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.

Krugman reminds us of the GOP Bush tax scam

Yes, the reason the Bush tax cuts were passed with an expiration date was to keep the number palatable enough to pass them, using reconciliation.  Remember? Paul Krugman today, Now That’s Rich.

We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What — you haven’t heard about this proposal? Actually, you have: I’m talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

Some background: Back in 2001, when the first set of Bush tax cuts was rammed through Congress, the legislation was written with a peculiar provision — namely, that the whole thing would expire, with tax rates reverting to 2000 levels, on the last day of 2010.

Why the cutoff date? In part, it was used to disguise the fiscal irresponsibility of the tax cuts: lopping off that last year reduced the headline cost of the cuts, because such costs are normally calculated over a 10-year period. It also allowed the Bush administration to pass the tax cuts using reconciliation — yes, the same procedure that Republicans denounced when it was used to enact health reform — while sidestepping rules designed to prevent the use of that procedure to increase long-run budget deficits.

Obviously, the idea was to go back at a later date and make those tax cuts permanent. But things didn’t go according to plan. And now the witching hour is upon us.

At this point the plan President Obama and the Democrats are pushing is to end the Bush tax cuts for the super wealthy, and keep those for the middle and lower class. But Krugman worries that Obama and the Democrats may lost their nerve.

What’s at stake here? According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments.

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.

How can this kind of giveaway be justified at a time when politicians claim to care about budget deficits? Well, history is repeating itself. The original campaign for the Bush tax cuts relied on deception and dishonesty. In fact, my first suspicions that we were being misled into invading Iraq were based on the resemblance between the campaign for war and the campaign for tax cuts the previous year. And sure enough, that same trademark deception and dishonesty is being deployed on behalf of tax cuts for the wealthiest Americans.

So, for example, we’re told that it’s all about helping small business; but only a tiny fraction of small-business owners would receive any tax break at all. And how many small-business owners do you know making several million a year?

Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.

So far, the Obama administration is standing firm against this outrage. Let’s hope that it prevails in its fight. Otherwise, it will be hard not to lose all faith in America’s future.

Oh, the hypocrisy. You can see what GOP majority leader Mitch McConnell thinks about all of this, Deficit Fraud McConnell: Why Did Tax Cuts ‘All Of A Sudden Become Something We, Quote, Pay For?’.

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.

How politicians experience public opinion

As chronicled below the economic focus is not where it should be – jobs, as opposed to the deficit. More jobs will fix the deficit. That’s why this post by Ezra Klein is so disconcerting, Jobs beat deficit for voters, but not for politicians.

That said, the fact that people are worried about jobs and unemployment doesn’t mean that they trust that more stimulus spending will make much of a dent. The way a lot of politicians are experiencing public opinion has left them convinced that voters believe further spending increases the deficit but don’t believe that it increases employment and thus they think the safe play is to avoid doing anything at all. Moreover, politicians think a lot more about the press they’ll get the day after they vote for a bill than what unemployment will look like the day before America decides whether to vote for them.

Not saying he’s wrong it’s just that inside the that operate inside beltway and the village live in a completely different reality than working American.

The beltway/village refraction through which politicians and the media see reality has nothing at all to do with the facts on the ground. The reality is simple, put people back to work in large numbers and the deficit melts away.

They’ll blow your mind

Devastating graphs of what St. Ronnie and his revolution has wrought on the US economy over the last 30 years, 15 Mind-Blowing Facts About Wealth And Inequality In America.