Up a Creek with a Paddle

September 29th, 2011 at 1:25 pm

It’s one thing to be up the creek without a paddle.  It’s quite another to be stuck up the creek with a paddle that you can’t use.

The latter describes where we are in terms of economic policy.  The Federal Reserve is trying to do their part with more easing of interest rates, but absent more action on the fiscal side, like the measures in the President’s jobs plan, I don’t expect anyone much to take advantage of lower rates.  What’s missing is demand, customers, orders, projects that inspire investors to come in off the sidelines. 

In other words, I think that at a time like this, sequencing matters when it comes to monetary and fiscal stimulus, and fiscal needs to go first…without more demand, I fear we’re unlikely to see the incentive of lower rates gain more traction.

So what’s blocking the fiscal push, as in the jobs plan?

A friend of mine (hat-tip JB) reminded me of this interesting albeit disheartening analysis by James Surowiecki (btw, imho this dude writes a consistently excellent weekly economics column for the New Yorker).  His answer to the above question is, of course, Republicans (though I must say, I haven’t seen nearly enough push from the D’s either on the jobs plan), but that begs another question: why is it politically costless for R’s to go to the do-nothing, or worse (austerity!), place on jobs?

Again, the obvious answer is that what hurts the President helps his opponents, but doesn’t that tactic put them in the position I started with: stuck up a creek but not using your paddle to get out?

In order to seal that part of the deal, the R’s have to argue that the paddle doesn’t work—worse, it’s an wasteful, expensive paddle that we should put through the wood-chipper.  And that argument has been made much easier for them by the fact that nobody does “counterfactuals”—what would likely have occurred absent the stimulus.

The Recovery Act passed and unemployment got higher.  It would have gone higher still without the Recovery Act—that’s a consensus among non-partisan experts—but that’s an awfully hard hand to play.  It’s true that the administration (of which I was a member) made our hand even tougher by underestimating how high unemployment would go, by talking about “green shoots” too soon, and by not taking out enough “Rogoff/Koo insurance”—extra stimulus in the pipeline in light of the long, hard slog characterized by financially driven, balance-sheet recessions.

No matter what we did, however, the President faced a timing problem that was in this regard even tougher than FDRs in the Great Depression: President Obama got there as the storm was breaking (GDP contracted by 9% the quarter before he took office); FDR took the stage when the storm had been upon the land for years already.

The unemployment rate was 8.5% in January 2009; 10.6% a year later…In 1933, it was already above 20%.  As Surowiecki puts it:

“…voters are more likely to hold politicians accountable for economic conditions when there’s “clarity of responsibility”—and responsibility for the economy now belongs to Obama and the Democrats. The recession started long before Obama took office. But, from a voter’s perspective, he had two years with sizable majorities in Congress to do something about it. While the 2009 stimulus plan succeeded in making the recession less awful than it might have been, you rarely get credit in politics for what didn’t happen…If you try to fix it, it’s yours.”

For the opposition, this dynamic means sitting on your hands is the optimal strategy:

“Coöperating on a bill would make it harder for them to disclaim responsibility for a weak economy at election time. They need to do enough to seem as if they cared about unemployment but not so much that they get blamed for it.”

Unless, of course, you actually want to help people–to help them get back to work, to stay in their homes, to begin to build the incomes back up. 

Silly, I know.  Being stuck up a creek just looks a whole lot better to one side right now, and it’s hard to see what would make them use the paddle for anything other than whacking everybody around.

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10 comments in reply to "Up a Creek with a Paddle"

  1. Peter K. says:

    Some thoughts on Surowiecki’s analysis: young people didn’t turn out for the 2010 midterms, but then they never have turned out for mid-terms ever. Their record turnout helped elect Obama. Hopefully they’ll turn out in 2012, but they probably won’t donate as much since they’re broke.

    I don’t think the White House or anybody saw the problems with Greece and Europe coming. Greece became a convenient shorthand and framing device for austerity proponents. Not an excuse just an explanation. This could be put underneath the “Rogoff/Koo insurance” heading.

    Obama was elected on the theme of being bipartisan: no blue states, no red states. You would think the Republicans would have gotten the message from the electorate, but they didn’t.

    The Federal Reserve’s forecasts have all been too optimistic. Maybe Bernanke isn’t calling for more fiscal help because he is more concerned about maintaining the Fed’s independence? Other members of the FOMC could be his proxy and call for fiscal help.

    Conservatives aren’t enthusiastic about Romney. (Now they’re looking at Perry. Now Christie.) They weren’t enthusiastic about McCain either. If Romney’s the nominee will he move to the middle in the general and demoralize conservatives? Will it be enough?

    • Michael says:

      Obama got elected with a message of “change.” We were hoping he was lying about the blue state = red state crap. Turns out, he was lying about the “change.”

      • Peter K says:

        The reality is he gave a big speech in 2004 at the Dem convention about no blue states / no red states. It’s why he got into the race in Iowa and why he decided to challenge the Clinton machine. I’m as liberal as the come, but I recognize that this was a theme of his run during the primary and during the general. Since it was theme of his campaign and he won, maybe people reacted positively to that beyond-partisanship wish?

  2. Jay Ackroyd says:

    Not quite weekly. Surowiecki is sorta like Jon Stewart’s “Daily” Show.

    But he is consistently very clear, which is hard to find wrt the subject matter.

    His book, on the other hand, not so good.

  3. Michael says:

    There are two reasons this is costless for the Republicans:

    1) The Corporate Media lies about this. Of course, so does Obama, when he says stupid, false things about how the Republicans want to help America.

    2) We have a black President. I don’t think we nonracist white people quite understand how much ~40% of the white people in this country want to burn it to the ground as punishment for electing a black President.

    So, to sum up: Obama’s an oligarch who is devoted to bipartisanship at the expense of truth or decency, a quarter of the country wants to burn it to the ground, and the corporate media is on board for all of this.

  4. general c. san desist says:

    …let’s see if I have this right…precisely when the budget of ’37 was balanced, the recession ensued. Since a cutback in spending had triggered a downturn, a sharp increase was the route out. The matter-of -fact evidence that when private investment bailed, the gov had to spend more…to even out the peaks & troughs of free markets in action.

    Marriner Eccles believed we unbalance the budget during deflation & tax like hell (surplus creation) in periods of great business activity…and it was Morgenthau that felt the administration should balance the budget & let business have a chance & see what it could do. We all know how that worked out…ouch.

    Unfortunately, since the 80’s, the conservative brotherhood forgot the tax the hell part…well, they did remember that part but the wrong sector suffered the levies. Though we suffer the peaks & valleys of outrageous markets, nothing will delay the inevitable…hair shirt, anyone? Do the Republicans ever pay the piper or do the Democrats always get stuck picking up the check…just wondering.

    Nocera thinks it is ’31…I believe it’s ’32…others goes with ’37…you are where in this debate?

  5. rjs says:

    has the jobs plan been introduced in the Senate?

    last time i looked, Dems had the majority there…

  6. Steve Bannister says:

    Just look at the numbers. If this economy produced 400,000 jobs a month, it would take us about 3 years to return to where we were before the recession bgan. So make that the goal. 400K jobs a month, private and public, we need them all, hell or high water. The President sends a bill request to the Congress every month for the difference between 400K and the employment number.

    This should be both an economic and moral bill … it is unconscionable to continue to allow the jobless to suffer when the economy has excess capacity and honest economists know how to fix the problem. This would put the political pressure squarely and clearly where it belongs, on the Congress. And it would shift the conversation, from what possibly can be done, to what kind of jobs the government can fund to fill the deficit the private economy does not fill. This is an opportunity to start to restructure the economy in the direction that is required for future growth.

    C’mon Mr. President, 400K jobs a month, hell or high water.

  7. Main Street Muse says:

    For what it’s worth, here’s what’s trending on my FB page:

    “GOP 2012: Keeping millions out of work to throw one man out of a job.”

    So don’t assume the general public is blind to what the GOP is doing…