A Tough But Necessary Pivot

August 2nd, 2011 at 10:41 pm

So…the cloud of uncertainty around the debt ceiling has blown over and what happens?

Everybody wakes up, looks around, and realizes the economy ain’t doin’ squat.

The NYT quotes various investors:

“We get no default, but the bad news is there is a growth trade-off…they had to agree on fiscal contraction that would weigh on growth…recent economic data is already weak…and now that the debt ceiling deal has offered up the prospect of lower spending from the government who is going to drive the economy?”

I could get snarky and wonder where the investor class was hiding during all of this.  But instead, I will welcome them to where many of us have been during this whole hysterical distraction: what can we do on the jobs front?

The President began to pivot in a Rose Garden speech today, and numerous people asked me “how can he do that?  How can he go from advocating and signing onto austerity one moment, to talking all about jobs!?”

Well, the cuts are pretty backloaded, so that helps, but it’s still a fair question, given the unlikelihood of House R’s in particular cooperating on anything having to do with jobs.  But he’s still gotta fight for it.

Today, he spoke up for:

1)       payroll tax cut and unemployment benefit extensions

2)      patent reform and trade deals

3)      an infrastructure bank to provide loans to build and repaid public goods.

Number 1 is good and necessary but let’s be clear: those measures provide no fiscal impulse.  That is, they are already in the current economy, so leaving them in doesn’t apply any new pressure to the accelerator, though neither does it let up on the gas.

I can’t speak to patent reform— hard to imagine it moves the unemployment needle much.  But maybe it could help our startup problem, which could actually be very important.  I’m all for more infrastructure, and in the past, such investment has been bipartisan…but that was then and this is now, so who knows?

Look, it may well be the case that the President and the Congress can’t move anything between now and the election.  It may be that certain cynical R’s will block good ideas just to be sure the President doesn’t catch a break on the economy. Others simply believe they were put here on earth to cut spending, and nothing else.

So, what’s a President to do within such binding constraints?  Well, if you can’t do…teach.

Build the case for gov’t’s role at a time like this.  Explain that we’re stuck in a vicious cycle of weak demand feeding into weak job growth feeding back into weak demand.  Households are still deleveraging, and that’s holding back hiring too.

Critics will say: we’ve tried that and it’s failed.  They are wrong; they are just another distraction.  Ignore them.

Maybe take advantage of your street cred as a compromiser, a grown up, a deficit cutter, and explain, as you did today, that while you understand the need to live within our means, we can’t start cutting too soon.  To the contrary, right now, the best way to lower the deficit is to get people back working, spending, and generating more revenue-raising growth.

It won’t be an easy pivot, but I don’t see an alternative.

 

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15 comments in reply to "A Tough But Necessary Pivot"

  1. Alessandro Rosa says:

    We are not going to get anywhere on jobs until we create a competitive advantage to have Businesses and Employers source jobs here. So either the American public needs to accept a huge cut to standard of living, we need to tie employer and executive compensation to the well-being and financial success of their employees or we need to add protectionist policies which benefit the majority of workers in this country.

    When we reduce humans to a number on a balance sheet, then we have truly lost our humanity.


  2. azlib says:

    What is Obama going to propose? Anything which will drive demand will cost money which means more deficit spending. The Rs will never allow that. The only smart thing I can see Obama doing is to make a pitch for fiscal stimulus and pay for it with the repeal of the high end Bush tax cuts. He would certainly have the people behind him and he could paint the Rs into a very bad corner. Of course some Dems in Congress would freak out, but so what?


    • Brenda says:

      azlib siad: “Anything which will drive demand will cost money which means more deficit spending. The Rs will never allow that.”

      Polls have consistently shown that by an overwhelming majority people want the job issue addressed. Those same polls also show that even republicans are ok with increasing revenues to balance the budget and increase jobs.

      I am ok with the GOP running an anti-job campaign in 2012.


  3. Richard Mathews says:

    The suggested patent reform will hurt startups. The legal costs will be able to be afforded by the big guys but not the startups.

    S.23 and HR.1249 have each passed in their respective originating houses. Both will replace the first-to-invent patent system with first-to-file. Startups would need to invest in patent lawyers before they ever have any income. Not good.

    The proposal would further weigh against startups by giving legal advantages in court to the first to file. The startups would have no chance to prove infringement even if this had a previous patent.

    This is supported by IBM, GE, DuPont, Intel, Pfizer, 3M, BP, Exxon Mobil, US Chambers of Commerce, etc.

    This is opposed by IEEE (biggest group for electrical engineers), National Small Business Assn, and AMD.

    As someone who has written, defended, and been granted a patent on behalf of a small computer-products company (30 people), and as the current CTO of a small computer-products company (50 people) I can say this “reform” would be a very bad thing.


    • Jared Bernstein says:

      I take your point re first-to-file, but my understanding is that the bill will allow the Patent Office to keep the excess revenues it gets every year from fees–which it now must remit to the Treasury–and have them use those fees to reduce the backlog…that’s gotta help, no?


      • Night Owl says:

        You can’t be serious.

        Small business people drive most of whatever is left of the job growth and innovation in this country. Yet you think a bump in government filing revenues is worth giving large corporations a perpetual license to steal small companies’ intellectual property?

        My God, how shortsighted can you be?


      • Richard M. Mathews says:

        No, reducing the backlog does not at all make up for it.

        For my patent, I filed in August and got the patent in April. That included going one round of providing more information to the examiner to distinguish the invention from the prior art. But I was protected back to the time of the invention before August. It does not matter that I waited to April to have the piece of paper.

        The process now is
        * invent something
        * start your business
        * get some revenue
        * file the patent
        * wait
        * get some more revenue
        * wait
        * get some more revenue
        * wait
        * get your patent, effective back to the time of the invention

        With the bill, the process is
        * invent something
        * file the patent (oops, no money)
        done

        Or
        * invent something
        * take a chance on starting your business
        * get some revenue
        * Inferior But Marketable, Inc, sees your idea and files the patent
        * lawsuit
        done

        Or
        * invent something
        * borrow money (quick before someone else files and without telling the bank your idea)
        * file the patent
        * start your business
        * get some revenue
        * pay back loan (so you still have no income)
        * get your patent

        Increasing the startup cost of the business is very bad.


        • Richard M. Mathews says:

          A further thought on this. When you get the piece of paper makes no difference because with or without this bill you are protected at least back to when you filed. Getting the piece of paper sooner only helps if you are really anxious to sue someone. Say you are Inferior But Marketable, Inc, and you hope to make more money off of the lawsuit than from selling products because you filed the patent but have not tooled for mass production. More lawsuits. Less manufacturing. Just what we need (if we are lawyers).


  4. The Raven says:

    “Well, if you can’t do…teach.”

    And he are going to pay the teachers in…what, exactly? Chickens?

    …not crow, alas.


  5. Fred Brack says:

    Sound advice. Tell the president. He needs now to step out of character and pound the podium. Every day! Probably it won’t work, but it has to be tried. Perhaps the business community will chime in on his side. That could have an impact on Republicans. Maybe the news media will adopt infrastructure-as-salvation as its latest meme.


  6. Riggsveda says:

    Jared, I have been flummoxed by the payroll tax cut since its proposal and implementation. On one hand we’ve been constantly sold a bill on how Social Security is on its deathbed and if we don’t do something yesterday we’ll all wake up on a hillside in 20 years waiting for the wolves (and also–!!deficit!!–even though SS is not even part of that issue). So what do they do? Give us this tax cut that undercuts Social Security and seems to guarantee the trust fund never gets replenished. Why should we welcome a tax cut now that at retirement may be responsible for diminishing, even more, benefits that the Right has already been looking for ways to eliminate? More Bizarro Universe stuff.


  7. Paul Niemi says:

    In the absence of fiscal stimulus, what is left to create jobs? Getting banks lending again comes to mind. The conversation needs to go there, because everything else which is wrong in the economy is encompassed in that discussion.


  8. Brenda says:

    “how can he do that? How can he go from advocating and signing onto austerity one moment, to talking all about jobs!?”

    This is how the president operates. It’s hardly a secret. What Obama does is he negotiates the best possible deal short term from a purely pragmatic point of view but then maintains pressure for his long term goals. People interpret Obama’s pragmatism as reflecting his true political leanings. I think that is logically fallacious reasoning.

    From the fact that someone accepts a negotiated outcome it simply does not follow that it represents their true position. At best we can conclude that he is willing to tolerate results others find highly unpalatable, but I think we already knew that.

    Obama’s path to success:
    1. Negotiate in good faith even when your opponent will not.
    2. Get the best deal possible without political force.
    3. Close the deal and move on.

    Obama’s behavior is consistent with this strategy. People may criticize that strategy, it may or may not prove successful, but it has proven successful in the past. It should be clear by now this is how he operates. I am ok with that. I don’t care how we get to a better place, only that we do get there.


  9. readerOfTeaLeaves says:

    PIMCO’s El-Erian has an op-ed in Financial Times today that is unfortunately behind a pay wall, but recently he has made a very interesting case for an infrastructure bank (on a recent Dylan Ratigan podcast).

    The dysfunction in government appears to be feeding on itself exponentially, and the failure of Congress to seriously discuss the idea of an infrastructure bank – at this historical moment – seems a form of political malpractice.

    However, if I had to explain an infrastructure bank to my friends and neighbors, I honestly don’t think that I could articulately provide an example of how a project would move through such a bank. I honestly don’t know how it is funded, who can apply for projects, etc, etc.

    In other words, if Apple were building an Infrastructure Bank, what would the User Guide look like? At present, I have no clear idea, and I don’t think that makes me unusual.

    After listening to El-Erian, I can see *why* an Infrastructure Bank is badly needed. Or an Infrastructure Co-op, which would be even better. But I simply don’t quite grasp how it would work.

    I think there is at least as much a communication problem as an economic or political problem – at least on this key topic.


  10. emptywheel says:

    Jared

    I note you didn’t address the trade deals…

    Those may, IMO, be what sinks this President once and for all.

    I realize that he is couching his call for trade deals in remarkable Orwellian language–suggesting new trade deals will employ the workers displaced by the last one. And who knows? The bully pulpit is a powerful thing. But the residents in the Midwestern swing states he needs to win BARELY bought his Orwellian language about trade in 2008, but if he focuses on those deals between now and then (particularly if, as seems likely, the GOP refuses to include TAA in them), then I doubt any language will work to hide it.

    Moreover, it’s the exact opposite of what we need to do. Rather than shifting our jobs to Korea (IMO the Korean trade deal would eventually lead to Korea leading in production of Volt production, with lots of assembly in China, so it would basically negate one of the few investments Obama has made), we need to build jobs here.


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