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How Obama Can Convince Congress to Enact a Larger Stimulus, and Why He Must
The Administration's biggest economic mistake so far was to badly underestimate last January how bad the employment situation would become by Fall. As a result, it low-balled the stimulus -- settling for a plan that, while avoiding even worse job losses, didn't go nearly far enough.
Obama has to return to Congress, seeking a larger stimulus.
Yes, I know. We're already in the gravitational pull of the midterm elections (look at the bizarre attention given to gubernatorial elections in New Jersey and Virginia, and even to a congressional election in the 23rd district of New York, as supposed harbingers of voter behavior a year from now!) so it will be even harder to round up the needed votes from Blue Dog Dems fretting over the deficit. And you can forget the Republicans.
And yes, I know: Only about half the current stimulus has been spent, so it will be awkward to make the case that we need a larger one.
But here's the problem. Everything else on the table -- a new jobs tax credit, more loans to small businesses, more help to troubled homeowners, another extension of unemployment insurance, another round of subsidies to first-time home buyers -- are small potatoes relative to the importance and likely effect of a larger stimulus. Some of these initiatives may do some good, but even combined they'll barely make a dent in the growing numbers of jobless Americans.
Meanwhile, the states are slicing their budgets, laying off workers, and ratcheting up taxes. That's because state tax revenues are falling off a cliff, and almost every state is barred by its constitution from running a deficit. That means the states are actively implementing an anti-stimulus plan.
Let's be clear about this. The national rate of unemployment will almost surely hit 10 percent; we'll know Friday whether it already has. This is more a psychological and political threshold than an economic one (it doesn't include everyone who's too discouraged to look for work, or working part time who'd rather be working full time, or working fewer hours in an ostensible full-time job, or otherwise fully employed but being paid less; the Bureau of Labor Statistics' payroll survey, also due Friday, provides a more accurate picture). But it nonetheless represents a degree of hardship this country hasn't seen in decades.
Public approval of Obama’s handling of the economy has slipped to 46 percent in an Oct. 30-Nov. 1 CNN poll, from 59 percent in March. Remember, Obama was elected in part because the public didn't have confidence in McCain's ability to manage the economy. In exit polls last November, almost two-thirds of voters listed the economy as the nation's top issue. If the job numbers don't start moving in the right direction, not only will Obama's poll ratings continue to drop but congressional Dems will all be in trouble.
That should be Obama's selling point to the Blue Dogs. He should tell them the economy needs a bigger stimulus in order to show improved job numbers by the mid-term elections. And he should make sure they understand that they're more politically endangered next November if the the job numbers aren't moving in the right direction by then than if they vote for a larger stimulus now.
Obama has to return to Congress, seeking a larger stimulus.
Yes, I know. We're already in the gravitational pull of the midterm elections (look at the bizarre attention given to gubernatorial elections in New Jersey and Virginia, and even to a congressional election in the 23rd district of New York, as supposed harbingers of voter behavior a year from now!) so it will be even harder to round up the needed votes from Blue Dog Dems fretting over the deficit. And you can forget the Republicans.
And yes, I know: Only about half the current stimulus has been spent, so it will be awkward to make the case that we need a larger one.
But here's the problem. Everything else on the table -- a new jobs tax credit, more loans to small businesses, more help to troubled homeowners, another extension of unemployment insurance, another round of subsidies to first-time home buyers -- are small potatoes relative to the importance and likely effect of a larger stimulus. Some of these initiatives may do some good, but even combined they'll barely make a dent in the growing numbers of jobless Americans.
Meanwhile, the states are slicing their budgets, laying off workers, and ratcheting up taxes. That's because state tax revenues are falling off a cliff, and almost every state is barred by its constitution from running a deficit. That means the states are actively implementing an anti-stimulus plan.
Let's be clear about this. The national rate of unemployment will almost surely hit 10 percent; we'll know Friday whether it already has. This is more a psychological and political threshold than an economic one (it doesn't include everyone who's too discouraged to look for work, or working part time who'd rather be working full time, or working fewer hours in an ostensible full-time job, or otherwise fully employed but being paid less; the Bureau of Labor Statistics' payroll survey, also due Friday, provides a more accurate picture). But it nonetheless represents a degree of hardship this country hasn't seen in decades.
Public approval of Obama’s handling of the economy has slipped to 46 percent in an Oct. 30-Nov. 1 CNN poll, from 59 percent in March. Remember, Obama was elected in part because the public didn't have confidence in McCain's ability to manage the economy. In exit polls last November, almost two-thirds of voters listed the economy as the nation's top issue. If the job numbers don't start moving in the right direction, not only will Obama's poll ratings continue to drop but congressional Dems will all be in trouble.
That should be Obama's selling point to the Blue Dogs. He should tell them the economy needs a bigger stimulus in order to show improved job numbers by the mid-term elections. And he should make sure they understand that they're more politically endangered next November if the the job numbers aren't moving in the right direction by then than if they vote for a larger stimulus now.
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November 3, 2009 10:12 PM | Reply | Permalink
The original "stimulus" packages were misdirected to big corporations when it was the little people who were hurting the most.
It would have been far better to take the $700 Billion stimulus package, along with the Trillion + which the FED pumped into the banks, and distribute it to American citizens at about $5,000 per person. Most would have been used to pay off debts or to buy things and get the economy moving again.
The way it was done gave big corporations (mostly banks) the best of two worlds. They got bailed out but were still allowed to maintain the debts which were incurred by the American people.
.
November 3, 2009 11:33 PM | Reply | Permalink
Bottom up stimulus.... All that money flowing into the economy should flow from the bottom... Give the bankrupt homeowners money to pay their debts, not the bankrupt banks money to cover their losses... Put the money in the hands of the individuals... Bottom UP stimulus... The only way...
bottom up
bottom up
bottom up
November 4, 2009 12:03 AM | Reply | Permalink
It seems to me that there were some fundamental mistakes made in the original (ARRA) stimulus. How can we be sure that a second stimulus would not simply repeat these mistakes? And why expend valuable political capital pushing a second stimulus through if it is going to be just as problematic as the first?
Far too little of the ARRA was directed towards infrastructure-building and new industry gestation; far too much was wasted on tax cuts and questionable consumer spending accelerators.
Before I get on board with more deficit-funded stimulus, I'd like to see some serious action on financial industry reform, along with some proactive cleanup of the housing market. I'd also like to see some realistic dialog starting about how to bring our deficits under control - how about setting up a bipartisan commission, along the lines of the 9-11 commission, to come up with a set of recommendations on this and publish them?
This isn't 1933; the money supply isn't the underlying problem for our economy. Our real problem is competitiveness. Stimulus spending is justified only if it can truly increase our competitiveness over the longer term and thereby drive growth. Otherwise we are just piling on debt and making things worse over the long run.
November 4, 2009 9:33 AM | Reply | Permalink
hear, hear!
I agree with most of this comment.
November 4, 2009 11:54 AM | Reply | Permalink
Putting out another "Stimulus" is like doubling down on a pair of 6s in blackjack. It was a loser to start with.
Borrowing money to pay for stimulus is bizarre and twisted thinking. It plays the credit of the nation against money needed to create and maintain the means of production. When private enterprise competes against the government then banks and businesses fail.
November 4, 2009 8:32 PM | Reply | Permalink
Huh? John Maynard Keynes and Paul Krugman are required reading for you!
November 5, 2009 12:27 AM | Reply | Permalink
Before Keynes there were many depressions that all went away on their own. We don't need a stimulus, we need a return to commodity money.
November 5, 2009 1:50 PM | Reply | Permalink
OK, so now what do we do? As a door-to-door campaigner for Obama, I feel left in the dust. I contact my ideolog representative to no avail, my senators are already with the program and I send them support notes from time to time. Now what? The President seems to not want to assume his mantle and move things forward. Froomkin advises taking to the streets, which is incompatible with work and kids.
November 6, 2009 7:19 PM | Reply | Permalink
One problem is the POLITICS of the 2d stimulus. As I gather, it should have at least several major elements, though others would be included too:
(a) huge amounts in the tens of billions spent THIS fiscal year to states (and local) governments, essentially to bail out the huge losses in jobs from cutbacks and increases in regressive taxes.
(b) similarly huge amounts to provide bottom-up relief from impending foreclosures that is much more effective and broader based than anything at present
(c) huge sums to lower the burden of student loans, to public sector higher educational institutions, and to make life more affordable to those who are students now
All these would inject massive sums directly into the economy where sorely needed, and would have a lot of "stimulative" bang for the buck.
But where is the MOBILIZATION around these. Nathan Newman of Progressive States Network (PSN)is key on the issue of (a), as you would think that nationally, networks of state legislators and other interests would be rallying to this. But PSN, although they FINALLY have come out in favor of a second stimulus, do so buried in one of their articles rather than there being a horde of unified figures in state governments and unions in a LOUD AND VOCAL coalition DEMANDING this. See:
http://www.progressivestates.org/node/23919
November 7, 2009 4:17 AM | Reply | Permalink
Before a physician can successfully treat a seriously ill patient, the doctor must diagnose the cause of the malady. Mr. Reich has laid out a number of conditions: the “growing numbers of jobless Americans”; “ states are slicing their budgets, laying off workers, and ratcheting up taxes”; “a degree of hardship this country hasn't seen in decades “; and the fact that private actions are “are small potatoes relative to the importance and likely effect of a larger stimulus.” Are these conditions symptoms or causes of the economic and social crisis?
All of these things that Mr. Reich mentions share a common element: an acute shortage of money. Our economy is like some fantastic show or super-game with the participants ready and on stage, the audience waiting at the gate, but there are not enough tickets -- the economy is stalled because the quantity of currency in circulation is insufficient for the working economy to function properly.
Our physician of the economy, Mr. Reich’s, wisely, prescribes a second stimulus package as an infusion of currency to resolve this shortage, but without identifying the entity that is to create the needed money.
Considering who has the authority to issue the nation’s money supply, the US government, the Federal Reserve and the commercial banking system, I recommend that we opt for the US government. My recommendation is based on the fact that the Federal Reserve and the Commercial banks issue money as the principal of loans that must be repaid with interest, and repaying the loan removes this money from the economy and taking existing money from the economy to pay the interest exacerbates the money shortage. Only the government has the authority and power to issue legal currency as a receipt for goods provided and services rendered that does not create new debt, require interest payments.
Whenever the government has a budget shortfall, it has equal authority to choose one of two options for supplying the needed money: It can issue a bond and sell it at a discount, ie, for less than the bond’s face value, or it can issue currency directly as Abraham Lincoln did in the Civil War, a practice followed until 1971 when the last US note was retired. If bonds are chosen, they add to the national debt, require the payment of interest and the government must buy them back at some designated time. If currency is issued, say to pay for a health care system, there is no debt incurred, no interest to be paid and the money stays in the circulation, unlike debt-based money created by the FED or the banking system.
To kill two birds with one stone, so to speak, the US government should simply issue all the money needed to pay for health care system since paying the salaries and wages of healthcare workers would infuse money directly into the base of the working economy, simultaneously freeing private capital that is now spent on health insurance premiums for investment in businesses and jobs in a wide range of occupation.
November 7, 2009 4:13 PM | Reply | Permalink
Unfortunately, Obama has bought into the same old trickle-down and is too much of a corporatist to clamp down on the excesses of the corporations that are keeping the people in trouble. He and the corporatist congress would just throw more money at the highest 1% and they would continue to use it to leverage even more out of the people.
Unless or until both the president and congress choose to PO their main benefactors, the corporations, and allow the people to be other than corporate wage slaves living from pay check to pay check the country is simply going to continue to spiral down until the corporations defeat their only real competitor, the people and their best interests.
After all it is doubtful that the mindset of the politicians and corporations that engineered the meltdown for their own benefit is likely to change just to save the country now as long as there is more money to be made.
November 8, 2009 3:53 AM | Reply | Permalink