part because “it’s my job to report what the public mood is.” He added, “I’ve made the point that as a matter of policy and a matter of politics that we need to focus on this, and the president certainly agrees with that.” But Mr. Axelrod said that he and Mr. Obama are also concerned that cutting the budget too soon could retard the recovery or even provoke a relapse like in the Depression era, when the government’s premature turn from stimulus to cutting deficits spawned another recession in 1937....

Notice that it is politics, not economics, that is holding up further stimulus ("the political perils of further deficit spending"). What bugs me about this is taking the public mood as a given, unchangeable constraint on the administration's ability to do what they (the economists anyway) think is best. Despite protestations from some to the contrary, I don't think the administration has done the hard work of laying the groundwork to convince the public that this is the right thing to do. Instead, they've tried to pander to the deficit hawks as a political strategy rather than taking them head on, and I think that was a mistake (and despite what Dean says about the forecasts, it may have been based, in part, on an overly optimistic, hopeful view on the recovery of the economy this summer). Yes, public mood has hardened against stimulus now. The hawks have won and the battle now is to maintain the stimulus that is in place, the hope for new spending is pretty slim. But that's partly because the administration (and its non Blue dog allies in Congress)  did not do what was needed to counter the hawks message. Now it's probably too late.

It might be true that there was never more than a slim hope, that the attempt to fight for more stimulus would have simply burned political capital with little to show for it. But when there are large enough benefits from a policy, and putting people back to work has very high value, those policies ought to be pursued even if they may not pay off in the end. I don't think politics should be the determining factor when the working lives of millions of people are at stake, but note that not doing anything further to help the unemployed -- or worse, reducing the deficit during the recovery -- also burns political capital, something the political advisers seem to be ignoring. I know I'm far less supportive and trusting of the administration to do what's needed than I once was, and I don't think I'm the only one. The question, I think, is whose support is being preserved by the decision not to fight for more stimulus, and the answer to that question is someone other than the millions of unemployed who still need jobs.

    Posted by on Saturday, July 3, 2010 at 10:17 AM in Budget Deficit, Economics, Fiscal Policy, Politics | Permalink  Comments (65)


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