The Pivot?

June 13th, 2011 at 2:13 pm

In comments made today, the President makes an important distinction between day-to-day problems (that’s the lack of enough jobs) and structural problems (that’s the unsustainable budget path).  Then he gently leans into another round of a payroll tax cut, an important way to avoid an economic air-pocket next year (since the current policy sunsets at the end of this year).*

“One thing I do think is important is … the need to accelerate the recovery as part of the overall package that we agree to,” Obama said. “I’ve long believed that coming out as bad of a recession as we’ve been in it’s important for us to focus on what the real drivers are of our debt and deficit problems. And that’s not the day-to-day spending. It’s the structural problems that we’ve had between spending too much money and not bringing enough money in.”

The cuts would go into effect over the next two decades, Obama said, so “that gives us a little bit of room to continue to do some smart things like the payroll tax cut that we initiated in December while still keeping our eye on the ball in terms of the long term.”

That breeze just picked up a bit.

* Very, very important: as is the case with the current payroll tax cut, the Social Security Trust Fund must be held harmless.

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20 comments in reply to "The Pivot?"

  1. Phil says:

    I don’t understand why the White House isn’t making a direct case for a mega infrastructure bill. Pres. Obama can make a prime time address on infrastructure, and from there make his case at the state level with persuasion/townhall events, speeches, etc. At least, the White House should make the case, and if the GOP opposes it, the American people will understand clearly which party is obstructing job creation. Separate it from the payroll tax cut idea.


  2. Phil says:

    Another point that needs mentioning –

    From his thorough dismantling and framing of the Ryan budget plan, there’s no doubt that President Obama can be very effective at taking apart GOP bamboozlement talking points and exposing their voodoo maths.

    The one thing I think this White House needs to learn better is framing the terms of the jobs creation debate so that the average American understands the political obstacles this president/Cong Dems are facing with a very hostile, extreme right-wing GOP.

    This is where a clean infrastructure bill debate with the president making a strong case for it will be very helpful.

    Fareed Zakaria makes the case for a national infrastructure bank: http://globalpublicsquare.blogs.cnn.com/2011/06/13/zakaria-u-s-needs-an-infrastructure-bank/


  3. Fed Up says:

    It seems to me you are assuming an aggregate demand shock, not an aggregate supply shock.

    Do those get handled differently?


  4. BrianTH says:

    Obama has repeatedly and recently made the case for a large investment in infrastructure. Making the case, as it turns out, isn’t sufficient when Congress isn’t in the mood to act. And when Congress isn’t in the mood to act, people tend to overlook the fact that Obama has actually been making the case.


  5. Phil says:

    BrianTH,

    I disagree. Obama has not made a clear case for a large investment in infrastructure. He has talked about it in a scatter shot manner, but has not made the case strongly as a single issue talking point the way for instance the White House and Congressional Democrats made the case for health care reform. You have to make the case repeatedly, consistently, day after day, till it enters the media consciousness. One speech a week on infrastructure investment followed by a long hull where there’s no sense of urgency is surely not the way to get your message across.

    Politically, this is also a win-win also for the White House if they can consistently make the case that the GOP is obstructing direct job creation.


  6. D Furlano says:

    You can spin it any way you want but if there was a halfway decent democrat running in 2012 I would surely vote for them.

    All Obama is suggesting is more of not enough.


  7. Carol says:

    How do you hold the SS trust fund harmless without reimbursing it from the federal budget? If the annual shortfall becomes a line item, the program will be a sitting duck for republican cost cutting.

    I can see the logic in temporarily cutting the employee’s payroll taxes if the problem you’re facing is a lack of consumer demand. But as I understand it, the problem with businesses not hiring right not is not taxes of any kind. The giants simply don’t need U.S. workers and I’ve heard small business owners say that they can’t afford to hire people until business picks up, that it has nothing to do with taxes.


  8. Kevin Rica says:

    Why Keynesian stimulus is currently ineffective (except to China):

    1. Y = C + I + G – (M – X)

    2. M – X = K

    where K = foreign borrowing, including foreign Central Bank purchases of Treasuries.

    Substituting 2 into 1:

    3. Y = C + I + G – K

    If we increase G by amount Z and finance it by increasing foreign borrowing, K, by Z as well:

    4. Y = C + I + G + Z – K – Z

    Therefore, a stimulus that is financed by foreign borrowing will have no effect.

    Alternatively, K is reduced by quantity Z by slowing the accumulation of Treasuries by foreign Central Banks, (perhaps because they are forcefully persuaded to allow their currencies to appreciate).

    Subtracting –Z from 3:

    3. Y = C + I + G – K – (-Z)

    This alternative gives a positive stimulus to the U.S. but does not require an increase in the deficit or debt.

    This is Keynesian economics done right.


  9. pjr says:

    Obama claimed in January that the GOP will support infrastructure initiatives, if nothing else, and therefore that’s what he’d propose. Let’s see how bold Obama is in pursuit of this “compromise” approach. I suspect the GOP will disappoint him regardless of the size of Obama’s proposal, and I’d advise him to go big, but Obama’s record is to go for what (little) he thinks he can get.


  10. David Kaib says:

    OK, so leaving aside tax cuts (which might be able to get through Congress but will have a limited impact) and things like new stimulus (which could have a significant impact but would never make it through Congress even if the Admin were to propose it) what can the admin do on its own? I’m not against talking about best case options, but it seems we also need to talk about next best case.

    The Prospect did a special report on this here (http://prospect.org/cs/articles?article=the_case_for_presidential_action) and CAP also has proposed using high road contracting here (http://www.americanprogress.org/issues/2010/08/high_road.html).

    Care to weigh in? (Forgive me if you already have, in which case, point me to the links please).


  11. readerOfTeaLeaves says:

    Well, having already made myself ridiculous at this blog by completely losing all sense of humor over Rep Ryan and his disinformation YouTubes, it’s hard to read about whether or not a ‘pivot’ will occur.

    Then I happened on this clip at Crooks&Liars of Robert Reich trying to speak sanely, while Sen Richard Shelby pontificates about how the solution to all economic ills is to ‘grow markets’.
    http://videocafe.crooksandliars.com/heather/abcs-jon-karl-scoffs-robert-reichs-call-mor

    At no point does the hostess point out that Sen Shelby was on the Sen Banking Committee when key bits of legislation that were precipitous in laying the grounds for the Economic Meltdown of 2008 (de-regulation, tax cuts for the uber-rich, etc) were passed into law. In other words, Shelby is culpable for the mess we are in, but you’d never guess it from the Sunday Morning Beltway Chat-a-thons.

    How do you pivot through disinformation perpetrated by people who are not held accountable for their role in creating this mess? How is it that everyone is so polite and makes no mention as to why Shelby’s proposals, having *not* worked in the past, should even be listened to with an iota of respect?

    Is the nation really supposed to head for a Japan Decade because a has-been like Richard Shelby continues to escape from any whiff of economic accountability?

    Pivoting is nice, but it’s only temporary unless the ideological nonsense that it is up against is revealed as the inept facade it is. In this clip — which I view as quite related to the topic of this blog post — Robert Reich tries quite hard to set the record straight on economics, until Shelby cuts him off by pontificating that a stimulus will not pass Congress.

    My takeaway: this is not about economics. It’s about raw power politics, and the forces aligned with Richard Shelby still think they run the show.

    My sense is that as long as the Shelby’s of the world are never exposed for their roles on the Banking Committees and their roles in ensuring tax cuts for the wealthy, this power dynamic will remain in force.


  12. John says:

    There’s an apparent mindset here: the only possible things that can be tried – the only “coulds” that will be considered – amount to dangling carrots in front of capitalists. We know that doesn’t work. They just take the carrots and run. And you’re left with nothing accomplished except that you have fewer carrots left to dangle. And, you get blamed for letting them take your carrots.

    “Insanity: doing the same thing over and over again and expecting different results.” Albert Einstein (who, BTW, was a socialist)

    Some Stevie Wonder for you on the subject…

    http://www.youtube.com/watch?v=Ji2ma2mfyhU


    • Jared Bernstein says:

      Nice use of Stevie.


      • John says:

        Glad you liked it… 8^)

        There’s lots more (Stevie, James Brown, and others) where that came from; YouTube is a wonderful thing…

        BTW, I totally agree with Carol’s 2nd graf (yesterday @8:03).

        Payroll taxes make hiring cheaper, but not free or profitable; thus useless if you think you have too many employees already. I wouldn’t think it would induce anyone to hire when they’re laying off otherwise.

        Similarly with employee-side tax credits – they don’t help the unemployed, who have no tax obligation anyway.

        I think sticks are needed – not more carrots. The evidence has long been in on the carrots. Competition from government is one form of carrot. More aggressively investigate age discrimination and other things that are illegal or unethical, but rampant in this environment. There’s lots more like that.

        The President has power he’s not using. There are things he could just do – like direct hiring into existing or new agencies – and dare Congress to stop him. Even Bush did similar stuff – how else did the current wars run up the tab?

        In the words of Admiral Grace Murray Hopper – maybe the first woman computer programmer: “It’s easier to ask forgiveness than permission.” We call that EAFP – it’s a standard methodology in computer software.

        Elizabeth Warren? Peter Diamond? Hasn’t he heard of recess appointments?

        And please, God, please, he should get rid of Tim Geithner. Please. Yesterday. Last year. Give someone like you that job. Anybody with some sense.


  13. Tyler says:

    Jared,

    While the middle class would appreciate an extension of the payroll tax holiday, I’m not sure that’s enough tax relief for middle-class families.

    Perhaps families with a household income of less than six figures should be given an income tax holiday until we emerge from this downturn.

    Thanks,
    Tyler


  14. Michael says:

    I understand why we all like the payroll tax cut — it helps the “deserving” who are working — but the problem is unemployment. Hire people.


  15. PeonInChief says:

    I’d rather they just did the $800 credit again. (Our household got more from the payroll tax cut, but that’s the problem.) It gives households a chunk of change to spend–or save–and for a household making $30K, it’s a windfall.

    Also please note that both Paul Krugman and Dean Baker are away from their computers. It could be a bad couple of days.


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