Clearly, there’s a need for the federal government to pivot from deficit spending to create jobs, to deficit reduction to contain the national debt. But when?
[IMGCAP(1)]With the public debt due to reach 100 percent of gross domestic product next year — and heading toward record levels — Congress is making the pivot now, much to the distress of liberal economists and the Obama administration.
With unemployment still at 9.7 percent and with growth projected to be no more than 3 percent to 4 percent in coming years, the administration desperately wants Congress to approve more stimulus spending.
But Congress seemingly won’t. And liberal economists such as Paul Krugman and White House economic adviser Christina Romer are casting parallels to Franklin D. Roosevelt’s 1937 pivot from expansionary policy to budget balancing, which deepened the Great Depression.
President Barack Obama’s problem is that he can’t convince the public that his $800 billion 2009 stimulus program worked to produce jobs and that more stimulation will help in the short run.
And he’s also not convinced practically anybody that he has a serious long-term plan to get deficits and debt under control.
According to a new Pew poll, by 60 percent to 33 percent, U.S. adults think that last year’s stimulus “has not helped the job situation.”
By 54 percent to 38 percent, the public doesn’t think that the Bush administration’s Troubled Asset Relief Program worked either, despite almost unanimous support from economists across the political spectrum.
There’s massive confusion among voters as to the best next steps to improve the economy. Large majorities think that all ideas on the table — additional spending on public works, cutting taxes on business, budget cuts to reduce the deficit, cutting income taxes, and aiding state and local governments — would help at least “a little.”
But fewer than 40 percent of voters think any of the solutions would help “a lot.” And not even a majority of Democrats strongly supports public works or aid to states.
Obama, Vice President Joseph Biden and other White House aides are trying hard to convince the public and Congress that spending now and saving later is the way to go, but they are not buying it.
Biden, in a White House briefing last week, declared that “the fact is, the Recovery Act [stimulus package] is working. We’ve gone from hemorrhaging over 700,000 jobs a month the first several months we got here … to adding several hundred thousand jobs a month the last several months.
“We’ve gone from a GDP that was shrinking at 6.4 percent the first quarter we came into office to a GDP that grew
3 percent last quarter and averaged 4 percent the last three quarters.”
Spending $620 billion of $787 billion in stimulus money so far has “saved or created” 2.3 million to 2.8 million jobs, Biden asserted.
But “we can’t let up,” he said. “We have to continue to invest in job creation, continue to support small business, which is the engine of job creation, and continue to help states and localities who remain under extremely difficult constraints.”
White House economic adviser Larry Summers told me that what might have been a “transcendent event, a second Great Depression,” now looks as if it will be remembered as a “very serious recession.”
“The economy is recovering,” Summers said, and “over time will reduce unemployment and add millions of jobs.”
“That process will be helped if we don’t make the mistake of slamming on the brakes overly abruptly now. We need to pass the president’s tax cuts for small business, pass energy legislation, carry out our international economic agenda.”
Maybe so. But two analyses I’ve seen suggest that the current recovery is nowhere near strong enough to produce prosperity and that it’s facing “more headwinds than tailwinds.”
In the current issue of the International Economy Magazine, editor David Smick points out that to bring the jobless rate down to 5 percent will require creating 250,000 jobs per month every month for five years — whereas the average rate of job creation since 1990 has been 90,000.
In May, the economy added 431,000 jobs, but 411,000 were temporary census workers and only 44,000 private-sector workers. In April, the economy added 290,000 jobs and in March, 162,000.
Meanwhile, the New America Foundation’s Sherle Schwenninger and Samuel Sherraden reported in May that the recovery is “relatively weak” and “jobless,” with “surging profits” but “stagnant wages.”
Moreover, they said, the economy faces such strong “headwinds” as the debt overhang, the phasing out of fiscal and monetary stimulation, state and local fiscal crises, the euro crisis, and “an uncertain tax and regulatory environment.”
What should Obama do? I think he could help persuade the public and
deficit-minded Democrats — probably not Republicans — to spend, aid states and cut taxes now by proposing and committing to a serious plan for debt reduction later, of the type outlined Tuesday by House Majority Leader Steny Hoyer (D-Md).
In fact, some of the spending and tax cuts he’s backing now could be “paid for” with specified spending cuts to kick in, say, next year.
Obama’s problem is that the public is convinced — justifiably — that he’s just a spender. It’s a deep hole he’s got to climb out of.