Jackie Calmes reports on the White House's line wobble...
Since the summer of 2008, at least, the correct line on economic policy has been:
- The economy suffers from a shortfall of aggregate demand
- The Federal Reserve cannot compensate using its normal tools
- We therefore need extra stimulative policies--and since we really do not know which ones will be most effective, we need to be trying everything: qualitative easing, other non-standard expansionary monetary policies, stimulative banking policies, and stimulative fiscal policies--tax cuts, spending increases, investment incentives, whatever
- We need to keep upping the strength of these policies until (a) unemployment is on a clear path to rapid return to normal levels, or (b) such policies begin to cause markets to doubt the security and soundness of the liabilities of the U.S. government
- We also need to decide what we are going to do beyond 2020: are we going to welsh on the promises made in Medicare and Medicaid for the government to pay for the medically-appropriate health care of the old and the poor, are we going to raise taxes, or are we going to find some magic bullet to make our health care system as cost effective as those of other North Atlantic countries--or, rather, what combination of those three are we going to adopt?
- The two sets of issues--the short-run depression-fighting issues and the long-run entitlement spending issues--have nothing to do with each other, and need to be considered in separate baskets: fight the recession as if there were no long-term health entitlement spending problem, and deal with the health entitlement spending problem in the long term as if there were no recession
Since the spring of 2009, the correct line on economic policy and politics has been:
- The Obama Administration has had and has used the tools to keep the economy out of a severe depression, but the swing votes in congress--senators 53-60--have kept the Obama Administration from having the tools it would have needed to rapidly return the economy to full employment. Maybe we will be lucky--but that isn't the way to bet. The president needs your help at the next election: he needs you to vote in a new congress that will provide those tools.
Yet the Obama Administration has not been able to stay on message with the--politically and substantively--correct policy line.
Jackie Calmes watches them wobble again:
White House Memo - Spend or Scrimp?: Not since the first years of the Clinton administration has a White House had to debate whether to give precedence to stimulating the economy or reducing budget deficits. Now... that debate is playing out within the Obama administration, with a twist compared to the 1990s: the economic and political teams have switched sides.... Bill Clinton’s political advisers favored more spending and tax cuts coming out of the recession of the early 1990s and his economic team pushed to start reducing deficits, in President Obama’s circle the opposite is true. Political advisers are channeling the widespread public anger at deficits while the economic team argues that the government should further spur the economy to avert another recession. In Mr. Clinton’s day, the economic team, asserting that a credible commitment to fiscal responsibility would reassure financial markets and lead to greater long-term growth, won the argument in favor of deficit reduction.... These days, the Obama political team has the edge, again in the cause of emphasizing deficit reduction and with an assist from Congressional Democrats nervous about the midterm elections....
“We still have a great deal of work to do to repair the economy and get the American people back to work,” Mr. Obama said on Friday. Yet the steps he highlighted to show the government’s concern — some public works projects — are part of the two-year stimulus package he won a month after taking office, rather than new initiatives. Over the last few weeks, Democrats in the Senate have failed to muster enough votes to pass a new package of measures to address the economic weakness, reflecting what some of them see as the political perils of further deficit spending. Within the White House, all of the Obama advisers, along with many outside economists, agree that both things are needed — additional stimulus this year and, before long, a clear sign that the government will soon take actions on taxes and entitlement spending, phased in over time, to reduce a debt that mounted during the recession to the highest levels since World War II. The advisers’ debate is over the timing and scale of any stimulus or deficit reduction.
Those pressing for more stimulus measures include Christina Romer, the chairwoman of the Council of Economic Advisers; Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr.; and the Treasury secretary, Timothy F. Geithner, who took that message internationally to the Group of 20 summit meeting of developed nations last weekend in Canada. Lawrence H. Summers, who as director of the National Economic Council tries to broker what he calls the “brakes-versus-accelerator” debates, nonetheless makes the economic arguments for an additional stimulus, officials say.
More focused on deficits — or at least on positioning Mr. Obama to show his concern — are his chief strategist, David Axelrod, other political advisers and Rahm Emanuel, the White House chief of staff, according to Democrats. Their lone supporter among the top economic aides is Peter R. Orszag, the budget director, who will leave the administration this month. Mr. Axelrod... said he often argues for emphasizing deficit reduction in part because “it’s my job to report what the public mood is.” He added, “I’ve made the point that as a matter of policy and a matter of politics that we need to focus on this, and the president certainly agrees with that.” But Mr. Axelrod said that he and Mr. Obama are also concerned that cutting the budget too soon could retard the recovery or even provoke a relapse like in the Depression era, when the government’s premature turn from stimulus to cutting deficits spawned another recession in 1937....
Critics on the left, however, say that Mr. Obama has hurt the current effort to pass a final spurt of stimulus spending and tax cuts by his rhetorical emphasis on cutting future deficits, along with recent policies for a three-year freeze on domestic appropriations, more power to rescind spending and his bipartisan fiscal commission.... In the United States, the administration’s ambivalence about promoting legislation to help create jobs, given public opposition to rising debt, reflects a shift from late last year when the economy, while recovering, was still shedding jobs. Then, officials say, it was the political advisers who told the economic team to come up with a big package of new and extended stimulus proposals. By February, in his annual budget Mr. Obama outlined $266 billion in “temporary recovery measures” to save or create jobs. But as antideficit fever built, and senators grew more nervous about another high-cost stimulus package, the White House advertised only about $100 billion of that. Now the entire agenda is in doubt.