Are those of us urging a pivot getting somewhere?
I couldn’t turn around this AM without reading or hearing someone talk about the need to both walk and chew gum: target job growth in the short term; move to a sustainable budget once the economy finds its footing.
The politics remain extremely tough, and it’s still a reach that we’ll do the right thing, but if the Mavericks can beat the Heat, then surely anything is possible.
My old colleague Larry Summers was in the WaPo, urging infrastructure investment and an extension of the current payroll tax cut. Right next door, EJ Dionne has a nice column which mentions an important tax credit I’ve mentioned in these parts before (from “The Pivot” link above):
“The other idea is a great manufacturing tax credit—the 48C Advanced Energy Manufacturing Tax Credit (man, we really got work on these names!)—that was really effective during the Recovery Act—and it’s green!”
Then, while innocently doing my morning crunches, I heard a segment on jobs ideas on Marketplace radio, reminding me that the Pres himself is going down to Cree Industries today, a very cool LED lighting manufacturer (I visited the factory with the VP back in the day) that was a beneficiary of 48C, and according to the segment, is adding jobs.
For years, we’ve subsidized the production of clean energy, without much thought as to where those producers got their equipment. The 48C credit fixes that, by incentivizing the building of clean energy equipment here in the US, and it leverages about $2 of private capital for every $1 of the credit. A number of members of Congress want to renew it, and the administration has been supportive in the past.
Meanwhile, back in EJ’s column, he cites a couple of members of Congress talking another key theme job targeters have been stressing: Do No Harm. We need a balanced plan of spending cuts and new revenues to reign in deficits, but we don’t need to “let it reign” yet.
To the contrary, Summers makes an important point in passing that I’ve tried to repeatedly stress (ever since I heard it from Brad DeLong).
Deficit-financed fiscal stimulus can be ill-advised in a healthy economy, much like to pouring water in a glass that’s already full. Since industry and employment are by definition already at or near full capacity, adding excess demand is likely to crowd out private borrowing and generate inflation, leading the Federal Reserve to “mop up the spill,” i.e., raise interest rates to ward off the extra inflation.
But when there’s a lot of slack in the economy and borrowing costs are low, that glass is half full, and the arithmetic tilts sharply the other way (if the gov’t financed this borrowing at the 30-year TIPS rates, we’d be looking at an interest rate of 1.79% as of last Friday!).
This isn’t Laffer-curve Keynesianism—I’m not saying a borrowed dollar spent on job creation would pay for itself. But according to Brad’s calculations, a temporary $100 billion stimulus at today’s rates would add well under $1 billion to the annual deficit (he gets down to $70 million (with an ‘m’!)/year, assuming productivity effects, but you don’t need to believe that to get behind this idea). And the benefits of this spending could mean jobs, greater income, and a better safety net for millions of people suffering at the hands of the weak economy.
I don’t know if this is a breeze that fades if the next jobs report is just OK instead of lousy. But things can turn quickly in this town—ideas that led partisans to reach for their vapors on Monday can become law on Wednesday. So stay tuned.