PIMCO’s Bill Gross: Stimulus Now
We’ve had such a failure of elites in this country that it takes PIMCO founder Bill Gross – one of the living embodiments of the bond market – to tell Congress and the White House to stop fearing the bond markets already and start giving the economy the stimulus it needs.
“Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea,” Gross writes. “While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.”
“Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.”
Literally, the only people warning about the dangers of short-term budget cuts are the conservative former head of George W. Bush’s Council of Economic Advisers, and Bill Gross. Everyone else believes in the confidence fairy.
None of this is all that surprising. Jared Bernstein, Joe Biden’s former chief economist who now works at the Center for Budget and Policy Priorities, told me at Netroots Nation that, “if you want the economy to improve, confidence is the cheapest stimulus.” That’s the belief of some, anyway (I would argue that stopping China from manipulating its currency is the cheapest stimulus). But with the economy at 9.1% unemployment and interest rates already low, it’s simply illogical to announce that budget cuts can create confidence in the business community that will magically create jobs in an underpants-gnome kind of fashion.
Gross’ preferred policy option here is for a deficit-financed investment in public infrastructure. This has the biggest multiplier of all stimulus measures, and as Bill Clinton noted in his ideas to fix the economy, the government could waive at least some pre-construction requirements (not safety or environmentally-based, but just cut some red tape) to get these things moving. What’s more, they could define “public infrastructure” very broadly. Maintaining foreclosed properties is a public infrastructure job that doesn’t require any environmental study. Painting or maintaining a school is a public infrastructure job. Painting tar roofs white to save energy on government buildings, too. There are plenty of options out there.
But we have such a sick political culture that the only way to get this is through literally bribing corporations.
Senate sources tell Fortune that Sen. Chuck Schumer (D-N.Y.), the No. 3 Democrat in the chamber and a one-time opponent of the holiday, is testing his colleagues’ interest in marrying the proposal to a new infrastructure program.
The idea is to encourage corporations keeping a collective total of more than $1 trillion parked abroad to bring it home by temporarily lowering the tax rate to about 5% from 35%. The tax receipts from that holiday then would be dedicated to an infrastructure bank that would help fund new building projects.
While the repatriation holiday alone is a non-starter for most Democrats, pairing it with an infrastructure program could marshal labor support. It’s an approach backed by former Service Employees International Union president Andy Stern, who’s emerged as the most vocal proponent of the tax holiday on the left.
I want to thank Andy Stern for his support.
The repatriation tax holiday is a blatant giveaway to big business, which will only be used not to put overseas funds into investment, but into corporate treasuries and dividends. It’s literally a welfare handout to the most powerful corporations in America. This has become the only way to get an infrastructure bank going. Considering that you have BILL GROSS on your side for the infrastructure idea, that’s just sad.