How Best To Fix Our Broken Economy?
Far-right pundits and their allies in the media, using the false and discredited "center-right nation" trope, parrot incessantly the notion that Obama had better not push any actions that they deem too lefty, especially where fixing the economy’s concerned Meanwhile, a growing chorus of economists and other financial experts are advising — no, insisting — that Obama take immediate, bold, and sweeping measures, the very measures the righties deem anathema, to fix our broken economy. This means calling Grover Norquist’s deficit bluff, which is based on the belief that a Democratic president’s administration can be hamstrung by large debts run up by Republican predecessors. Even hard-core deficit-hater Hale "Bonddad" Stewart is calling for this sort of heavy-duty stimulus spending.
President-elect Barack Obama signaled Sunday he will move urgently and aggressively to rescue the plunging economy, demanding swift passage by Congress of a massive two-year spending and tax-cutting recovery program. "We’re out with the dithering, we’re in with a bang," a top Obama aide said.
Obama’s plans, outlined by his transition team on television talk shows, could put aside his campaign pledge to repeal a Bush tax cut for the wealthy. With the downturn in the economy, those tax cuts may remain in place until they are scheduled to die in 2011, said William M. Daley, an economic adviser. "That looks more likely than not," he said.
Obama aides called on lawmakers to pass, by the Jan. 20 inauguration, legislation that meets Obama’s two-year goal of saving or creating 2.5 million jobs. Democratic congressional leaders said they would get to work when Congress convenes Jan. 6.
Though Obama aides declined to discuss a total cost, it probably would far exceed the $175 billion he proposed during the campaign. Some economists and lawmakers have argued for a two-year plan as large as $700 billion, equal to the Wall Street bailout Congress approved last month.
"I don’t know what the exact number is, but it’s going to be a big number. It has to be," said Obama economic adviser Austan Goolsbee. "The point is to, kind of, get people back on track and startle the thing into submission."
Eyebrows have been raised at the idea that Obama might put off repealing the Bush tax cuts for the wealthy even as he runs up the Federal debt with a stimulus package. But two smart guys named Paul – Paul Rosenberg and Paul Krugman – have shown why Obama might be wise to do this by recounting a bit of New Deal history — legitimate history, not the bogosities George Will cribbed from the Cato website and for which Krugman famously slapped him down. As Krugman says:
The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.
And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.
F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.
By the way, Krugman has this to say about Obama’s economic team: "Seriously, isn’t it amazing just how impressive the people being named to key positions in the Obama administration seem? Bye-bye hacks and cronies, hello people who actually know what they’re doing. For a bunch of people who were written off as a permanent minority four years ago, the Democrats look remarkably like the natural governing party these days, with a deep bench of talent." He seems to be quite confident that Obama can do what needs to be done. Brad DeLong echoes Krugman’s praise of Obama’s team, as does Robert Reich, and these gents are as reality-based a set of persons as I’ve seen.
[Update: And for those who say that these folks are all Lock-Step Evil Followers of Evil Bobby Rubin: Well, considering Rubin’s a big-time deficit hawk, isn’t it rather odd that his allegedly-slavish disciples have gone hard-core Keynesian? Instead of doing the whole balance-the-budget thing with tax hikes and most especially the spending cuts that were so beloved of Rubin during his time in the Clinton White House, they are telling Obama to spend like crazy on economic stimulus, balanced budget be damned.]