Quote of the Day

“The legendary speaker who drew campaign crowds in the tens of thousands and inspired a dispirited nation ended up nonchalantly delegating to a pork-happy Congress, disdaining the bully pulpit, neglecting to do any L.B.J.-style grunt work with Congress and the American public, and ceding control of his narrative.

“As president, Obama has never felt the need to explain or sell his signature pieces of legislation — the stimulus and health care bills — or stanch the flow of false information from the other side.”

Maureen Dowd, “Dreaming of a Superhero,” NYT

Why Is Press Giving Mitt a Pass?

From “The Morning Plum:  Stop letting Mitt Romney off easy,” Greg Sargent, The Plum Line:

“So Romney will now go back to claiming Obama subtracted jobs. But there’s a new twist: Romney will claim that the effect of the stimulus has been to destroy jobs. As it has in the past, the Romney camp will justify this by pointing to a bogus metric — the net jobs lost on Obama’s watch. That includes the hundreds and hundreds of thousands of jobs lost before the stimulus went into effect. Really: The Romney camp’s claim is that we can calculate that the stimulus destroyed jobs overall with a metric that factors in all the jobs destroyed before the stimulus took effect. That’s not an exaggeration. It really is the Romney campaign’s position. It’s time to ask Romney himself to justify it.

“The Romney camp will also begin claiming that Obama has “never created a job.” Will anyone ask Romney about the two dozen straight months of private sector job creation we’ve seen?

“And if Romney is now going to start hitting individual stimulus projects, it’s also time to ask him what he would have done if he had been president in January of 2009. He has previously said positive things about stimulus spending. Are those no longer operative? Would Romney really not have proposed any government spending to stimulate the economy when it was in free fall? What would he have done instead? This question is absolutely central. How about asking it?”

A False Choice

In his NYT column today, “The Structural Revolution,” David Brooks sets up a false choice between those whom he calls “cyclicalists” (he means you, Paul Krugman) and those whom he calls “structuralists” (hi, Paul Ryan, hi Mitt):

“The main argument you hear from these cyclicalists is that the economy is operating well below capacity.  To get it moving at full speed, the government should borrow and spend more.

“The diverse people in this camp — and I’m one of them — believe the core problems are structural, not cyclical.

“There are several overlapping structural problems.  First, there are those surrounding globalization and technological change. … Then there are the structural issues surrounding the decline in human capital.  The United States, once the world’s educational leader, is falling back in the pack.

“Then there is political sclerosis.  Over the decades, companies and other entities have implanted  a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic.

Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows.”

Brooks’ false choice is highlighted in that last sentence.  I consider myself both a cyclicalist and a structuralist.  We need to focus on this cyclical downturn in the short term and on our undoubted structural problems in the short, medium, and long term.  I don’t see government spending as a force to make our economy grow under normal circumstances.  I see it as a temporary spur to counter the lack of demand in the private sector from the Great Recession.  Once we get the private sector kick-started, government should pull back.  This is classic Keynesian economics, which Republicans used to accept and believe in.

We can address some of our structural problems at the same time as we do our cyclical ones.  They are not mutually exclusive.  Brooks bemoans our decline in education.  So let’s hire back or replace some of the hundreds of thousands of teachers who have been fired in the last few years.  Some of those teachers weren’t very good?  Fine, there are plenty of unemployed people to choose from.  Same with his complaint about special deals in the tax code.  Let’s close the loopholes.  That raises more revenue that can be used to stimulate the economy and makes the playing  field more even.  Scrubbing regulatory codes of provisions that favor one company over another is irrelevant to government stimulus spending.  You can do both simultaneously.

Brooks says the problem is that “different people are having entirely different debates.”  The real problem, the sad and shameful problem, is that we’re having an election.  Some people, whose initials are GOP, don’t want the economy to get better.



Krugman for Campaign Manager?

I’ve been wishing that Paul Krugman could run the economy, but maybe he needs to run the Obama campaign.  In an interview with Sahil Sapur from Talking Points Memo, Krugman puts his finger on the problem with the Obama narrative:

“They’ve tied themselves up in knots because they’ve bought into this notion that it would sound wrong to admit that they haven’t been able to do everything that they really should have done.  It’s incredible — they can’t quite make up their minds on whether the theme is that Republicans are standing in the way of doing what has to be done, or things are really good and America’s back on track.  The problem is that you can’t perceive both of those lines at the same time.

“What they should be saying is, ‘We have the right ideas and we’re pursuing them as far as we can given the opposition from Republicans….  They have decided that it sounds like weakness to say that we haven’t been doing everything that we should be doing.  And so they have instead opted to always pretend that what they thought they were able to get is also exactly what they should have done.  So they’ve never conceded that that first stimulus was too small, or that there really should have been a second round of stimulus.  And that means that if things go badly, they end up owning it.  They can’t say, ‘Don’t blame us, blame the do-nothing Congress.”

Hey, GOP, Darwin and Keynes Were Both Right

I guess it’s too much to ask from folks who can’t accept Darwin, but why can’t the GOP recognize that Keynes was right?  They look at Europe and draw exactly the wrong conclusions.

From “Europe’s Ills Reach the Heart of the Presidential Race,” Richard W. Stevenson, NYT:

“But whichever side of the ocean you are on, few topics are more ideologically divisive than fiscal policy, so it is no surprise that left and right are drawing very different conclusions from what is happening.

“From one perspective, the European experience provides yet more evidence that trying to cut budget deficits too aggressively can backfire in a big way when economies in most nations remain fragile.

“Britain’s austerity experiment in particular has been judged by economists to have been ill-timed and poorly constructed at best.  It is a reminder, in the consensus view, that the basic tenets of Keynesian economics — primarily, that government spending plays a key role in maintaining demand when the private sector is struggling in a financial crisis — remain as valid as ever.

“In the United States, the British experience is being held up by Democrats and mainstream economists as an object lesson in the risks inherent in aggressive short-term budget cutting amid signs that the recovery could be losing traction again.

“However flawed the stimulus plan that Mr. Obama pushed through Congress in 2009, fiscal policy has helped the United States generate stronger growth rates coming out of the recession than Britain or the euro zone countries as a whole.”  Emphasis added.


Deficit, Shmeficit

One of my favorite wonks, Ezra Klein, says, “Don’t Worry About Deficit That Will Heal Itself”:

“I’m not particularly worried about the budget deficit.  In fact, of all the major problems the U. S. faces, I’m least worried about the deficit.

“If Congress is unable to agree on a remedy, the problem goes away on its own.

“[At the end of 2012] the Bush tax cuts are set to expire.  The $1.2 trillion spending sequester, enforcing cuts in the defense and domestic budgets, is set to go off.  Various stimulus measures — including the payroll tax cut — are scheduled to end.  ‘Taken together…these policies would reduce ten-year deficits by over $6.8 trillion….’

“In face, if Congress gridlocks — and what does Congress do these days but gridlock? — we face the prospect of too much deficit reduction too fast.

“But those charts are really about health-care spending….  What they’re really telling us is this:  If you look at how medical costs have risen in recent decades and you draw that line out for 70 more years, we’re really in trouble.  And that’s true:  We are.

“But there’s something ridiculous about extrapolating current trends all the way out to 2080.

“Look what happens when you turn the clock back 70 years from today.  That puts you in 1942, the year John Bumstead and Orvan Hess first saved a patient’s life using penicillin.  There were no pacemakers, oral contraceptives or chemotherapy.  Water wasn’t fluoridated and health insurance was a niche product.  Imagine trying to predict the trajectory of today’s health-care system from that vantage point.  How incredibly, hilariously wrong would we have been?

“In part for that reason, we don’t balance the budget for 70 years at a time.  Indeed, we usually don’t even balance it for 10 years at a time.  Instead, we muddle through, striking deals that are smaller than wonks like, but sufficient to keep us out of the woods.

“Of course, you can muddle wisely or muddle stupidly.  I worry we’ll choose the latter.  Evidence is already mounting:  The sequester is a stupid way to cut spending.  Letting the Bush tax cuts expire all at once is a stupid way to raise taxes.  And repeatedly forcing the country to the brink of default is a stupid way to manage our budget.

“Worse, too much deficit reduction too fast will hurt economic growth.

“Nevertheless, I’m confident that we will, one way or another, muddle through.  Because when it comes to the deficit, Congress really has two choices:  Do something to solve it, or do nothing and let that solve it.  The same can’t be said for issues such as infrastructure and loose nukes and climate change and preparing for pandemic flu.  On those questions, congressional inaction isn’t enough to make the problem disappear.  So those are the issues I worry about.”

I’m with Ezra.  I worry about pretty much everything, but not the deficit.

Read the whole thing at Bloomberg.com.

A Self-Sustaining Recovery

Editorial in The Economist, “Can it be…the recovery?”

“For the year as a whole America’s economy will probably grow around its trend rate of around 2.5%.  That’s a lot lower than might be expected after a normal recession; but after financial crises, when consumers are weighed down by debt, recoveries tend to be anaemic.  That level of growth…could be the first step towards a self-sustaining recovery, thanks to the virtuous circle of stronger job growth leading to higher consumer spending, which in turn should generate more jobs.

“America’s priority should be to craft a medium-term plan which puts the budget deficit on a downward path without snuffing out the recovery.  There is, unfortunately, not a chance that it will do that before November’s presidential election.

“The reasons for optimism are real.  But if policymakers get it wrong again, the recovery could yet turn to dust.”  Emphasis added.

That phrase “self-sustaining recovery” captures my problem with both parties.  For me, the Democrats don’t know when to stop the government spending, while the Republicans don’t know when it’s necessary.  I believe in stimulus to get a recovery going, when consumer spending isn’t there, but when that recovery become “self-sustaining,” I want less government.  I believe that “expansionary austerity” isn’t just an oxymoron, it’s a dangerous and delusional myth.

It’s The GOP That Will Turn Us Into Greece

“You may ask what alternative countries like Greece and Ireland had, and the answer is that they had and have no good alternatives short of leaving the euro….

“But the main point is that America does have an alternative:  we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.

“So it is time to stop invoking Greece as a cautionary tale about the dangers of deficits; from an American point of view, Greece should instead be seen as a cautionary tale about the dangers of trying to reduce deficits too quickly, while the economy is still deeply depressed.

“The truth is that if you want to know who is really trying to turn America into Greece, it’s not those urging more stimulus for our still-depressed economy; it’s the people demanding that we emulate Greek-style austerity even though we don’t face Greek-style borrowing constraints, and thereby plunge ourselves into a Greek-style depression.”  Emphasis added.

“What Greece Means,” Paul Krugman, NYT