Calculated Risk: Weekly Summary and a Look Ahead.
This is really depressing. The stimulus package passed early in the Obama administration helped a bit, but not enough. It was scaled back in size and watered down by turning 40% of it to tax cuts, the least effective means of stimulus. This was done in an effort to win support from Republicans who voted against it in lock step, and to please so-called deficit hawks like Blanche Lincoln. Have a look at the graphs in the Calculated Risk blog post linked above. If it weren’t for census hiring unemployment wold be flat. State counties and municipalities continue to scale back and fire workers.
What we need is another round of stimulus. Yes, that will increase the deficit in the short term. But other than the federal government there is no one else who can intervene. The alternative is a lost decade much like Japan in 90′s:
But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
Austerity measures in the midst of our economic situation is, as Krugman closes with, “utter folly”.
Obama does show a lot of political inexperience. He needs to find his gonads. I agree that he’s simply too concillatory to the opposition. There’s just no upside there.
“This was done in an effort to win support from Republicans who voted against it in lock step”
I am not a Democrat or Liberal (or even “progressive”) but I did vote for Obama in the general election. The issue above is *so* frustrating.
Obama gets *played* by the right over and over. He’s simply NOT going to get any support from the Right side of the aisle no matter what they say. So I say make a perfunctory formal attempt then release yourself from the compulsion to find common ground. As Kant pointed out, a rational actor has no duty to perform the impossible.
What is the difference between these two things:
A bill your base wants which garners 0 votes from the opposition.
A bill you watered down which garners 0 votes from the opposition.
The difference is you got less and angered your base. Yay!
The right is already frothingly, rabidly, irrationally anti-Obama. One must ram legislation down their throats; it’s the only thing they understand, and it’s what they’d do in that position. The Right groks political aggression and force. Give it to them and let the re-election fall where it may. Pres. Obama has said he’d rather be a good one-termer than a crappy two-termer[0] and I think it’s time to walk the walk. Bring it.
fratermus
[0] not saying his performance is crappy so far, just saying he needs to step up his game with the opposition. Remember when the kid charged Nolan Ryan on the mound? That’s what I’m talking about. Headlock + face punches. Politically speaking, of course.