A Nice Follow-Up Piece from Noam Scheiber on the White House's Thinking...
He writes, among other things:
Is The Administration's Economic Thinking Incoherent?: Brad DeLong parses my piece today on the administration's struggle to create jobs while still minding the deficit and pronounces himself "increasingly bewildered about administration thinking."...
Now, obviously, not every member of the administration and every Democrat on the Hill signed onto the [relatively-optimistic late-summer] consensus I describe. But, based on several conversations with people in the administration and on the Hill, I'd say it was the prevailing view. It was the September jobs report (which came out in early October) that really jarred people....
I quote a senior administration official who says that, “The reality is that it’s not too hard to find a Wall Street analyst that says a second stimulus basically cancels itself out almost immediately because of the impact at this stage on government financing costs.”... I happen to agree with DeLong that such a canceling-out is unlikely. But, in fairness to the administration official, my sense is... [he meant] just that it's a risk the administration wants to minimize when it spends money on job creation, not a reason not to spend money on job creation....
If I understand him correctly, DeLong is essentially saying that... it can either be the case that more stimulus now will be ineffective because people will assume we'll run bigger deficits in the future, which raises long-term interest rates. Or it can be the case that more stimulus now will be ineffective because people will assume we'll run smaller deficits in the future [because of higher taxes], and will simply save [to pay the taxes] rather than spend the money. But it can't be the case people will assume we'll run both larger and smaller deficits in the future.... DeLong has put his finger on a relatively important feature of administration thinking on these questions, which is that it's (understandably) a bit all over the place. Some officials think an imminent rise in long-term rates is a potential problem; others think low rates of consumption of additional stimulus is a potential problem; some think both could be problems (under different scenarios); some neither; of the people who think both, different people attach different weights to the different scenarios, etc., etc. I guess the bottom line is that there isn't really a coherent Administration Position here... And this is the puzzle. Yes, uncertainty is enormous. And any one policy might not work. But that any one individul policy initiative might not work is not an argument for not trying anything--unless you are happy if things develop according to the current-policy forecast and we see an unemployment rate between 9% and 11% for the next year and a half at least. Thus if I were in the administration I would be trying everything: And then reinforce whatever seems to be working. As one notable economist said yesterday, it's as if once the banks passed their stress tests the High Politicians inside the White House decided that it should simply declare victory on macroeconomic policy and go do other things. And nobody at a higher level than the economic team thought of what had been clear to us since April, and assessed either the medium-run economic consequences--a 10% plus peak unemployment rate likely to be followed by a jobless recovery--or the political consequences--it's hard to think that congress in 2011 and 2012 will be supportive of Obama's initiatives if the 2010 election takes place in an environment of a 10% unemployment rate
