Herein Lies the Problem

August 14th, 2011 at 1:52 pm

There’s an article in today’s NYT on the economic debate within the White House.  The print version—not the online one—contains this quote from an admin official:

“It would be political folly to make the argument that government spending equals jobs.”

Really?  I mean, I get the reluctance, and certainly the “spending=jobs” frame, while essentially correct, may not be the right way to frame it.

But in fact, the best way to get people back to work right now, with consumers weakened and investment on the sidelines is through more government spending…it should be targeted and temporary, but jeez, the President himself has been making this point, and correctly pointing out that R’s are blocking him on it.

Far be it from me—I mean this—to advise the politicals as to what works.  But I simply don’t believe it is “political folly” to tell the truth on this critically important point.


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23 comments in reply to "Herein Lies the Problem"

  1. Fr33d0m says:

    Depressing. It sounds like they’re afraid of their own shadow.

  2. Riggsveda says:

    Over at Calculated Risk, he quotes an LA Times article that states:

    “‘I hear politicians say that businesses have money and they should be hiring,” said Riddle … “But if you don’t have the demand, you don’t hire the people.’
    “Surveys have been showing that lack of demand has been the number one small business problem for over three years.”

    I don’t know how much clearer it has to be. Businesses COULD get together and say, “Look, if I hire some people this month, you and you and you hire people at the same time and then once the paychecks start rolling out, we should see some demand.” They COULD, but how ridiculous is it to expect they would, and how unlikely they could rig it to work? The only possible way to prime the pump is through the government. There is no other way. But still we keep hearing the very people who have the power to help, repeating the right-wing b.s. that we have to tighten our belts and flog every peon in sight until their backs bleed so we can appease the gods of finance and make it rain liquidity upon the aristocrats and nobles.


  3. Russ Abbott says:

    It seems to me that those who support Keynesian economics perspective need a new analogy. The term “government spending” leads people to equate the government with their own family. When times are tough, one must tighten one’s belt. So arguing that government spending creates jobs frames the issue in terms that are immediately uncomfortable to many people.

    So here’s another way of putting it. Think of the economy as similar to a hydro-electric power system. Power is generated by water flowing through turbines. To keep the power flowing smoothly–which is what we want–one needs a steady flow of water.

    That’s one of the purposes of the reservoir behind the dam. It evens out the flow of water. When more water than is needed is flowing into the reservoir, the reservoir retains the extra water. When less water than is needed is flowing into the reservoir, the reservoir is tapped to allow additional water to flow and keep the turbines spinning.

    The government has an analogous job. When the economy is functioning well, the government should reserve a bit of our economic output for use later. When the economy has slowed down, the government should use those extra retained resources to keep the power flowing smoothly.

    That picture may make it easier for the public to understand why government spending should *increase* during recessions and *decrease* during prosperous times.

    • Jared Bernstein says:

      That’s great!

    • Sister Artemis says:

      Wonderful analogy – thanks! One reason I read this blog is because of Jared’s clear descriptions and metaphors, particularly helpful for those who, like me, are economics-challenged. The family-budget metaphor is very problematic; the reservoir feeding the dam is very clear. I’ll remember that one, for myself and for those strange relatives I have in tea-party land.

  4. foosion says:

    If Obama can’t figure out a way to make the argument that government spending equals jobs, he’s completely lost it. If the government hires 10,000 unemployed people, then 10,000 people who didn’t have jobs now have jobs. Depending on circumstances, this may or may not be good value, but people with government jobs have jobs and they buy things from private businesses who have to hire people to meet the demand.

    Do we fix our infrastructure, schools (FAST), etc. when everything is on sale (many unemployed, record low interest rates, etc.) or when everything is more expensive, or do we just let the country crumble? Government spending in the abstract may be unpopular, but spending on specific projects tends to be very popular.

    The most frightening quote from the article: “The best thing Mr. Obama can do for the economy may be winning a second term, with a mandate to advance his ideas on deficit reduction, entitlement changes, housing policy and other issues.” Firing government employees (deficit reduction) and making it harder for retirees to afford food and medicine (entitlement changes) is good for the economy?

  5. Nadia_H says:

    Here is a result that might be of, some, interest, though it was from last summer:

    See Slides 9 and 10.

  6. Geoffrey Freedman says:

    The problem is that the Administration is more concerend about winningh elections than doing the right thing. This seems to be the way with all politicians now. We need a leader now, not a politician, and alas, Obama has shown that he is more of a politician that a leader.

    • George Hayduke says:

      ALL of our representatives are more concerned with being re-elected than with turning our country around. 536 people are knowingly and willfully destroying the middle class for the sake of their own careers. If that’s not cause for insurrection, I don’t know what is.

  7. comma1 says:

    Never has there been a president and administration that understood the power of the presidency less. I have an idea, use that giant white soap box on Pennsylvania Ave to make the case. It is shameful how poorly this administration understands how public opinion is formed. I’d add that there are a number of people serving the president who should have been fired two years ago.

    The question is no longer whether President Obama is going to save the economy over the next two years – he isn’t. Look around, we are now without jobs, without a manufacturing sector and without hope. (And without aaa status to boot!) The question is whether this disastrous mishandling of the country, and misunderstanding of the biggest asset a president has (his title), during this highly critical period in time is going to tear the country in two in the next decade. Let us not forget how incredibly bad the last decade was — how many decades do you think it will take before we start to have a problem?

    Not to mention the lack of “heart.” I’ve seen three year old’s dressed up like bumble bees on my front stop argue for candy harder than this president and his advisers are arguing to avoid a depression.

  8. foosion says:

    Pollster Stanley B. Greenberg, who polled for Clinton’s White House, said voters have little patience for political leaders who limit policy proposals to what the opposition will support. White House officials can “get trapped in ‘what can get through Congress’ and the constraints of that debate,” Greenberg said, recalling similar arguments in the Clinton years. “Voters want you to break out of that” and answer the question: “What are you battling for?” he said.

    One Democratic congressman who has defended Obama to fellow liberals said he told White House officials at a recent meeting they seemed to have “Stockholm Syndrome” – embracing the Republican view that deficit reduction should be a major national priority, in the manner of hostages who come to sympathize with their captors.

    Obama “sat in the room with Republicans so long talking about deficit reduction that he seems to be parroting the same lines,” said the congressman, speaking on the condition of anonymity to discuss private meetings.

  9. CEK says:

    Obama must not limit himself to what he thinks the voters will support. They were persuaded to think that deficits=bad and they can be persuaded otherwise with the right arguments.

  10. David Siegel says:

    Right before the part you quoted is this: “Several of his political advisers are skeptical about the merits of stimulus spending.”

    Couldn’t you teach them anything while you were there?

  11. Taryn H. says:

    I think what the WH has to understand is that the “tax-and-spend” rhetoric really doesn’t have much force when so many people are out of work. Sure, if the economy is good and everyone’s working, you can beat the liberals up with name-calling, but when a significant portion of the population is unemployed, those slogans won’t have much weight. People need jobs!

    Also, someone really needs to do something about those poor people who have exhausted their unemployment insurance. These are people who lost their jobs through no fault of their own and statistically we KNOW there aren’t enough jobs for them. What do we expect them to do? I read there are 2 million of them (99ers) and that the number is rising really rapidly.

    After they run through their life savings, some can get state assistance – but those without children can’t (not in my state anyway). Possibly some food stamps, but nothing that would keep people from becoming homeless. So, we’re going to have pretty substantial numbers of people losing everything, moving in with family (if they’re lucky) or becoming homeless.

    My understanding is that no one intends to do anything for these people. I can’t even believe this is America. It’s starting to feel really Third World. And we should all be worried about political unrest. When this many people lose this much, this fast – it doesn’t tend to promote political stability.

    Thinking people care about “tax-and-spend” rhetoric in this climate? I don’t think that’s very in touch with what’s going on. Make the case, do everything you can to help the unemployed and make Rs vote it down. He can go on TV every night if he wants. We’re talking about millions of voters who need jobs and, in the meantime, unemployment benefits – they won’t be happy if people vote against this. He should use the bully pulpit and name names. Here are the people who voted against unemployment extensions! Here are the people who voted against a bill that would create jobs!

    It was good to see Christy Romer say that 9% unemployment for 28 straight months is a national emergency. It really, really is. It’s a tragedy and it’s a recipe for unrest. I hope someone in Obama’s corner is telling him that and not just the usual political horse-race garbage. This is not a normal situation. In my opinion he cannot win with this kind of unemployment unless he credibly convinces people he’s doing everything he can to help.

    Right now he sounds like he’s living in a bubble. I honestly cannot get over the fact that unemployment has been this high for years now, that people have no benefits and that he’s fixated on deficits and can’t propose anything because he doesn’t want to be seen as a tax-and-spender. Would you be worried about this is this were a war? Well, Mr. President, this is just as devastating as a war. This is a national emergency. That’s how you sell it. The fact that he’s not willing to sell it just tells me he has no idea how devastating sustained mass unemployment is.

    I could easily see Obama losing to Rick Perry on the jobs issue. He needs better advisors.

  12. "Herein Lies the Problem" | FavStocks says:

    […] Herein Lies the Problem, by Jared Bernstein: There’s an article in today’s NYT on the economic debate within the White House. The print version—not the online one—contains this quote from an admin official: It would be political folly to make the argument that government spending equals jobs. […]

  13. Altoid says:

    I may be dead wrong about this, but: I think people out in the country *already know* that government spending creates jobs and does good things. They don’t have to be taught it or told it, they know it now. The only people saying anything different are paid to say it or are just a few true believers.

    I live in a tea-party infested area. IMHO, what makes teapers’ juices flow is that they’re tired of seeing federal money go to a bunch of “undeserving” people of various stripes who all have in common the fact that they’re not the ones who live here and who’ve seen their jobs and their kids’ prospects in life evaporate because of bad policy decisions, cronyism, nepotism, dynasticism, capital export, corporate financial maneuvering, rising higher education costs, and on and on.

    These people have been getting it in the neck for well over a generation now. They want a little piece of the action, that’s all, a few crumbs. They know they can’t stop the insiders who get billions and they can’t think that big anyway. But if they can’t get any attention, the next best thing is to cut off the other guys’ crumbs. And that’s the tea party in a nutshell. The rest is Koch-fed propaganda.

    Like almost everybody else in this thread, I have never in my life seen such utter and complete fecklessness in any political operation as I’m seeing from this White House. They just don’t understand the nature of the game and of the tools they’ve been handed, as far as I can tell. They just lack all feck. (And yes, that’s a legitimate word.)

  14. robert says:


    Of course the government must continue its deficit spending with the external sector widening its deficit and the private sector about to feel the pain of ill-conceived fiscal austerity measures. Surely, the automatic stabilizers all by themselves will widen the budget deficit if unemployment continues to rise and tax revenues fall. Why have the Democrats lost their will to fight for the middle class and under-privileged? They appear to have lost their voice in the political struggle with the fiscal “austerian” terrorists.

    Anyhow, I want to draw your attention to a political opportunity for our timid friends on the left.

    The progressive wing of the Democratic Party has a perfect opportunity to turn the tables on the Tea Party and its sympathizers. This comes from MMT charter member, Warren Mosler, who today is calling for Congressman Paul Ryan to APOLOGIZE for predicting that the US will become the next Greece in his response to President Obama’s SOTU address.

    Mr. Ryan falsely warned that the US would be faced with a sudden financial crisis, the world would no longer lend to us, the US would be broke and would have to beg for emergency funding from the IMF, and interest rates would implode causing great harm to the private sector.

    Mr. Mosler continued:

    ===== snip =====

    “And no one with any kind of national public forum took issue with him.
    Including the President and the Democrats in Congress,
    who for all appearances quietly agreed and acted accordingly.

    Well, today, based on the near universal response to the S&P downgrade,
    everyone now knows, or should know,
    there is no such thing as the US becoming the next Greece.

    The overwhelming response to the S&P downgrade by everyone from Buffet to Greenspan, and
    most every financial and academic economist in the world was along the lines of:

    The US is the issuer of the dollar.
    It can print dollars.
    So it can always make timely payments without limit.

    There is no such thing as the US running out of dollars to spend.
    There is no such thing as the US being dependent on taxing or borrowing to get dollars to spend.”

    Can we please have someone on the left rise and be counted?

  15. Michael says:

    The Obama Administration definitely has as one of its core memes “Americans can’t handle the truth.”

  16. When Obama Said, “Be the Change,” Did He Mean, “Do It Yourself?” « Sky Dancing says:

    […] past, but one that also might disrupt the claims of a top government official who believes that, “It would be political folly to make the argument that government spending equals jobs.” It’s a decision (presumably conscious, particularly given that Obama has claimed credit for this […]

  17. Misaki says:

    Perhaps it becomes easier to understand by reversing the statement:
    “It would be political folly to make the argument that jobs equal government spending.”

    …considering that when asked the question directly, the majority of the public did not support government spending to create jobs, even while job creation is seen as the government’s priority.

    No need to even mention taxes or inflation, or the way government spending for job creation would be competing directly against the more popular ‘entitlement’ programs. People do not want the government to spend money to create jobs, and this has probably even gotten worse after the debt ceiling debacle even if the NYT did not dare to repeat the question in its latest poll.

    >But in fact, the best way to get people back to work right now, with consumers weakened

    The ‘evidence’ for this is supposed to be that since unemployment is high, then consumer spending must be too low; it’s self-evident. And yet consumers themselves seem to have plenty of money, otherwise corporate profits would not be at a record high as noted in a previous entry on this site. They are just spending it (and earning it) in ways that make the economic conditions worse, at the same time as they intend to improve it.

    The thing about “targeted and temporary” government spending is that economists will inevitably complain when it stops, and call for a continuation of the same remedy contrary to the wishes of the population.

  18. Misaki says:

    From the online article:

    Correction: August 16, 2011

    An article on Sunday about economic policy discussions within the Obama administration omitted, in some copies, the word “only” from a quotation by Dan Pfeiffer, the White House communications director. In noting that the administration does not see deficits and jobs as an either-or choice, Mr. Pfeiffer said that “it would be political folly to make the argument that only government spending equals jobs.”

  19. Pat says:

    Never a problem for the majority who benefits from the political nepotism, corruption, etc.

    Without term limits, what would we expect?
    It’s been that style for every government since time began; no one ever hears about the Greeks who might have been philosophers if they were not engage deciples of Plato and Aristotle. The same prevails today!