The Pivot

June 8th, 2011 at 10:35 pm

Suppose you were a policy maker who wanted to pivot away from emphasizing the need to reduce the budget deficit and towards the need to reduce the jobs deficit.

You’d get out there on TV and stress the 20+ million un- and underemployed, including the 45% of the unemployed who have been jobless for at least half a year (about as high as it’s ever been).  You’d stress the recent slowing of any already slow-growth recovery, and you’d stress the low cost of borrowing, which significantly boosts your bang-for-buck in terms of spending on jobs right now.  And you’d remind anyone listening that you haven’t forsaken the truly necessary work of getting the budget on a sustainable path.  It’s just that with unemployment at 9.1%, deficit reduction simply isn’t the country’s most important mandate right now.  That would be jobs.

So far, so good.   But what do you say to the follow up question: OK, you want to target jobs—what’s your plan?

I’d suggest starting with the Hippocratic Oath: First, do no harm.

Fading stimulus and state fiscal contractions could shave 1-2 percentage points off of GDP growth this year and next.  If we let the payroll tax holiday and extended unemployment insurance benefits expire on schedule at the end of this year, look for the upper end of that range at least.  So we start by avoiding that air pocket.

In the ongoing budget debates, both sides are in the process of agreeing on spending cuts (one side, importantly, is insisting on revenue increases too—very important to seek balance here).  OK, but again, from the “do no harm” part of the agenda: avoid starting those cuts too soon…I don’t see what good comes from cuts this year or next.

Next, turn to infrastructure.  Yes, it takes some time to roll out, but unfortunately, we’ve got time.  It will be years before we see full employment again.

Then, I’d get back to the very tough conditions in some of the states.  They have to balance their budgets, and that’s leading to aggressive layoffs.  Check out this slide showing payrolls of state and local government versus all other sectors.  The latter is growing, the former, crashing.  States and cities have laid off about 350,000 workers over the past year and a half.

Source: BLS

I’d say, “I know public sector workers are taking it on the chin in cities around the country right now, but does this make sense?  Do we really want fewer teachers in the classroom right now?  Do we really want to have to cut back health coverage for the low income folks in what’s still such a tough economy?”  Another round of state fiscal relief is needed.

Finally, I’d close out with a couple of ideas for helping boost our manufactured exports, a key channel of growth at a time like this.  In fact, one corrective mechanism in a weak economy with low interest rates is the weaker value of the dollar in international markets, which makes our exports cheaper and their imports more expensive.  But if other counties, like China, manage their currency (keeping it cheap relative to the dollar) they prevent this important adjustment.

The White House has pushed back pretty hard on this, but I’d go further.  There are a couple of bills in the Congress that ratchet up the pressure on currency managers and they’ve gotten some bipartisan support.  I’d put them on the agenda.

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!

So if you want to pivot, that my suggested agenda.  There’s more one could think of—nothing on housing here, and that’s a clear problem as well (I’ll post some ideas on that space in the next few days).

You might not get too far in today’s climate, but if you want to pivot, this feels like a pretty clean set of ideas worth fighting for right now.

Lemme know how it works out for you.

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30 comments in reply to "The Pivot"

  1. comma1 says:

    Agreed, stop the state and local government bleeding. Furthermore, lower the dollar to boost exports, and higher targets for inflation. (There is some help for homeowners). Infrastructure… but really, that is not stimulus, that is 1990 talk. If we have a bridge and we are going to use it, it needs to be maintained, just like a motorcycle. Better to give it an oil change than to have to replace it later. We built this stuff and not funding them shouldn’t even be an option.

    Pie in the sky talk here, declare war on the recession, institute an “economic draft” or a real deal americcorps. By lottery draft people to work on infrastructure and other public goods for a specified period — a year or two. This provides income now, increases jobs now, creates voids in the private sector that need to be filled, and allows for the creation of actual economic policy (imagine that) and retrains workers in important fields. (My suggestion would be alternative energy, future fuel stations, transportation and the internet). (Might even be able to do something about New Orleans).

  2. Sandwichman says:

    The recreation league basketball metaphor sucks here. This is not a friendly game with conventionalized rules and fairly evenly matched teams. So even if you’re a policy maker who wants to pivot away from a failed strategy, you don’t get that option.

    President Obama has squandered whatever political capital that he might have had to “pivot” in a progressive direction. That would have required a popular mobilization that would have had to develop over time. The time has past when such a mobilization can be initiated from the White House.

    Politically, there is one option open to the policy-maker-who-wants-to-pivot and that would be to outflank the Republicans on the right. I know it’s hard to imagine but perhaps we can at least try to imagine what such a right-flank pivot might look like.

    Take a cue from Wisconsin Governor Walker and his cohorts and their assault on the wages and benefits of unionized public sector workers. Why settle for such half measures? Outflanking the reactionaries on their right could involve an initiative to attack the wages of ALL working people, private and public sector, unionized and non-union. After all, the orthodox right-wing economic talking point is that unemployment exists because wages are too high.

    Now the President can’t just issue an edict cutting all wages (besides there would have to be some mechanism for exempting the salaries and bonuses of CEOs, etc.). So this wage-cutting business would have to be undertaken indirectly. It just so happens that I have essayed a MODEST PROPOSAL for implementing such a remedy. My proposal is called “thinking along the right lines” and is based on an anti-Keynesian proposition advanced toward the end of World War Two by the conservative economist, William H. Hutt.

    The basic idea is to lengthen the hours of work, delay retirement and expand work permits for foreign workers, thereby putting further downward pressure on wages until the reach the low levels at which employers will be eager to hire people.

    Admittedly, the idea may be completely daft. But I would strongly recommend that people read the proposal before dismissing or criticizing it.

    • WASanford says:

      Or if you’re a sitting president who wants to be re-elected you could just wait until late September or early October, 2012 and abruptly bring the festivities in Afghanistan to a close, bringing all our troops home. That would do it! Then we’ll all see what kind of president Obama is when he’s not looking at having to win another election.

    • priller says:

      Sounds completely daft to me. Corporations are sitting on mounds of cash. They aren’t hiring now or investing because customers aren’t buying as much as they were. Demand is down. If you further depress wages that will just bring demand further down.

      Making everyone poorer is not the path to prosperity.

      • Sandwichman says:

        “Making everyone poorer is not the path to prosperity.”

        Agreed. But (stepping out of the satire mode for a moment) there is more than one way to make everyone poorer. The way that gets all the attention is taking money away from them. But a more insidious way to make people poorer is to give them a tiny bit more money while taking away more of their time, their autonomy and their “precious bodily fluids.”

        As long as the discussion can be perpetually confined to dollars and cents on the ledger and kept away from goods that effect the quality of life but aren’t necessarily counted in dollars and cents, the banksters win.

    • Phil Perspective says:

      Shouldn’t you have sent this to The Onion?

  3. Fred Brack says:

    Question, Mr. Bernstein: How has the 48C Advanced Energy Manufacturing Tax Credit worked so far in terms of job creation? Is this a big-ticket item of the kind we need or just a lovely but small-beer item?

    Whatever the specifics of the pivot, one thing is clear: Obama, the president, must get out from the protection of the teleprompter and the Oval Office desk, roll up his sleeves, grab a pointer, and present a clear, giant-graph-illustrated lesson on basic demand-side macroeconomics.

    Then he could head for the teleprompter and lay out his plan, including Fannie and Freddie buying up every mortgage in the country.

    Win the Future? (Deleted)-can that sappy Geithner-ism. That can come later, along with deficit reduction.

    It’s time for:

    “Tonight I am declaring an All-Out War on Unemployment.”


    “We Shall Never Surrender.”

    Few Americans are economists. TV personalities aren’t either, though they have a responsibility to devote the time necessary for economists to explain things — a responsibility they failed miserably in 2009.

    The administration’s economic spokespeople were bad-to-terrible. Summers? An walrus with an attitude who undoubtedly couldn’t clearly explain without jargon how to boil water on the Food Channel — and make it convincing. Romer is a nice woman, but she needed graphs, too, not the White House as a backdrop for a 90-second TV appearance. Geithner? With his jerky cadence who would buy a used car from him?

    Even though you’re no infomercial salesman yourself, Mr. Bernstein, you were the best of a lame lot. But you never got enough air time, and you never used graphs. Plus, you had no outside status. Soupy Sales’s announcer had more.

    Obama is not the best at this kind of thing, either. Too much professorial pacing and not enough audience eye-contact. But he’s got the status, and the clout to demand 15 minutes of national air time at the proper hour.

    He should think of it as a basketball coach giving a pre-game lecture to his players about the game plan. Tap those graphs emphatically with the pointer, Mr. President. No more abstract pussy-footing. It’s long past time for big footing. There’s nothing left to lose.

    And as a followup the next day, fire Geithner and bring in someone new. That will underscore the seriousness of the pivot.

  4. foosion says:

    We’re hoping we have an FDR who’s already realized the error of listening to Mortgenthau rather playing out 1937 (or playing out Hoover and Mellon). Sounds far-fetched, but worth a try.

    Are we assuming a Republican party that won’t block anything that will help the economy?

    Long-term work on educating the public about basic economics would be nice. How many years have the Rs devoted to demonizing deficits, public employees (including teachers), taxes, unions, etc.? Obama’s govt must tighten its belt was a major setback here, perhaps fatal.

    Can we manage federal contracting to favor those who commit to job creation?

    Recess appointments to the fed and key agencies should be easy.

    As you say, first stop the bleeding. No major cuts which takes effect before unemployment is under x%, aid to states, extend unemployment insurance, tax cuts at the per capita level (e.g., payroll rather than income), hard commitments to the safety net.

    Infrastructure seems obvious. Do you build when things are on sale or when they’re more expensive? With idle capacity and interest rates near record lows, now would seem the time to make necessary investments.

  5. foosion says:

    BTW, can you comment on employer side payroll tax cuts (including compared to worker side) under current conditions? Does it increase wages, hiring, both, something else?

  6. Virgil Bierschwale says:

    You go for the home run and you struck out at first.

    Jobs, Jobs, Jobs…
    That part is right.
    The part about not firing teachers, etc. is right.

    increasing exports?
    exports account for 11% of our revenue stream if you look at the following parts of the GDP as Income:
    1. Private Investment
    2. Government Investment
    3. Exports
    4. Consumption

    That will not gain you anything.

    How about we give our manufacturers a choice?
    There is the door.
    You have bluffed us and said you would move overseas.
    Here are the rules:
    1. You renounce your citizenship.
    2. All of your employees that want to continue working for you will do the same.
    3. None of you will work for America.
    4. You will not be able to sell any of your products to America.

    bring our jobs home and all of these things will fix themselves.

    Get the Securities and Exchange Commission to mandate that all publicly traded companies specify on their quarterly and annual reports the quantity of employees that they have, both temp and perm, broken down by country that they work in as well as the dollar amounts that have been paid.

    The first mass exodus happened in 2002 with the second in 2007, so make this retroactive so that we can have accurate payroll amounts to see how many jobs have actually been sent offshore.

    My instincts tell me that we will find nearly 20 million jobs have been sent offshore.

  7. Ragfish says:

    FDR only extended the Great Depression through the New Deal. Here was his formula
    that brought us out of the depression:

    WWII devastated the manufacturing infrastructure of Europe. The Postwar stimulus to the USA was the rebuilding of Germany. Mecantilism (breaking the $US in order to stimulate our exports)will start a race to the bottom for the fiat currencies and will rob savers by raising the cost of most everything trading in the global economy.

    Backing off Federal regulations that have kept us from opening a new mine, drilling for oil in ANWR or private utilities building new power plants (nuclear, as well as coal).

    Man made global warming must be debunked as being as stupid as the global cooling panic of the 1970’s. If the planet is warming up, it is due to solar cycles. Our economic activity cannot be held responsible for the melting of the polar caps on Mars!

    Our political system is incompatible with sound policy, particularly with a dyseducated public. Our open borders and other ‘compassionate ruses’ for deconstructing America must cease. Liberals/progressives must learn from Proverbs 12:10b –

    “The tender mercies of the wicked are cruel.”

    • WASanford says:

      I just can’t see how sending $13B to aid Europe’s rebuilding helped America recover from the effects of WWII. Left to my own devices, (you really don’t explain how your idea was supposed to have worked) I can only assume that you envision large gangs of American contractors descending on Europe with their sleeves rolled up. That’s not how it worked! For nearly four years between 1948 and 1951, through the Marshall Plan, America supplied financial aid to the re-building of Europe’s infrastructure.

      If Roosevelt’s New Deal didn’t end the depression, it at least made life a little easier for the American people. The WPA took tens of thousands of idle workers off of our streets and gave them something to do, presumably keeping them from shooting up our towns and cities.

      If there was a recovery happening, it was interrupted by WWII, so we will never really know how well the New Deal would have worked had it continued. Nonetheless, a government that would simply stand aside while the people’s economy collapsed has little to recommend it. To Roosevelt’s enduring credit, he kept trying to counter America’s fall and at least to a degree, he succeeded. That’s one heck of a lot more than we are getting now.

    • Chigliakus says:

      I don’t understand this obsession with wrecking a national wildlife refuge for a little bit of oil. Do proponents of this plan think that because the oil is extracted on US soil that it’ll be sold directly to the US market at discount prices or something? Even if the extraction of the oil was done in an ecologically sound manner there isn’t enough there to put much of a dent in international oil prices (the ones that affect what we pay for gasoline at the pump).

      Global cooling was not advanced as a theory by many scientists back then, it was just a few publications in the US and the theory wasn’t taken seriously in peer reviewed scientific literature. Today we have a global scientific consensus on warming caused by anthropogenic greenhouse gases. Solar cycles have been ruled out as a possible cause already, we’re just coming out of a solar minimum and we’ve seen some of the hottest years on record in the last decade. Mars ice caps are a non-sequitur, and from the NASA literature it appears that only the south polar cap is melting, which isn’t exactly global. Again we’re just coming out of a long solar minimum so it’s not likely that the cause of the meling on Mars’ south polar cap is due to solar cycles.

    • Sandwichman says:

      Kill two birds with one stone. Debunking climate change will automatically disprove evolution. Nobody in here but us apes!

  8. fausto412 says:

    all this stuff sounds great but good luck getting Democrats to fight for a win with good ideas.

  9. priller says:

    One of the big frustrations I’ve had with Obama is I don’t know where he stands on so many issues. I’ve read that his team believes it does no good to go public on goals that can’t be achieved, because he’ll look “weak” that he didn’t get what he wanted. Frankly, I think this is nuts (if true).

    You have to have a vision of where you want the country to be. When the Bushies took over they pushed hard hard hard to the right, espousing loudly every wingnut idea they could, no matter how nutty. Sure, they didn’t get everything they wanted but it CHANGED THE CONVERSATION and overall pushed things to the right.

    When Obama was elected I was thrilled because I thought he would push back to the left, and much need corrective to the Bushie insanity. CHANGE — remember those posters? But now I literally have no idea what Obama stands for, because he never tells us, and he never pushes for what he wants.

  10. Jeff H says:

    The state bleeding is by design. If you haven’t noticed (WI, FL, OH, …) the states with Rs governing are going ape $hit over unions. They couldn’t do that if not for the crisis, real or made up.

    I am not a conspiracy theorist, I am simple stating what is obvious.

  11. John S. says:


    First, thank you for your hard work as Vice President Biden’s economic adviser.

    Second, this post is a much better and stronger statement on the U.S. unemployment problem and what needs to be done than your recent comments on Charlie Rose.

    I hope President Obama reads this blog and follows your advice – although not enough, it would be good step in the right direction.

    Aside: It appears that someone or something has lit a fire under the administration – they seem to be getting tough with the banking behemoths on mortgage foreclosures. President Obama needs to ensure the American people know where he stands on critical, contemporary issues; only he can convincingly and clearly make his positions known to the public.

  12. Per Kurowski says:

    The absolute first thing that needs to be done is to stop than mindless and odious discrimination of small businesses and entrepreneurs, who are the most dynamic forces in job creation, and that banking regulators impose when they require any lending to these “risky” clients to be backed with much more bank capital than lending to those officially perceived as “not-risky”… even though small businesses and entrepreneurs are already paying higher interest rates because they are perceived as more risky… even though no bank crisis ever has resulted from excessive lending to what is perceived as risky.

  13. Diane Oliva says:

    Americans need simple economics! Republicans do not want to tax the rich; lets say millionairs and up. However, removing benefits,
    increasing deductables in medicare, taking away benefits toward college – in short – “CUTS” ARE EQUAL TO TAXES. The middle class will have more money out of pocket by the cuts….if you tax the middle class IT IS THE SAME RESULT; they will have ‘more money out of pocket’…so whats the difference here. The republicans want to tax the middle class UNDER THE GUISE OF ‘CUTS’ to balance the budget. They do not want any tax for the upper 2%. NEWS MEDIA NEEDS TO EMPHASIZE THIS!! When I can’t pay my bills I get a second job….side job….part time job…..AKA Tax the Rich for added income. WE NEED MORE ‘INCOME’

  14. bobbo says:

    The first part – explaining how horrible the jobs picture is right now – how do you bring that up if you’re the President and everyone is going to say it’s your fault (even though it isn’t)?

  15. Sandwichman says:

    The pivot that dare not speak its name: “Can the Commons Bring Us Beyond Growth.”

    “The current concerns about the state of the planet require something of a paradigm shift for economics. If we don’t make serious changes soon, probably in the next 10 or 15 years, we may find that it’s too late.”

    Those words by a 2008 candidate for President were spoken to and reported by David Leonhardt in the New York Times. That candidate referred Leonhardt to a famous 1968 speech by Bobby Kennedy:

    “…that gross national product counts air pollution, and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for people who break them. It counts the destruction of the redwoods and the loss of our natural wonder in chaotic squall. It counts Napalm, and it counts nuclear warheads, and armored cars for the police to fight the riots in our city. It counts Whitman’s rifles and Speck’s Knifes and the television programs which glorify violence in order to sell toys to our children. Yet, the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play; it does not include the beauty of our poetry of the strength of our marriages, the intelligence of our public debate for the integrity of our public officials….”

    The report I linked to above makes the following point:

    The capitalist market economy has achieved some things but failed in important respects…

    1. It cannot succeed in satisfying the basic material needs of many people, nor can it meet the immaterial needs of all people.
    2. It is inefficient and ineffective in preserving natural resources.
    3. It systematically destroys jobs.

    The last point is crucial. Destroying jobs is an essential feature of capitalism, not an anomaly. The way that we compensate for that job destruction is through perpetual growth to create more jobs to replace the ones that have been destroyed and accommodate population increase. More growth means more total consumption of natural resources, including energy, even when the relative consumption per dollar of growth shrinks.

    Bobby Kennedy, the 1968 candidate for the Democratic nomination for President was assassinated. His critique of GNP became part of his legacy — an epitaph. Barack Obama, the 2008 candidate was elected. His words about “something of a paradigm shift” are a dead letter.

  16. Fed Up says:

    “Suppose you were a policy maker who wanted to pivot away from emphasizing the need to reduce the budget deficit and towards the need to reduce the jobs deficit.”

    Are you sure there is not a retirement deficit and a medium of exchange with no bond attached deficit?

  17. Ep3 says:

    Regarding the public vs. private employment graph. To a conservative, they would say that’s a good graph. Those ppl aren’t being laid off, they are moving to the private sector where they belong. I’m just saying.
    Everything else sounds good.

  18. Jim Tarrant says:

    Regrettably, much of the discussion, above, is irrelevant. The international, private sector financial system, which has not been reformed at all and which has a truly gigantic amount of derivatives and other debt is literally on the edge of collapse. Not just in the US but in Europe and elsewhere. In fact, Greece will likely trigger it and then all the multinational financial madness will implode. This will be the end of the 30+ years of the manipulative system of corrupt international (and national) finance that has ruined the economies of many countries but has created an elite aristocracy utterly uninterested in economic development. But the aftermath is that that elite will retreat to their castles and the rest of the world will get to understand what the Depression (or worse) was all about until we create a new system.

  19. PeonInChief says:

    Two other suggestions:

    1. Retire laid off workers 62 and over, by pretending that they did work to 66 and 1/4 (or whatever it is now) at their last yearly wage. They aren’t going to get jobs and it clears them out of the labor force.

    2. At the other end, encourage young people to go to community college and study anything–basket-weaving, music, remedial algebra, even economics if they must. Give them grants, not loans. We have kids coming out of high school with no hope of getting a job for years. They might as well go to school.

    • Fed Up says:

      “1. Retire laid off workers 62 and over, by pretending that they did work to 66 and 1/4 (or whatever it is now) at their last yearly wage. They aren’t going to get jobs and it clears them out of the labor force.”

      There you go. Now all you have to do is get the medium of exchange correct. It is possible that age cut off could be lower.

      “We have kids coming out of high school with no hope of getting a job for years.”

      Hopefully, not true if enough people are put into retirement.