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Obama Economic Policy: Yet Another "Obama Bunts" Edition - Grasping Reality with Both Hands

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10/21/10 7:55 PM

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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.

Economics 210a Weblog Archives DeLong Hot on Google DeLong Hot on Google Blogsearch September 06, 2010

Obama Economic Policy: Yet Another "Obama Bunts" Edition With a multiplier of 2, $50 billion in the first year is 0.3% on the unemployment rate-and it's not clear if we can ramp up an extra $50 billion of infrastructure spending in the first year. Don't get me wrong: boosting federal infrastructure spending is almost certainly a very good idea. Tax cuts for "small business" much less so--unlikely to reduce wedges between social and private returns on a micro level, and likely to have a low bang-forbuck on the macro level. But the thing that stands out--again--is the radical disjunction between the scale of the economy's problems and the proposed solution. And so the press corps, rightly, says not that Obama proposes plans to fix the economy but that he proposes "a pre-election effort to show he’s trying to stimulate the sputtering economy." Matthew Yglesias: More Like This, Please: I don’t think that presidential “messaging” has much power to alter the outcome at the midterms, but that’s all the more reason the White House may as well propose ideas that make sense on the merits and then hope for the best: President Barack Obama is asking Congress to approve at least $50 billion in long-term investments in the nation’s roads, railways and runways in a preelection effort to show he’s trying to stimulate the sputtering economy. The infrastructure investments are part of a package of targeted proposals the White House announced on Monday. With November’s elections for control of Congress approaching, Obama planned to discuss the proposal later Monday at a Labor Day event in Milwaukee.

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Obama Economic Policy: Yet Another "Obama Bunts" Edition - Grasping Reality with Both Hands

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Given that congress almost certainly won’t agree to anything this sensible, monetary policy remains are best hope in practice. But it’s foolish for the White House to constrain itself to only proposing ideas congress is likely to approve. This new approach is the right way to go. Ryan Avent: Fiscal policy: A new hope: MAYBE I should have asked about an infrastructure spending package sooner: President Barack Obama is asking Congress to approve at least $50 billion in long-term investments in the nation's roads, railways and runways in a preelection effort to show he's trying to stimulate the sputtering economy.... While the proposal calls for investments over six years, the White House said spending would be front-loaded with an initial $50 billion to help create jobs in the near future. The goals of the infrastructure plan include: rebuilding 150,000 miles of roads; constructing and maintaining 4,000 miles of railways, enough to go coast-to-coast; and rehabilitating or reconstructing 150 miles of airport runways, while also installing a new air navigation system designed to reduce travel times and delays. Obama will also call for the creation of a permanent infrastructure bank that would focus on funding national and regional infrastructure projects. It will be interesting to see full details, and to see the reaction from Congress. Mr Obama will also call for a substantial package of small business tax cuts, potentially worth up to $100 billion. The message that Americans are unhappy with the state of the economy seems to have sunk in. Zandar: TAX CUTS UBER ALLES: A Clintonian move if there ever was one. The bad news: actually helping the American people directly has now gone by the wayside. The White House has decided to forgo a broad-based payroll-tax holiday at this point, officials have said. That proposal, which had been part of earlier discussions with key congressional officials, would have been an expensive measure, potentially costing hundreds of billions of dollars. It also could have deprived Social Security of needed cash even as Democrats are accusing the GOP of plotting the program's demise on the campaign trail. It also would have boosted America's paychecks directly, so there's no way the GOP was going to allow that to pass before an election and the Village has already given the GOP cover on this: it may "deprive Social Security of needed cash". That's cockamamie bull, considering that Social Security could have easily taken the hit for a couple of months. But hey, the big Obama plan to save the Dems? Tax cuts for businesses. The GOP is already calling Obama out on this and are declaring that the real message is that tax cuts uber alles should have been the plan all along.... Shoulda swung for the fences, instead he lays down a bunt. Forcing the GOP to vote against a payroill tax holiday that would have directly put money in America's paychecks would have been the wise thing to do. Instead he's doing what the Republicans want now as a default position and they're pillaging him for it. Brad DeLong on September 06, 2010 at 09:24 AM in Economics, Economics: Fiscal Policy, Economics: Macro, Obama Administration | Permalink http://delong.typepad.com/sdj/2010/09/obama-economic-policy-yet-another-obama-bunts-edition.html

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Obama Economic Policy: Yet Another "Obama Bunts" Edition - Grasping Reality with Both Hands

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Comments bay of arizona said... Instead he's doing what the Republicans want now as a default position and they're pillaging him for it. Which is what Obama has done since Day 1. Definition of stupidity, etc Reply September 06, 2010 at 09:59 AM Robert Waldmann said... I'm reasonably confident that the point of the proposal is that Republicans will oppose it. More than the spending the point is the source of the money -- not adding to the deficit (good policy) but cutting tax breaks for oil companies (always good policy but less so now that most times). Bunting is often good strategy. Especially when dealing with opponents who can't coordinate their first principle baseman(tax cuts for the rich)and their pitch[er] (deficits will eat your children). I predict that the Republicans will totally muff it and run into each other (contradict each other proving they are hypocrits and liars) and that the first base umpire will call the Democrats out anyway. Stop me before I metaphor more. Bay what he is doing is increasing public spending. That is not at all what Republicans want. My guess is that's the whole point of the exercise. Reply September 06, 2010 at 10:57 AM save_the_rustbelt said... Perhaps medical triage is a good metaphor here. When a patient needs 4 pints of blood, we do not administer 2 pints and wait for something to happen. Small businesses only need tax cuts when they have profits to tax, these days minimizing losses is more the order of businesses for many. Reply September 06, 2010 at 11:01 AM Brian J said in reply to Robert Waldmann... If they are as likely to oppose anything that he supports as you and I think they are,

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then why not propose something much, much bigger? Why not try to move the conversation in the opposite direction, if for no other reason to show that he's doing something? Would it really kill him to make the Republicans in congress his enemy just once? He's got two months before the election. Why not get on television for a half hour, explain what he wants to do with some rough numbers, and them publicly dare them to vote against it? If deficits really are that big of a concern, he can show how much money, roughly, will come back into the Treasury. He can also propose a new transaction tax for Wall Street that will go towards paying for this hypothetical package. I'm not saying he has to lie, only that he doesn't have to be concerned that the numbers are exact. He has, once again, two months until election day. The Democrats will still lose seats, but my gut tells me that there's more than enough time to avoid the sort of losses that will force the nation to hear "Speaker of the House, John Boehner." Reply September 06, 2010 at 12:03 PM Ken Houghton said... Baseball-noodge correction: That isn't a bunt; he's not sacrificing anything except his integrity, which is long gone. (If we were talking about the abomination that is the "research tax credit," you would be describing a bunt--as Dr. Black notes, only an idiot or Rahm Emanuel [but I repeat myself] would suggest a supply-side tax cut to solve a demand-driven recession.) The fear is that he's playing "Earl Weaver" baseball, and thinks that $50B to fix very little of what is broken and expand into some other areas is his version of a three-run HR, not the Texas Leaguer it would be. If he's playing "little ball"--singles and steals, expecting a few doubles and walks to make a big inning because he doesn't have a power-hitting middle of the lineup--then he still hasn't learned the lesson of Stimulus One. Since he claims publicly that he has-don't lead with your compromise and negotiate from there--we have to expect that there will be a multi-pronged announcement not later than Tuesday or Wednesday. When there isn't, it will be clear to everyone that the difference between a Cheney/Rove presidency and an Figurehead/Emanuel one is that Rove always kept his eye on the ball,while Emanuel famously spent millions of DNC money trying to get a carpetbagger elected in a Chicago district that leaned D in 2006--and failed. Reply September 06, 2010 at 01:43 PM Michael Pettengill said... Geez, DeLong, why are you pulling your punches? When it comes to talking about infrastructure spending, let's be clear about the problem and invoke the graphics: Graphic number one is this one: http://upload.wikimedia.org/wikipedia/commons/9/9d/35wBridgecollapse.gif number two: http://upload.wikimedia.org/wikipedia/commons/thumb/d/d1/I35W_Collapse__Day_4_-_Operations_%26_Scene_(95).jpg/250px-I35W_Collapse_-_Day_4__Operations_%26_Scene_(95).jpg number three: http://upload.wikimedia.org/wikipedia/commons/thumb/d/d8/Superdome_shelter.jpg/250pxSuperdome_shelter.jpg People talk about Gov Pawlenty as a presidential candidate.... http://delong.typepad.com/sdj/2010/09/obama-economic-policy-yet-another-obama-bunts-edition.html

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"In 2005, the bridge was again rated as "structurally deficient" and in possible need of replacement, according to the U.S. Department of Transportation's National Bridge Inventory database.[41] Problems were noted in two subsequent inspection reports.[42][43] The inspection carried out June 15, 2006 found problems of cracking and fatigue.[43] On August 2, 2007, Governor Tim Pawlenty stated that the bridge was scheduled to be replaced in 2020." --wikipedia Before 9/11/2001 I remember watching a documentary on the likely flooding of New Orleans as a consequence of the massive loss of wetlands as a result of channeling them for oil and for shipping. On 9/12/2001, I told my buddy that the next target for bin Laden should be the New Orleans levees. Five years ago, I was mystified that bin Laden/al qaeda didn't claim responsibility for the flooding of New Orleans. As noted in another post here, the spending on the terror "watchers" is easily $75B a year which is basically disguised as digging holes as a government works project. $75B a year spent on rebuilding the wetlands of the Gulf Coast, and building up the levees in the fashion the Dutch do, would not only create jobs doing that work, but would also result in that Gulf Coast region being a more reliable engine of trade and commerce. The "stupidity" agency spending hinders economic growth but is highly favored by conservatives, while infrastructure spending on regions like the Gulf Coast is attacked as wasted spending even though it would prevent predictable disasters. The entire Gulf Coast disaster of five years ago was predicted, the basic prevention and mitigation strategy was well known a quarter century ago. Obama has tried to be bipartisan, but has been made partisan. But the problem is too many people have been cowed into silence by the Reagan wave. Reagan sold the nation on tax cuts as a free lunch. Instead of attacking the Reagan tax cut free lunch idolatry, I find almost all economists finding some way to justify tax cuts has having positive, stimulative effects. Since 1980, tax cuts have been purely destructive of economic, job, and wage growth. Economists provide aid and comfort to the destroyers of the nation. The focus on GDP as the metric, but ignore job and wage growth when looking for the effects of tax cuts. And worst of all, I can find no economist who calls for building an asset book for the governments of the United States that matches the asset ledger of every business. For a business, you look at the balance sheet, and the lack of investment shows up in the depreciation of the assets, and over time, you will become alarmed that a firm has fewer and fewer assets. But for the US, the asset sheet, if one were maintained, is showing massive losses on the asset sheet for the depreciation that has not been replaced with investment. If we looked at that sheet from the 30s to 70s, it would show huge additions as large amounts of investment was done with first surplus labor, and then with scarce labor, all of it paid for in large part from current accounts with high taxes. In the past decade, we have had millions of surplus laborers and massive infrastructure investment needs, but instead government has borrowed massively to fund wasteful private consumption. Yet which economist has been attacking the Bush tax cuts as destructive of our nation? Which economist has been attacking tax cuts as destructive of our nation? Can anyone document any positive effect to the nation from tax cuts? Reply September 06, 2010 at 02:31 PM lambert strether said... http://delong.typepad.com/sdj/2010/09/obama-economic-policy-yet-another-obama-bunts-edition.html

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Shorter: Obama p****s in the wrong ocean. These jobs aren't even green! Reply September 06, 2010 at 02:45 PM lambert strether said... And what a silly bunt! Reply September 06, 2010 at 02:57 PM bakho said... The Obama administration has a dismissive attitude toward jobs. You got a problem with that? Obama administration is philosophically uncomfortable with the New Deal and New Deal jobs programs. The policy they propose is the policy they want. Don't take it as a political strategy or whatever. Take it for what it is. Obama is willing to propose government spending to "invest in the future". Obama is not willing to spend "just to create jobs". However, jobs, any jobs are terribly important for workforce training. Writing off the long term unemployed could mean writing off a generation of potential workers to poor jobs skills and failure to reach their potential. Bill Clinton would have rethought his philosophy rather than live with high unemployment. Obama is bought into the philosophy (there must be a pony in here) and is willing to live with high unemployment rather than reevaluate his philosophy. It does not help that Obama is not well versed in economics. Reply September 06, 2010 at 04:24 PM Bill Markle said... I understand the function of the political science debate about the size and political possibilities of such a stimulus. So perhaps my point can be viewed as not quite relevant yet, or as another special interest pleading. But does there come a time when both sides of the aisle can consider the future growth of the economy as partly driven by decent infrastructure? Jobs are jobs, but much of the stimulus has been spent on things that do not advance the capabilities of the economy very much- replacing curbs on the street, installing planters, repaving streets that really didn't need it for another five to ten yearssuburban welfare kinds of things. Is there any chance of focusing spending on more critical things, such as bridge replacement and trains and schools? I understand that the politics mitigate against such a possibility, but from where I am, in Hangzhou, China, the manner of American stimulus spending looks just .... dumb. Reply September 06, 2010 at 05:10 PM Susan said... I'm immediately suspicious of any expenditures that say "roads". I think we're more likely to see new roads, rather than maintenance of existing roads. After all, new roads are great for businesses, existing roads not so much. Reply September 06, 2010 at 10:19 PM Comments on this post are closed.

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Everyone Suffers From the Foreclosure Mess

economics DeLong

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Yet Another