Where is the US economy headed?

If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.

This is not to say that Mr. Obama hasn't made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can't do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013.

Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we're told the projects really will be shovel-ready.

We'd like to support a plan to spur the economy, which is certainly struggling. Had Mr. Obama proposed a permanent cut in tax rates, or a major tax reform, or a moratorium on all new regulations for three years, he'd have our support. But you have to really, really believe in hope and change to think that another $300-$400 billion in new deficit spending and temporary tax cuts will do any better than the $4 trillion in debt that the Obama years have already piled up

You speak as if you have a political science and an economic degree is this true? Just curious!

Op-Ed Columnist
Setting Their Hair on Fire
By PAUL KRUGMAN
Published: September 8, 2011

First things first: I was favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected. It’s not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment.

Of course, it isn’t likely to become law, thanks to G.O.P. opposition. Nor is anything else likely to happen that will do much to help the 14 million Americans out of work. And that is both a tragedy and an outrage.

Before I get to the Obama plan, let me talk about the other important economic speech of the week, which was given by Charles Evans, the president of the Federal Reserve of Chicago. Mr. Evans said, forthrightly, what some of us have been hoping to hear from Fed officials for years now.

As Mr. Evans pointed out, the Fed, both as a matter of law and as a matter of social responsibility, should try to keep both inflation and unemployment low — and while inflation seems likely to stay near or below the Fed’s target of around 2 percent, unemployment remains extremely high.

So how should the Fed be reacting? Mr. Evans: “Imagine that inflation was running at 5 percent against our inflation objective of 2 percent. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”

But the Fed’s hair is manifestly not on fire, nor do most politicians seem to see any urgency about the situation. These days, the best — or at any rate the alleged wise men and women who are supposed to be looking after the nation’s welfare — lack all conviction, while the worst, as represented by much of the G.O.P., are filled with a passionate intensity. So the unemployed are being abandoned.

O.K., about the Obama plan: It calls for about $200 billion in new spending — much of it on things we need in any case, like school repair, transportation networks, and avoiding teacher layoffs — and $240 billion in tax cuts. That may sound like a lot, but it actually isn’t. The lingering effects of the housing bust and the overhang of household debt from the bubble years are creating a roughly $1 trillion per year hole in the U.S. economy, and this plan — which wouldn’t deliver all its benefits in the first year — would fill only part of that hole. And it’s unclear, in particular, how effective the tax cuts would be at boosting spending.

Still, the plan would be a lot better than nothing, and some of its measures, which are specifically aimed at providing incentives for hiring, might produce relatively a large employment bang for the buck. As I said, it’s much bolder and better than I expected. President Obama’s hair may not be on fire, but it’s definitely smoking; clearly and gratifyingly, he does grasp how desperate the jobs situation is.

But his plan isn’t likely to become law, thanks to Republican opposition. And it’s worth noting just how much that opposition has hardened over time, even as the plight of the unemployed has worsened.

In early 2009, as the new Obama administration tried to come to grips with the crisis it inherited, you heard two main lines from critics on the right. First, they argued that we should rely on monetary policy rather than fiscal policy — that is, that the job of fighting unemployment should be left to the Fed. Second, they argued that fiscal actions should take the form of tax cuts rather than temporary spending.

Now, however, leading Republicans are against tax cuts — at least if they benefit working Americans rather than rich people and corporations.

And they’re against monetary policy, too. In Wednesday night’s Republican presidential debate, Mitt Romney declared that he would seek a replacement for Ben Bernanke, the Fed chairman, essentially because Mr. Bernanke has tried to do something (though not enough) about unemployment. And that makes Mr. Romney a moderate by G.O.P. standards, since Rick Perry, his main rival for the presidential nomination, has suggested that Mr. Bernanke should be treated “pretty ugly.”

So, at this point, leading Republicans are basically against anything that might help the unemployed. Yes, Mr. Romney has issued a glossy, well-produced “jobs plan,” but it might best be described as 59 bullet points with nothing there — and certainly nothing to justify his assertion, bordering on megalomania, that he would create no fewer than 11 million jobs in four years.

The good news in all this is that by going bigger and bolder than expected, Mr. Obama may finally have set the stage for a political debate about job creation. For, in the end, nothing will be done until the American people demand action.

OUCH!

That doesn't make me right about this stuff, but it may be a better basis than constant attention to the political blogs of one side or the other that appears to be the specialty of some here.

I agree; $447 billion is not enough, but understanding that the GOP/tea party will battle this measely amount leads us to understand why it's so conservative.

georgeob1 wrote:

This comment presupposes that others on this site don't have their own 'basis' of learning for analysis of modern content; and what more, a basis in History and Political Science that is more relevant then your engineering background.

Cycloptichorn

Read the words I wrote. I didn't "presuppose" anything. You are welcome to suppose that you know more about history and how the works works than do I, if that is your need. However, I doubt it.

I'm unemployed at the moment and have not one cent to my name.

I'm not saying this as a millionaire either, I'm unemployed at the moment and have not one cent to my name.

I say pay everyone who is college material to attend college with our tax payers money.


Do I sound to much Like a socialist?