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Saturday, January 10, 2009

once in a lifetime

I've been slow getting back into the swing of this as you may have noticed, but let's get back to it! Here's an economic themed post:

Obama's weekly address:


He references an internal report (just publicly released), which includes this graph:

Tim Fernholz, at Tapped, writes:

In his radio address, Obama talks about how the jobs plan will reinforce his stated goals; many of the jobs will be in the clean energy sector, for instance, and others will come out of his plans to computerize medical records and, of course, rebuild roads, bridges and schools (still no direct mention of mass transit, unfortunately).

We still have to ask, is this enough? I'm not sure Paul Krugman will be pleased, if that's the benchmark. But one thing I do expect is for Democratic members of congress to look at that graph above, consider their reelection prospects, and wonder if maybe they ought to make the bill just a bit bigger so that unemployment line will drop just a bit lower as voters head to the polls; nothing like seeing self-interest and good public policy go hand-in-hand.


And, indeed, Krugman: not pleased.

This is the most dangerous economic crisis since the Great Depression, and it could all too easily turn into a prolonged slump.

But Mr. Obama’s prescription doesn’t live up to his diagnosis. The economic plan he’s offering isn’t as strong as his language about the economic threat. In fact, it falls well short of what’s needed.

Bear in mind just how big the U.S. economy is. Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it’s able to sell.

And the Obama plan is nowhere near big enough to fill this “output gap.”

To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough.

Now, fiscal stimulus can sometimes have a “multiplier” effect: In addition to the direct effects of, say, investment in infrastructure on demand, there can be a further indirect effect as higher incomes lead to higher consumer spending. Standard estimates suggest that a dollar of public spending raises G.D.P. by around $1.50.

But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending. (A number of Senate Democrats apparently share these doubts.) Howard Gleckman of the nonpartisan Tax Policy Center summed it up in the title of a recent blog posting: “lots of buck, not much bang.”

The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.

To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan.


Obama responds:


Josh Marshall is worried that Obama is ceding the initiative to Congress:

Over almost two years, I've learned not to underestimate Barack Obama or assume reflexively that if he's not following my idea of the best way to proceed that he hasn't thought up a much better one I hadn't considered. But it does look to me like he's ceding the initiative to Congress, which is odd since he's immensely popular and Congress is wildly unpopular.

Let's review the stakes. If Obama can pass a big, well-thought-out and clean stimulus bill in the first weeks of his administration, he will have already placed a deep imprint on the course of American politics for years and even decades into the future. If he doesn't, if it starts dragging out, not only will that not happen, which is bad in itself. But he'll also signal to a lot of people that he can be stymied even at the height of his power.

Presidents have key windows of opportunity. And this is one of them, perhaps a defining one. So I'm surprised to see so relatively little effort to take the initiative more forcefully with Congress, let alone the greatly diminished political opposition, since left to itself the legislative branch will naturally revert to standard operating procedures I'm not sure we can really afford at the moment.


John Dickerson, on the other hand, says Obama is right not to rush:

The legislation is going to pass. It's how it passes that will determine whether Obama increases or diminishes the political capital he needs for his next set of tasks, which include addressing the country's health care problems and rewiring the nation's energy policy. Legislation of the stimulus bill's size and complexity would be difficult under any circumstances. And Obama is trying to do more than just get his first program passed—he's trying to create a whole new way of doing business. It's going to take time.


Steve Benen is worried Obama is trying too hard to please Republicans

It occurs to me, reading over the reports of Obama's time on the Hill, that the president-elect not only places a strong emphasis on creating proposals with bipartisan support, but seems to genuinely believe he can negotiate with the congressional minority in good faith.

Obama may very well be right, but I'm not sure where this confidence comes from. He's moving forward under the assumption that Republicans want to work with him, are willing to compromise, and stand ready to put national interests in the midst of a crisis ahead of partisan concerns. When Obama talked during the campaign about a "new" kind of politics, premised on the notion that people can be brought together with a sense of common purpose, he apparently meant it.

But the approach is not only a leap of faith -- trusting the character of angry far-right Republicans who see merit in Hoover's economic policies -- it also comes with considerable risk. For the last 15 years or so, Democratic efforts to work with Republicans in good faith have been routinely punished.

Obama's instincts have a strong track record, but any discussion premised on the notion that congressional Republicans are credible negotiators who take policy seriously is inherently suspect. Indeed, even yesterday, Obama's efforts notwithstanding, GOP leaders, despite having very little leverage, complained the incoming administration wants to spend too much and cut taxes too little.

I hope Obama knows what he's doing. It's only the global economy on the line.


On his blog, Krugman writes that trying to please Republicans is pointless:

Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.

OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition.

(and for those lacking Krugman's cynicism, this pretty much sums up where the Republicans are on this)


Obama suggests that he's (somewhat counter-intuitively) proposing a low number, and expecting it to go up:


The NYT:

David Axelrod, Mr. Obama’s senior adviser, said the president-elect’s team was not concerned by the emerging pockets of criticism of his plan.

“Obviously, it’s a big answer to a big problem and there are a lot of component parts to it,” Mr. Axelrod said in an interview after meeting with balky Senate Democrats. “These folks are not potted plants. They’re elected officials, and they’re doing their jobs.”

He added, “It’s a collective process, and we’re willing to listen to people’s ideas.”

Asked if they were willing to adopt people’s ideas, Mr. Axelrod said: “We’ll see. It depends on the idea.”

Mr. Axelrod’s comments came after a spirited meeting at the Capitol where he and two other Obama aides, Lawrence H. Summers, the incoming national economic adviser, and Philip Schiliro, tapped to be the chief White House lobbyist, heard lots of frustration from Democratic senators.

“There is only one thing we have got to do in the stimulus, and that is how can we create jobs,” said Senator Tom Harkin, Democrat of Iowa, as he left the meeting. “I am a little concerned by the way that Mr. Summers and others are going at this in that, to me, it still looks like a little more of this trickle-down, if we just put it in at the top, it’s going to trickle down. A number of people in there said, ‘Look, we have got to have programs that actually create jobs and put people to work.’ ”

Senator Kent Conrad, Democrat of North Dakota and chairman of the Budget Committee, said lawmakers and the incoming administration had differences over how to focus the huge federal spending in a recovery bill. “Investment, investment, investment has got to be the central focus: energy, roads, bridges, waterways, housing,” he said. “Job creation is Job One.”

Mr. Conrad, who described the meeting as extremely positive, said Mr. Summers ended it by telling the senators, “Message received, loud and clear.”


Given all the above, Nate Silver's case that Obama has adopted a "price is right" strategy is very convincing indeed. First placate the Repubs, then negotiate up with the Dems, so they can then commiserate with the Republicans about those awful liberals.


Digby, remarking on Kerry's objections, makes a similar point:

It seems very unlikely to me that Kerry is acting out of school, but is rather playing the role of the liberal stimulus spending obsessive who will (hopefully) balance out the tax cut fetishists in the senate negotiations, giving Obama some space to compromise at least somewhere to the left of The Club For Growth. (Unfortunately, that still leaves us with the Blue Dog deficit hawks, but maybe Rahm has pictures or something.)

It's all just a guess, of course, but I simply don't believe that Kerry and Conrad are out there running at Obama from the left on their own. They just don't have it in them. They are staking out this position for negotiating purposes on his behalf. Obviously, we don't know how far any of them will go to fight for it, but at least the liberal economic argument looks like it will be made.


John Judis, over at TNR, says we need to declare "the fiscal equivalent of war," raising the issue of high speed rail:

It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities--not just to provide jobs, but also to provide tradeable goods that can reduce the country's current account deficit.

One area that is ripe for such investment--and that is not, from what I have seen, a declared priority of the Obama administration--is high-speedrail. Amtrak's Acela trains--the closest thing we have to one--average less than 100 mph between Washington D.C. and Boston, whereas trains in Western Europe and Japan go more than twice as fast. Many of them also run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco. But they would require a massive investment. For instance, installing high-speed rail in the Northeast corridor could cost about $32 billion, while California's high-speed rail system would require up to $40 billion. A system that would address the other areas of the country could easily raise the cost to the hundreds of billions. The House transportation and infrastructure committee has currently proposed $5 billion in stimulus funds for intercity rail--not even a down payment on what it would cost to convert the U.S. to high-speed rail.

Investing in high-speed rails would be very expensive, but unlike tax cuts--the benefits of which can be siphoned off in the purchase of imported goods--the money spent would go directly to reviving American industry and improving the country's trade balance. That doesn't just mean jobs creating dedicated tracks or new rail stations: Though the U.S. abandoned train manufacturing decades ago to the French, Germans, Canadians, and Japanese, this kind of production could be undertaken by our ailing auto companies or aircraft companies--if the federal and state governments were to place orders. And building trains that would run on electricity would be a paradigmatic example of the "green jobs" that Obama often touts.


Yglesias points out the trouble with using high speed rail construction as stimulus:

The trouble is this—how much high-speed rail could you really build on a 24 month month time frame? When you think about the permitting, environmental review, NIMBY lawsuits, etc. it’s plausible to imagine it taking 24 months to just finish all the lawsuits much less build anything.

I don’t think it’s some kind of inexplicable scandal that comprehensive high-speed rail construction isn’t the centerpiece of the Obama stimulus agenda. But I do think it’s very distressing that I’m not seeing any effort to think this issue through at all. Sure as I am that it’s not feasible to undertake $100 billion in new HSR construction over the next two years, I’m also absolutely certain that it’s possible to undertake more than $0.00 in such new construction. And these really are infrastructure investments that are worth doing for reasons totally independent of the need for stimulus.


Nate Silver on the politics of "green" projects in general:

The public seems to tolerate the spending on bridges and highways -- but they also see it, perhaps not wholly improperly, as makework. The long-run benefits of the alternative energy programs, on the other hand, are far more intuitively appealing. If the central critique of the stimulus is that the debt we're creating will be burdensome to future generations, that concern could be mitigated if the spending in question is portrayed as a down payment made on behalf of those future generations toward cleaning up the environment and mitigating dependence on fossil fuels. It also provides for some sense of purpose to the stimulus: we'll come out of this, Obama can say, with the greenest, most energy-independent major industrial economy in the world, etc. etc.


If you've been exposed to the notion that the New Deal "didn't work," or, more outrageously, "actually made things worse," then you might want to watch this:


And, finally, Bush wonders, "how did we get here?"

(same as it ever was....)

1 comment:

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