The stimulus, Obama, and FDR

I, maybe us much as or more, than anyone wish that President Barack Obama would be more like FDR.  But I also recognize there are disadvantages Obama has that FDR didn’t.  Tow of which are smaller majorities in Congress, and less of a crisis than that of 1933.  That being said I think two areas in particular where I fault Obama for not being like FDR, is that he hasn’t been as ever-present to the American people, showing them what he’s doing – day in and day out – to fix the economic situation.  And second, he has not kept on reminding the American people how we got into this mess in the first place.

Obama has clearly failed on making sure everyone knows that the stimulus worked.

But in Washington stimulus has become the policy that dare not speak its name.

This wouldn’t be surprising if we were talking about a failed program. But, by any reasonable measure, the $800-billion stimulus package that Congress passed in the winter of 2009 was a clear, if limited, success. The Congressional Budget Office estimates that it reduced unemployment by somewhere between 0.8 and 1.7 per cent in recent months. Economists at various Wall Street houses suggest that it boosted G.D.P. by more than two per cent. And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower. The weight of the evidence suggests that fiscal policy softened the impact of the recession, boosting demand, creating jobs, and helping the economy start growing again. What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment.

Politically, however, none of this has made any difference. Polls show that a sizable majority of voters think that the stimulus either did nothing to help or actively hurt the economy, and most people say that they’re opposed to a new stimulus plan. The hostility has numerous sources. Many voters conflate the stimulus bill with the highly unpopular bailouts of the banking sector and the auto industry; Republicans have done a good job of encouraging such misconceptions, as when Representative Mike Pence, of Indiana, referred to the “bailout stimulus.” Also, the stimulus—which, to begin with, was too small to completely offset the economy’s precipitous drop in demand—was oversold. The Administration’s forecasts about the recession (particularly regarding job losses) were too optimistic, and so its promises about what the stimulus would accomplish set the public up for disappointment.

But the most interesting aspect of the stimulus’s image problems concern its design and implementation. Paradoxically, the very things that made the stimulus more effective economically may have made it less popular politically. For instance, because research has shown that lump-sum tax refunds get hoarded rather than spent, the government decided not to give individuals their tax cuts all at once, instead refunding a little on each paycheck. The tactic was successful at increasing consumer demand, but it had a big political cost: many voters never noticed that they were getting a tax cut. Similarly, a key part of the stimulus was the billions of dollars that went to state governments. This was crucial in helping the states avoid layoffs and spending cuts, but politically it didn’t get much notice, because it was the dog that didn’t bark—saving jobs just isn’t as conspicuous as creating them. Extending unemployment benefits was also an excellent use of stimulus funds, since that money tends to get spent immediately. But unless you were unemployed this wasn’t something you’d pay attention to.

And without the President and those in his administration being out thee everyday beating back the misinformation, the lies of his opponents have become the reality.

And that failure will make it harder to get the common sense fixes that our economy needs. (Hat tip to Economist’s View for these two links). We certainly need a second WPA to fix our infrastructure in the county, Obama should follow in FDR’s footsteps.

Indeed, Obama’s experience so far resembles FDR’s first uneven stabs at job creation. Roosevelt accepted the Democratic nomination in 1932 touting a plan to put a million men to work in national parks and forests. When he took office, with the unemployment rate at 24.9%, he created the Civilian Conservation Corps, his first jobs program.

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The lesson for Obama in all this is that stimulus works, and the sooner and more aggressive, the better. The vast infrastructure upgrades that were achieved by the WPA were in many ways a side-product, but an important one that is still paying national benefits. Given the country’s potholes, sagging bridges, rickety electric grid and spotty broadband coverage, a push today on new infrastructure would also provide lasting and necessary benefits. In the first round of stimulus spending, jobs were saved and some infrastructure projects got underway, but there’s still much more to do.

Of course, Obama faces challenges that his Depression-era predecessor didn’t. Roosevelt had stronger majorities in Congress. He could propose bold programs that required spending without risking gridlock or defeat. Nor did he inherit a culture of institutionalized deficits that stretched back 30 years, deficits that his opponents didn’t worry about when they wanted to fund wars and tax cuts but were quick to condemn when domestic spending was proposed. When Obama argues for a new round of stimulus, he’ll be standing against a distracting background of red ink.

Putting people back to work on infrastructure is a no-brainer, Building the Bridges to a Sustainable Recovery.

According to data compiled by the civil engineers’ society, planned spending across 15 categories of infrastructure, including aviation, drinking water systems, energy programs, levees, roads, schools and wastewater treatment, will fall short of needed investment by a cumulative total of more than $1.8 trillion in the next five years.

And periodic disasters — like Hurricane Katrina and the Interstate 35 bridge collapse in Minneapolis — have continued to remind us that we should not be neglecting these investments.

Deferring maintenance does nothing to alleviate our national indebtedness; in fact, it makes the problem far worse. According to the Nevada Department of Transportation, for instance, rehabilitation of a 10-mile section of I-80 that would cost $6 million this year would cost $30 million in two years, after the road deteriorated further.

If such a project is at all representative, spending an extra $100 billion nationwide on interstate highway maintenance now would reduce the national debt two years from now by several hundred billion dollars, relative to its level if no action were taken.

Some people object that infrastructure spending takes too long to roll out. But many projects could be started immediately. And remarkably low long-term interest rates imply that markets expect several more years of sluggish economic activity, so even projects that take a little longer would still be timely.

But won’t this extra spending make the deficit problem worse? A better question is this: Why is anyone worried about short-run deficits in the first place?

Deficits are a long-run problem. Every cent the government borrows must eventually be repaid with interest (or, equivalently, be carried at interest indefinitely), so it’s important to pay our bills. Although spending cuts will help, the retirement of millions of baby boomers will also make it necessary to increase revenue.

But not now. With consumer and investment spending remaining far below normal, the short-run imperative is to increase total spending by enough to put everyone back to work as quickly as possible.

While Obama and the Democrats may not have the majorities to get this done, it’s certainly something worth fighting for, and using as a campaign issue in the next two months.

We need a “Put Americans Back to Work Act”

I know it’s doesn’t make for the best acronym, but the problem with the first stimulus was that it was badly framed and named.  While I agree with everything that is said in this article, my problem is with the title, Why We Need a Second Stimulus, and one of the hardest things to sell heading into this election cycle would be a “second stimulus”.  But making it ALL about jobs and putting Americans back to work is a much better message.  Not to mention the fact that Democrats could make it their mantra heading into the election that Republicans are against putting Americans back to work.  Here are some excerpts from the Op-Ed.

OUR national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. By focusing on the wrong things, we are in serious danger of failing to do the right things to help the economy recover from its worst labor market crisis since the Great Depression.

The primary cause of the labor market crisis is a collapse in private demand — the same problem that bedeviled the economy in the 1930s. In the wake of the financial shocks at the end of 2008, spending by American households and businesses plummeted, and companies responded by curbing production and shedding workers. By late 2009, in response to unprecedented fiscal and monetary stimulus, household and business spending began to recover. But by the second quarter of this year, economic growth had slowed to 1.6 percent, according to a government estimate issued Friday. Clearly, the pace of recovery is far slower than what is needed to restore the millions of jobs that have been lost.

Households and businesses are on a saving spree to rebuild their balance sheets. Their spending relative to income has fallen more than at any time since the end of World War II. So there is now a substantial gap between the supply of goods and services the economy is capable of producing and the demand for them. This gap is starkly reflected by the 23 million Americans who are looking for full-time jobs and the millions more who have left the labor force because they could not find one.

The situation would be even worse without the $787 billion fiscal stimulus package passed in 2009. The conventional wisdom about the stimulus package is wrong: it has not failed. It is working as intended. Its spending increases and tax cuts have boosted demand and added about three million more jobs than the economy otherwise would have. Without it, the unemployment rate would be about 11.5 percent. Because about 36 percent of the money remains to be spent, more jobs will be created — about 500,000 by the end of the year.

But by next year, the stimulus will end, and the flip from fiscal support to fiscal contraction could shave one to two percentage points off the growth rate at a time when the unemployment rate is still well above 9 percent. Under these circumstances, the economic case for additional government spending and tax relief is compelling. Sadly, polls indicate that the political case is not.

To sum up the stimulus is working, but it was too small.

Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments. The federal government should pledge generous financing increases for both programs through 2011.

Federal aid to the states is especially important because they finance education. Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch between the education of the work force and the education required for jobs in today’s economy. Consider how the unemployment rate varies by education level: it’s more than 14 percent for those without a high school degree, under 10 percent for those with one, only about 5 percent for those with a college degree and even lower for those with advanced degrees. The supply of college graduates is not keeping pace with demand. Therefore, more investment in education could reduce both the cyclical unemployment rate, as more Americans stay in school, and the structural unemployment rate, as they graduate into the job market.

An increase in government investment in roads, airports and other kinds of public infrastructure would be cost-effective, too, as measured by the number of jobs created per dollar of spending. And it would help reduce the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business. The American Society of Engineers has identified more than $2.2 trillion in public infrastructure needs nationwide, and a 2008 study by the Congressional Budget Office found that, on strict cost-benefit grounds, it would make sense to increase annual spending on transportation projects alone by 74 percent.

Over the next five years, the federal government should work with state and local governments and the private sector to finance $1 trillion worth of additional investment in infrastructure. It should extend the Build America Bonds stimulus program, which in the past year has helped states finance $120 billion in infrastructure improvement.

The federal government should also create and capitalize a National Infrastructure Bank that would provide greater certainty about the level of infrastructure financing over several years, select projects based on rigorous cost-benefit analysis, invest in things like interstate high-speed rail that require coordination among states and attract private co-investors in projects like toll roads and airports that generate dedicated future revenue streams.

But can the government afford this additional spending? The answer is yes. Despite the large federal deficit, global savers, including savings-hungry American households, are snapping up United States government securities at very low interest rates. And they will continue to do so as long as there is ample slack in the economy and inflation remains subdued. Over the next few years, there is little risk that federal deficits will crowd out private investment or precipitate a crisis of confidence in the American government, a spike in American interest rates or a sudden drop in the dollar.

Let’s fix the problem, once and for all, by keeping people employed (helping the states) and employing more (by rebuilding our crumbling and neglected national infrastructure).

But as Steve Bennen points out in this post, THERE IS NO SECRET ‘BIG ECONOMIC INITIATIVE,’ BUT THERE COULD BE.

If the president were to come out tomorrow to announce an ambitious infrastructure/energy/stimulus plan, focused solely on job creation, Republicans would immediately denounce it as fiscally irresponsible — we couldn’t possibly increase the deficit to pay for this, they’d say.

But in many respects, recent developments have strengthened the hand of stimulus proponents, and it’s a dynamic the Obama White House could take advantage of. For one thing, recent polling suggests Americans much prefer investing in job creation to focusing on deficit reduction. I’m suggesting, then, that the president and his party, shortly before the elections, push a popular idea. In theory, that shouldn’t require too much arm-twisting.

For another, literally every member of the House Republican leadership — Minority Leader, Minority Whip, and Conference Chairman — just this month argued publicly that the economy is more important than the deficit, at least right now. They were talking about defending tax cuts for the very wealthiest Americans, but the underlying point was the same — given the fragile state of the economy, growth and jobs matter more than deficit reduction.

So here’s a radical idea: why not call their bluff? If GOP leaders are willing to increase the deficit to improve the economy, the White House can take them up on their offer — but take every penny Republicans want to devote to tax cuts and invest that money in job creation.

It creates an either/or for the political world and voters to consider. Both sides plan to increase the deficit, so that’s no longer the issue. The question is whether it’s better to devote the resources to tax cuts for the very wealthy, or use the same resources on infrastructure, energy, and stimulus.

A jobs agenda vs. a Billionaire Bailout.

I realize that the likelihood of Congress passing anything in this environment is, to put it charitably, remote. If Republicans aren’t willing to let the Senate vote on extended unemployment benefits, and House Republicans were willing to lay off tens of thousands of school teachers, then winning a vote on job creation is almost certainly impossible.

But why not have the fight anyway? Why not force Republicans to fight against a jobs bill two months before the elections? Why not let the public see exactly what both sides want to do to give the economy a boost, and determine which is preferable?

Why not ask voters which they prefer — a jobs agenda or a Billionaire Bailout?

That’s what the message should be for the next two months. Democrats are for creating jobs, Republicans are for protecting the rich.

Did the stimulus work?

It depends.

It did if the plan was to stave off a complete collapse of the US economy. If it was to created sustained growth and drop unemployment to around 7 percent, or lower, then it was a failure.

I believe the Obama Administration is seeking credit for the former and not the latter.

Social Security is extremely popular, why aren’t Democrats exploiting that?

Social Security, as it has been since it’s inception, is extremely popular.

Social Security turns 75 this week and remains an intensely popular program with voters of all ages, who strongly oppose cutting it to reduce the deficit, according to a new survey paid for by AARP and conducted by GfK Roper.

The poll, which was provided exclusively to HuffPost, finds that 85 percent of adults oppose cutting Social Security to reduce the deficit; 72 percent “strongly oppose” doing so.

Numbers like that simply don’t appear in surveys of almost any other national issue that is subject to debate.

The only thing that would get higher marks than this popular and well-run government insurance plan would be free money itself. So why aren’t the Democrats using this popularity and the GOP’s hate of and wish to destroy Social Security against them in this election year? More than likely because President Obama’s Catfood Commission is looking at weakening Social Security, for no good reason, and he doesn’t want to offend them.

Joe Conason essentially asks that question today.

The fractious and nebulous leadership of the Tea Party, a right-wing protest by the middle-aged and elderly, has never quite figured out how to talk about Social Security: a successful federal program despised by conservative ideologues but still beloved by older Americans, including those who identify with the movement. Although Democrats apparently lack the wit to exploit that latent contradiction, it could soon erupt in Colorado anyway — where the two freshly nominated Tea Party Republicans disagree sharply over the issue.

It’s really hard to understand why the Democrats, and President Obama, aren’t using Social Security and it’s popularity to their advantage and to the GOP’s detriment. This may be part of the reason, Social Security – A Divide Between DC And The Rest Of Us.

The DC-elite think that “the responsible thing to do” is to cut Social Security benefits. The public who they are supposed to represent overwhelmingly thinks that Social Security is one of the few remaining lifelines and must not be cut. The public strongly favors investing in rebuilding the country’s infrastructure, returning to taxation of the wealthy and corporations — especially Wall Street, and cutting back the enormous military budget as the key ways to address the budget deficit.

This morning the results of a new poll were announced, and politicians would do well to take note. The poll, A Research Study On Investment and Deficit Reduction, By Greenberg Quinlan Rosner Research, Democracy Corps, Campaign for Amerca’s Future is described as follows:

Politicians will face major voter backlash if they advocate cuts in Social Security benefits or choose deficit reduction over job creation, according to a poll by Greenberg Quinlan Rosner commissioned by the Campaign for America’s Future and Democracy Corps, with support from MoveOn.org; the American Federation of State, County and Municipal Employees, and the Service Employees International Union.

I’l like to bring that first sentence out and repeat it so that it is clear: Politicians will face major voter backlash if they advocate cuts in Social Security benefits or choose deficit reduction over job creation.

Even a high paid campaign consultant should be able to figure out a campaign strategy from that.

Regan’s Dream realized, it’s midnight in America

Again on the subject of Krugman’s column yesterday there are very serious economic problems all over this country. And, as has been the case over the last 10 years, we hear the familiar refrain of not since the 1930′s….[insert bad economic sign here]. Here’s one take on yesterday’s column, Devolving America — the Reagan Revolution.

This is the Reagan Revolution. I hate to be blunt, but anyone who voted twice for Reagan voted for this — the devolution of America.

It was always an ugly trade — Lee Atwater and his ilk shouting code at angry America, blissfully stoned on Dirty Harry and Death Wish fantasies. And America, tubed out on Judge Hardass, awash in happy congratulatory dreams, thinking itself bullet-proof (it still does), thinking it would never find itself cutting down the last tree on the island.

Those trees are being cut as we watch . . . and commandeered as escape pods by the only people with means to escape, the real beneficiaries of the Reagan Revolution. (I’m looking at you, Bob Rubin. You’ve got ilk too.)

The reason this persists has more to do with greed and indifference, and now pride, than it has to do with anything else. The wealthy, the banksters, and their lobbyists in this country will do everything possible – propaganda, deficit scare tactics, and the supposed “inflation fears” excuse – to try and hold onto their money and avoid having to pay their fair share in taxes.  And there are still too many elected politicians in this country that are indifferent to the current suffering of the American people.  But worst of all is the likely pride, of those in the Obama Administration that designed to way too small stimulus, to admit they were wrong.

Here’s the latest sign(s) that a depression may still be in our future:

Federal Reserve Meets, Unlikely to Change Policy Course.

This morning, members of the Federal Open Market Committee are meeting to discuss the country’s monetary policy. They are expected to release a report at 2:15 p.m. reiterating the troubles in the economy and stating the Federal Reserve will keep interest rates near zero for an “extended period.” But with the recovery stalling out, unemployment high, prices on the verge of deflation and some talk of a double dip, many are hoping the central bank might do more.

Economists such as Paul Krugman have recommended aggressive policy maneuvers to bring down unemployment and aid the recovery. Ben Bernanke, the head of the Federal Reserve, himself has said the central bank might consider less conventional policies. The Fed could raise the inflation target. It could make additional asset purchases. It could make harder statements about its commitment to recovery. It could pay banks less to keep money at the central bank.

Incomes Fall in Most Metro Areas.

Personal incomes fell across the U.S. last year except in areas with a high concentration of federal government and military jobs, the Commerce Department said Monday. They declined most in places with a lot of housing and finance jobs.

Among the 52 metro areas with populations of more than one million, in only three did both net earnings and the broader measure of personal income both rise.

All three had strong ties to the federal government: the Washington, D.C., area and two areas with a large military presence, San Antonio and Virginia Beach, Va. In all three, the biggest gains were among workers in the federal government and the military; private sector compensation fell.

The same picture was reflected nationally, as private employers froze and in many cases reduced workers’ pay and hours.

The only other big metro areas with rising personal incomes—Baltimore and Pittsburgh—had falling net earnings but a sharp increase in government checks, such as unemployment benefits.  (Here are the charts.)

In other words it’s a classic Keynesian situation. The private sector is either incapable or unwilling to hire new employees so the only entity able to do so right now is the Federal Government.

In 1980 our country started out on a different path. An anti-government/anti-New Deal crusade that was initiated by the grassroots conservatives who took over the GOP in 1964 and nominated Barry Goldwater for President. It came to fruition when Ronald Reagan was elected President. It is that path that has brought us to our current state where our current President, who campaigned on change, is politically unable, for whatever reason, to actually step out and lead us to that change.  Only the government can save us now.

As we descend into neo-Hooverism things will likely get worse before they get better. While those in power and with the money continue to horde both, the American people are being left in the dark.  Hopefully a mid-term shellacking will wake up our President – bring him into the light – and what’s left of his party to finally start fighting for the people.  Because we really need that.

It’s midnight in America and time for the American people to show their power and turn the lights back on before the morning comes again.

Class warfare

Call it what you will but it no longer benefits rich Americans to have a middle class.  Start with this post from Michael Lind at Salon, Are the American people obsolete? The richest few don’t need the rest of us as markets, soldiers or police anymore. Maybe we should all emigrate

The point is that, just as much of America’s elite is willing to shut down every factory in the country if it is possible to open cheaper factories in countries like China, so much of the American ruling class would prefer not to hire their fellow Americans, even for jobs done on American soil, if less expensive and more deferential foreign nationals with fewer legal rights can be imported. Small wonder that proposals for “guest worker” programs are so popular in the U.S. establishment. Foreign “guest workers” laboring on American soil like H1Bs and H2Bs — those with non-immigrant visas allowing technical or non-agriculture seasonal workers to be employed in the U.S. — are latter-day coolies who do not have the right to vote.

If much of America’s investor class no longer needs Americans either as workers or consumers, elite Americans might still depend on ordinary Americans to protect them, by serving in the military or police forces. Increasingly, however, America’s professional army is being supplemented by contractors — that is, mercenaries. And the elite press periodically publishes proposals to sell citizenship to foreigners who serve as soldiers in an American Foreign Legion. It is probably only a matter of time before some earnest pundit proposes to replace American police officers with foreign guest-worker mercenaries as well.

Offshoring and immigration, then, are severing the link between the fate of most Americans and the fate of the American rich. A member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country. With a foreign workforce for the corporations policed by brutal autocracies and non-voting immigrant servants in the U.S., the only thing missing is a non-voting immigrant mercenary army, whose legions can be deployed in foreign wars without creating grieving parents, widows and children who vote in American elections.

If the American rich increasingly do not depend for their wealth on American workers and American consumers or for their safety on American soldiers or police officers, then it is hardly surprising that so many of them should be so hostile to paying taxes to support the infrastructure and the social programs that help the majority of the American people. The rich don’t need the rest anymore.

It’s an interesting concept but not everyone is sold on it. From Naked Capitalism, Do The Rich Even Need The Rest of America Anymore?

Whether or not the rich in America still need a middle class is debatable. What isn’t is that they sure aren’t willing to pay a middle class wage anymore. Robert Reich (The Great Decoupling of Corporate Profits from Jobs) and Bob Herbert (A sin and a shame) tell that tale.

Good stuff to check out

Why aren’t businesses hiring? No it’s not because they’re waiting for another tax cut!! And no it’s not because of uncertainty in the economy. It’s because no one is buying their stuff because they don’t have jobs!!! A second stimulus focusing solely on job creation would fix that.

And here’s one on The Social Contract.

What hasn’t been explained

The first paragraph of this Bloomberg article on their latest poll shows what the American people don’t get.

More than 7 out of 10 in the U.S. say the economy is mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll.

The reason for the conflict is that no one (President, traditional media, politicans, etc..) is doing a good job of explaining to the people that if we fix unemployment, we fix the deficit at the same time.  It shouldn’t surprise anyone that jobs matter the most right now.  They should, unemployment is the biggest problem facing our country.  But once unemployment is lowered back to “normal” the deficit will shrink and with it fears of the deficit. See, My Father and Alan Greenspan.

When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”

I didn’t know what a national debt was, but I remember being scared out of my wits.

Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.

Dad, now 96 and still in good health, recognizes how wrong he was then. He admits FDR’s deficit spending not only won World War II but it also got America out of the Great Depression.

After all, It’s STILL the economy, stupid! (Not the long-term debt!).  Although this 538 post in reality partisanship may matter more than what the American people believe, but as always what matters most is who turns out in November.

Here are couple of interesting takes from the poll that I wrote down from this video, the wrong track numbers are not good:

63 – 31 think country is on the wrong track.

Most important issue:
41 unemployment/jobs
26 deficit & gov. spending
13 oil spill
9 health care

Only one proposal gets strong support for fixing the deficit – higher taxes on upper income Americans.

Voters vote their pocketbooks, they go hand in hand

That the Democrats have a problem facing them in the upcoming election is not news. Their hopes in November are tied to the economy. They in essence blew that in early 2009 when they passed a too small stimulus. Here’s what Krugman had to say back then about a too weak stimulus. Even though he was mostly right, even he was overly optimistic about jobs numbers even with a weak stimulus.

And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Let’s hope I’ve got this wrong.

He didn’t get it wrong.  And Chris Bowers explains the predicament the Democrats now find themselves in, Real disposable income is the dominant swing voter ideology. (Tip to Digby).

The bottom line is that changes in real disposable income can, and do, have much more impact on electoral outcomes than does the appearance of moderation.

Real disposable income is the dominant ideology among swing voters. This should not come as a shock, or even a mild surprise. The mushy middle is not full of political junkies, but it is full of people who worry about their pocketbooks. As such, whether things get better or worse for their pocketbooks, those voters will blame the governing party, and vote accordingly.

In an ideal world, Democrats would get credit for moderation, and institute public policies that significantly increased real disposable income nationwide, thus creating a massive electoral landslide in their favor. Readers of Open Left might remember this as the old eleven-dimensional chess strategy of appearing to be moderate in public, but in fact being a secret progressive when it came time to write legislation (Chris Matthews supported that line of thinking in the first question he asked me back when I appeared on Hardball). However, following the current “moderate” line of slashing stimulus spending to reduce the size of the deficit is antithetical to getting more money in the hands of voters.

Blocking unemployment benefits will result in less money in the hands of voters who are unemployed. Blocking the Medicare “doc fix” will result in less money in the hands of doctors who vote. Blocking an extension of COBRA and a public option will result in voters who have to purchase individual insurance having less money in their hands. Cutting aid to states to prevent layoffs will result in state workers who vote having less money in their hands. Blocking a cap on ATM fees means less money in the hands of voters. Blocking $100 billion in the first stimulus resulted in voters of all sorts having less money in their hands. And that is just a partial list.

As a governing party, if you want to win elections, you have to get more money in the hands of voters than they had the year before. That is simply impossible if your policy focus is on cutting spending, which is the current, dominant mantra of being a “moderate.” Those same “moderates” even want to cut Social security and Medicare payments in order to slightly cut the deficit, which would be a truly disastrous electoral move. Talk about taking money out of the hands of voters!

Democrats want to help the center-right members of their party win by allowing them to appear “moderate” to swing voters, and thus water down every piece of legislation the party proposes. However, all Democrats, including the center-right Democrats, are all going to lose big because they failed to enact progressive public policies that would have resulted in putting more money in the hands of voters. Whatever benefit the blue Dogs get at the ballot box for appearing “moderate” will be canceled out, several times over, because voters are pissed that they have less money in their wallets.

The dominant ideology of swing voters is disposable income. As such, enact public policies that increase real disposable income, or else face defeat at the ballot box. It really is that simple.

Simple and true.  And these voters deserve new representatives that will take care of these issues.  Only replacing a blue dog Democrat with a “wing nut” Republican isn’t likely to change this.  Which means that things will likely have to get worse before they get better.

But most Americans ignorance of economics and the medias trumpeting of false soundbites are the reason why no one is aware of what can fix the problem.

Krugman has several blog posts today to get everyone up to speed.

Nobody Understands The Liquidity Trap (Wonkish)

Delusions About Debt Dynamics

Tax Cut Delusions

Invincible Ignorance

Also read Brian Beutler who shows us that not much has changed since the GOP’s economics created this current mess, It’s Unanimous! GOP Says No To Unemployment Benefits, Yes To Tax Cuts For The Rich.

Oh yeah, and this too, Conservatives Don’t Care About the Deficit.

In sum, there are zero historical examples of conservatives mobilizing to make the deficit smaller. What is true is that most conservatives oppose increases in non-military spending when those increases are proposed by Democratic presidents. A minority of conservatives are more consistent opponents of increases in non-military spending. But the key element of conservative fiscal policy is that tax revenue as a percent of GDP should be made as low as possible. This isn’t a goal they pursue that stands in some kind of balance with concern about the deficit, it’s the only goal they pursue. You can like that or not, but every single journalist who writes articles about the deficit debate that doesn’t highlight the conservative movement’s deep, decades-long hostility to deficit reduction is being grossly irresponsible.

Most people know the GOP’s game since Reagan was to crank up deficits so high that they could force the American people to gut Social Security and Medicare which they think are the most evil things ever.  Even though the American people overwhelmingly not only want Social Security left alone but strengthened PDF.

The Democrats had a massive advantage after the 2008 election cycle. If they were perceived, right now, as doing everything they could to help working Americans their chances in November would be much different then they are now. There would probably be much more money in voters pocketbooks too. It goes hand in hand.

Lind makes the case for massive infrastructure spending to create jobs

Yes, yes, and yes it all I have to say, Can infrastructure-led growth save the economy?

The debate about American economic policy can best be understood with the help of a remark by the fictional detective Sherlock Holmes: “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” When you have eliminated impossible policy options, whatever options remain, however difficult, must be pursued.

In the case of the economy, the problem is the weakness of private domestic demand in the U.S. The purpose of the tax cuts in the stimulus bill and “cash for clunkers” was to increase consumer demand until it revived to lead a recovery. But most businesses met the additional demand without new hiring and many Americans used the money to pay down debt or increase savings. The other parts of the federal stimulus — spending on infrastructure and aid to the states — were too small and largely counteracted by the contraction of state and local economies.

Where will the demand needed to induce businesses and banks to invest their hoarded cash come from? Wage-led private domestic demand drove American economic growth in the Golden Age of the 1940s-1980s. Debt-led private domestic demand drove American economic growth as well as the world’s in the Bronze Age of the 1990s-2000s. Now private domestic demand is weak and likely to remain so. In the Iron Age of the U.S. economy that has followed the collapse of the asset bubble of the last decade, American households are gradually reducing their debt-to-income ratio. To judge by the experience of other countries that have suffered from asset bubbles, the entire process might take 10 years, even 20. In the meantime, some driver of American growth other than private domestic demand must be found.

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If neither foreign private demand nor foreign public demand can compensate for the loss of American private domestic demand, then the only possible source of increased demand for American goods and services that remains is public domestic demand. American government at all levels may need to provide much of the missing demand for American businesses and labor, for the decade or longer that is needed for private sector deleveraging in the aftermath of America’s asset bubble.

To avoid competing with private enterprise, the government should produce public goods that increase overall productivity and that the private sector has no incentive to provide, in good times or bad, such as infrastructure and social services like policing, health care, education and care for the young and old. In addition to mobilizing idle resources and labor directly, both infrastructure and public service spending could help business in general by boosting the purchasing power of Americans who are now unemployed.

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Infrastructure projects that enhance American productivity should be paid for by borrowing, with their costs repaid more rapidly over decades or generations with the help of the more rapid economic growth that they make possible. If more federal borrowing is blocked by the irrationality of deficit hawks and the ignorance of many populists who do not understand public finance, then money for infrastructure should be raised by tax-favored municipal bonds, like Build America Bonds (BABs), and/or by the creation of public investment banks, like a national infrastructure bank, that can raise funds by issuing their own government-backed but off-budget bonds.

Deficit hysterics to the contrary, U.S. federal, state and local debt, along with the “agency debt” issued by government-sponsored enterprises, will continue to provide desirable, safe investments for investors at home and abroad. Investors may gamble in emerging markets, but where will their money be safer than in the U.S.? In demographically declining Europe, suffering from misguided austerity programs? In dictatorial China, where oppressed workers are rioting and committing suicide? In authoritarian, secretive, insecure petrostates?

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The very idea of a “stimulus” was always misconceived. It assumed that government action was needed only temporarily, until private domestic demand returned the U.S. economy to something like the pre-2008 status quo. What is needed, however, is not a brief episode of intensive care for an otherwise healthy patient, but a pacemaker and an artificial hip for a patient who cannot emerge from a coma without radical, reconstructive surgery. If the Iron Age of the economy is to come to an end, the expansion of public domestic demand must be large enough that it can play much of the role in the American economy played by wage-led private domestic demand in the Golden Age of the 1940s-1980s and by debt-led private domestic demand in the Bronze Age of the 1990s-2000s. Even the conservative ideologue Amity Shlaes, in her anti-Roosevelt screed The Forgotten Man, concedes that massive public investment worked in 1936: “The spending was so dramatic that, finally, it functioned as Keynes … had hoped it would. Within a year unemployment would drop from 22 percent to 14 percent.”

In the summer of 2008, Lawrence Summers, now President Obama’s chief economic adviser, declared that any stimulus should be “timely, targeted and temporary.” He was wrong. The expansion of public domestic demand that America needs must be prompt, productive and prolonged.

Bring on a 21st Century WPA!