Obama's Conflicted Economic Language

President Barack Obama's first press conference earlier this evening was absolutely riveting. The man cannot make up his mind whether his stimulus / rescue / spending-is-the-whole-point bill emerging from the Senate is bipartisan or a rejection of Republicans who don't have "a lot of credibility" and whose failed polciies created this mess. Which is it? He wants to be congenial and condescending at the same time, and it does not work. As a snarky point, I do find it funny that the Democrats have been saying for six years that the war against Iraq was Bush unilateralism despite a dozen or so allied nations alongside America, yet less than half a dozen Republican votes makes the Senate bill "bipartisan."

The view inside the Beltway is that the President is rallying House Democrats - who love partisanship - to go along with him in support of the Senate bill. He's using feisty language they like. But baiting the Republicans is risky public relations, and there are real doubts about whether Obama's rhetorical fence-straddling will work in gathering House votes. The reality is that the two bills going into conference are different only in the this way: one is extremely liberal and the other is extremely liberal with a superficial bipartisan gloss.

The President took pains to mention that plenty of conservative economists, even economic advisers to Senator John McCain's campaign, support his approach. That invites me to disagree.

I am highly skeptical of Keynesian efforts to manage aggregate demand through fiscal policy, particularly when that policy aims to increase G when the problem is ultimately about the financial underpinnings of the entire system, and the primary symptom is a decline in consumption, C. When the President talks about a massive trillion dollar hole in the economy, he fundamentally means a collapse in private consumption, and I believe countering a massive downturn makes sense. What troubles me is that the President could have taken a genuinely bipartisan approach -- one where centrist Republicans essentially wrote the bill -- which would have used tax rate reductions to stimulate consumption. And really, isn't that the whole point?

Obama could have done that. It would have been bipartisan -- a Keynesian stimulus focused on the consumer.  It would have moved very quickly and passed quickly. It might have focused on reducing, for instance, the payroll tax rate which is eats up roughly 15 percent of the first 90-some thousand dollars of take-home pay of most all working Americans. Meaning, cutting the payroll tax rate would be a genuinely progressive stimulus, with the benefits going to those, using the language popular among Democratic economists, most likely to spend it. 

Obama could have done that!  To put it bluntly, he did not.

Let the record show that I, for one, was willing to endorse that kind of bipartisan, tax-cutting Keynesian approach. It's hardly my principled choice, but I would have supported it. So I am more than a little put-off that he now castigates anyone who questions the wisdom of his big government spending approach as a member of the Bush administration. That's foolish, and it will backfire. Again, let the record show that I was never a Bushie. Nor was Jim Hamilton or Arnold Kling or hundreds of others who are not convinced about this particular stimulus approach.

Instead, we have a stimulus bill that is deeply divisive, and a President pretending it is something else. His press conference tonight was troubled by this paradox, which I suspect will not end well. It is not a sustainable argument, so public support is likely to fade.

Despite the core problem, the President had some very smart things to say tonight. I would like my conservative friends to give some credit where credit is due. So kudos, Mr. President. He also had some specific offenses that must be called out. Here then are the best and worst of Obama's comments tonight:

Smart Language

• "create new jobs and new businesses, and help our economy grow again, now and in the future."  This is a home run line for two reasons.  First, it is incredibly refreshing to hear a Democratic president celebrating economic growth. Admit it, Republicans! Second, Obama understands that real growth comes from new jobs and new businesses, not industrial and agricultural policy aimed at jobs of the past. It is a profoundly Schumpeterian line.

• "[N]ot a single earmark." The President is right, and this is a real achievement. Let's savor this, and remember it this fall.

• "We are still going to have to make sure that we are attracting private capital, get the credit markets flowing again, because that's the lifeblood of the economy." (another leg of the stool). Even now, President Obama is reminding Americans that the financial crisis is not over. In the end, he may realize that this is not a stool, but a pyramid. And if we only have so many bricks, we might want to use them on the foundation. That would be the financial system.

Not So Smart Language

• "It is only government that can break the vicious cycle."  This lingo doubles as unhelpful and untrue. There is not one Ph.D. economist who believes the U.S. economy won't recover in 3 years from this recession (and most think it will be much faster) even if the government does nothing. I defy you to find one. Moreover, a depression has a self-fulfilling "animal spirits" heart, so the President needs to immediately start emphasizing that recovery will happen regardless. America is resilient, and it will bounce back. Sure, maybe the big, liberal stimulus bill will accelerate the recovery. I'm willing to concede that hypothetical. But let's have some humility from his rhetoric, which will help the country if not his cause.

• "... repairing our dangerously deficient dams and levees so that we don't face another Katrina." Okay, stop with the veiled Katrina-Bush eye pokes. First, you literally can't stop hurricanes from happening again. Second, your implication that engineering can stop the flooding of homes built below sea level neglects a vastly smarter alternative: build communities above sea level. The broken windows lesson applies -- smart public spending can be better spent elsewhere.

• "Well, I visited a school down in South Carolina that was built in the 1850s. Kids are still learning in that school, as best they can .... So why wouldn't we want to build state-of-the-art schools with science labs that are teaching our kids the skills they need for the 21st century?" Here, Obama is betraying his ignorance of federalism, and I find it appalling. I agree that shoddy schools are an outrage.  The question is why the people of South Carolina tolerated it for, oh, 100+ years? Another question is why people in my state, which upgrades its school buildings, should pay for other states'? Subsidizing bad policy is offensive to me and every other American who takes the 10th amendment seriously.

• "... it's a little hard for me to take criticism from folks about this recovery package after they've presided over a doubling of the national debt. I'm not sure they have a lot of credibility when it comes to fiscal responsibility." Okay, but is it so hard to take criticism from folks who had nothing to do with the doubling of the national debt? Why is Obama dismissing those voices?

Comments

[evander40]

I think you are giving Obama too much credit. When you applaud him for his good language it is all just words. It is directly contradicted by what is in this bill.

"Not a single earmark". The whole bill is an earmark. Earmarks are used to get around the normal legislative vetting and disclosure process for pet projects. That is the path this entire bill has taken.

Not to pick nits but a building built in 1850 tells you absolutely nothing about its usefulness.

This bill is being rushed through under the guise of an immediate solution to our economic problems. As you said, they could have addressed the current issues facing our economy. They chose not to, and instead unleashed 15 years worth of Democratic frustration in an orgy of wasteful spending and payoffs to far left supporters.

I think this will come back to haunt them very soon. Unfortunately, we will all be paying for this for the rest of our lives.

[John Polomny]

With regards to Mr. Obama's stimulus plan I am reminded of the words of Mr. Henry Morgenthau, Treasury Secretary during the FDR years.

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"

Mr. Obama is not FDR he is Herbert Hoover and no amount of rhetoric or sophistry will change that fact.

[K T Cat]

I think you miss the entire point. There's no one left to borrow the money from. Spend a little time reading Across the Curve and you'll see what I mean. China is just about the only big buyer of Treasuries still standing. We're going to be selling a massive load of debt into a world where the buyers are all facing economic decline. That's not going to go very well.

It doesn't matter if the stimuloid porkgasm is the right thing if the money isn't there (or anywhere) to finance it.

And if we end up where we're heading, which is the Fed printing money to cover the debt, then why not just print the money now and hand it out as Money Fairy Tax Rebates?

[bill t]

You right wing wackos created this mess and now want to dig the hole even deeper. Waiting for the "magic of the market" to re-appear didn't work for Hoover and it isn't going to work now. O understands that the only way out of the pit you created is to re-distribute the income balance (i.e., "middle class tax cuts")and at the same time use public expenditures try to keep some life in the economy. Iam a supporter and fan of O; but I have to admit last night's performance was a little scarrry. The man knows what he wants, knows where he is and is figuring out the politics. No wonder you right wing wacks are pooping your pants.

[John]

Conservatives, and I'm one, need to grow up. He was hitting them out of the park last night. If conservatives and Republicans think they are winning this argument they need to take a look at the Pew, CNN and Gallup polls that have come out over the last couple of days. And these were before Obama took to the bully pulpit. Basically he's making Republicans look like mindless obstructionists when tens of thousands of Americans are losing their jobs. Last night in what was an hour long boffo performance which most of America was mentally comparing with GWB he just reinforced the message that he's trying to do something why all they want is national failure within an hour of his bill passing the senate in the face of effectively total Republican opposition. If Republican senators who voted against this and who are up for re-election next year if, and I admit it's an if, the economy is recovering in 2010 don't expect to see their vote figuring prominently in Dem ads they are out of their minds. There needs to be a stimulus bill and in order for that to be effective it needs to be a mix of tax cuts and heavy spending. You can argue about the small print but it's necessary which is why traditional conservative groups like the Chamber and Assoc of Manufacturers are backing it as are most Republican governors. If the ones like Sanford and Barbour who are opposing it mean what they say I suggest they dont' take any of the stimulus money for their states but I wouldn't hold your breath.

[John]

Posted by: John Polomny | February 10, 2009 at 09:20 AM

Mr Polomny;
Henry Morgenthau also had a very wacky idea about returning Germany into an agrarian economy after WW2, so I wouldn't make him your lodestone.

[SKR]

Too amusing that O referred to the RV factory laying off workers in IN more than once in his "press conference" last night --most of the RV vehicles sold for (base price) of $50,000 to $650,000. Giving a middle class tax cut won't recreate these jobs because the middle class can't afford an RV at prices like that. No matter what the tax cut. Unless the government bails out the RV industry and with the RVs they would own, give an RV in every drive way with the surplus. Oh yeah, bigger government can be so efficient.....just watch.

[John Polomny]

John,

Please show us where in history greater government involvement in the the economy creates more long term wealth or prosperity. I will grant anyone the fact that ramming $1 trillion dollars into the economy will certainily make the GDP go up for a few quarters. However this is not long term prosperity. The point of quoting Mr. Morgenthau's observation is that after eight years of government trying to stimulate the economy the only thing achieved was more debt. The government does not produce anything and has no resources. It is only able to redistribute, ineffciently I might add, resources it coerces from the private sector through taxation. However there is a political limit to taxation so government is then reduced to either borrowing or debasing its currency. Forgive me as I am a politcal atheist and regard both parties politicians with equal contempt. Regardless of what Mr. Obama tries he does nothave economic history on his side.

[K T Cat]

Actually, bill t, "You right wing wackos created this mess and now want to dig the hole even deeper" applies more to Obama than to the commenters here. W cut taxes and ramped up spending. Obama's stimuloid porkgasm does the same thing only on a much, much larger scale.

Obama isn't just repeating W's mistakes, he's taking them to a whole new level.

[Slago]

Wow Tim! Lots of replies to this post. You did a great job reviewing the press conference.

[CenterVoice]

It is interesting that no one seems to be able to respond to the question of why we expect different results than Japan got by persuing almost identical policies in the 1990s. You remember Japan, right? That was the country that was going to overtake us and be the dominant economic superpower of the 21st Century.

We are living in the aftermath of a debt induced frenzy. For a long time we lived in a world where money was created without work (real estate bubble, consumer credit bubble) and now it is over. Obama is earnest and smart and means well, but at the end of the day, he came in at the moment when the party was over.

As to the Great Depression and FDR, I'm not sure if the New Deal policies helped or hurt things, but I suspect on the margin they were pretty neutral. They tamped down human misery, which is important, but aggregate increase to the long-term GDP? Very debateable and of course the experiment was interrupted by World War II, wherein all of our trading partners had their industrial bases wiped out, leaving us alone to prosper in the 1950s and 60s.

[Danny]

Too bad we blew all our money on Iraq and have none left to fix our own country.

Thanks Bush.

[Tyler]

He could have let centerist republicans write the bill? Are you crazy? You think after a large democratic victory in 2006 and 2008 that Obama is going to have the republicans write the bill? How many bills did bush have the democrats write when they were in the minority? You can argue that republicans should have some input but write the bill?

[pmp]

Where should we go after America finishes flushing itself down the toilet?

Places that seem possibly lovely are Ireland, New Zealand, Singapore, Canada, Chile, Costa Rica, Guernsey, Jersey, Australia, Palau, Tahiti, Tuvalu, and Switzerland.

Can people please help me think of other places? I'd like to make an informed decision but time is running short.

[Tim Anderegg]

Thanks for the analysis Tim, it was well thought-out even though I disagree with most of your conclusions. I agree that it is refreshing to see a President who both believes in job creation and small buisiness as a fundamental driver of our economy, but also believes that government has a role in realizing our collective goals as a nation. I think the conservative/liberal economic debate has been worn out for quite a while now, and has been getting us no where. It doesn't have to be all or nothing... the free market is certainly excellent at generating growth and jobs, but the government too has a role in backing projects that have long-term benefits to society that go beyond just profits and short term interests. These two concepts do not need to be diametrically opposed, and I think this bill represents a merger of ideologies quite aptly. There are plenty of tax cuts, but tax cuts alone won't stimulate consumption enough, and so the spending provisions in the bill will help quickly inject money into the economy and begin putting people back to work, while at the same time laying the foundation for long term savings in areas like energy efficiency and electronic health records. I agree with the poster who said that the Republicans will regret this come 2010... to me it seems like they are betting that the economy will continue to decline until then, while I share in Pres. Obama's optimism that appropriate government action combined with the resiliency and determination of the American people will see this recession begin to reverse before then. Let's all see that it does.

[sub]

And FYI, Obama is a lightweight. This will be the shortest political honeymoon on record.

[DBL]

Danny,

You are, of course, quite right that no Republican support is needed for the Democrats to ram through any damn bill they please. But for some strange reason, President Obama doesn't want to take that tack, or at least, he doesn't want to be seen as taking that tack. He says that he wants a bipartisan bill. The only problem is, he forgot to tell that to Speaker Pelosi and Sen. Reid.

Never mind, it's probably better for all concerned for the Dems to pass whatever the hell they want and to live with the consequences, good, bad or indifferent.

[GG]

Refreshing to see a Democrat talk about growth? Didn't Clinton do that? Even the AP didn't buy the "no earmarks" bit; that's only a literal truth because the payouts weren't inserted by individual Congressman after the original bill was written, the traditional definition of earmarks. Clinton was a lot smarter than this guy; balanced the budget, we had strong growth, low inflation and low unemployment. Those features have predominated since the 70s, but the massive deficit policies of this administration are about to end that. I voted for Perot because he understood financial responsibiity, didn't vote for Bush 41 or 43 because they didn't. This Obama clown is the worst I've seen though, and something has to be done to stop this fool before he ruins the economy for decades.

[turbo]

"Posted by: CenterVoice | February 10, 2009 at 11:53 AM

Too bad we blew all our money on Iraq and have none left to fix our own country.

Thanks Bush."

That's the dumbest comment made here so far. The total bill for 6 years of war in Iraq is estimatd to be $600 billion.

Obama's $1 trillion spending bill made that look like chicken feed in his first month in office. So, go ahead and keep repeating the campaign talk of the "Bush deficits" while Obama and the liberal Congress pass Bush by a country mile.

[valwaye]

3 weeks, 3 short weeks is all it took for the Candidate of change and hope to become the President of Fear and Catastrophe. Obama was pretty clear in my opinion...Where Franklin Roosevelt gave us "We have nothing to fear, but fear itself" Obama gave us Fear of "Catastrophe". The Elite San Francisco crowd Pelosi and Obama cater too much be ecstatic with this bill. They got money for the Endowment of the Arts, money for condoms, money for community groups...EG ACORN/Voter Fraud, money for Global Warming, and Money to discuss National Health Care. Not much money for unemployed working people....no I take that back...you'll get extended unemployment....won't that be great...you'll need it in the Obama Elite Economy because you'll be unemployed a long long time, and please sell your car. You'll need the money to buy food, and the unemployed should take the bus! Obama and Nancy want a Green economy you know!!!

[Paul Thiel]

If the idea is to get as much money into the economy as quickly as possible, why are we ganging up on these corporate CEOs?

They seem to be doing a great job burning through cash on retreats, redecorating, and travel. Why not give them more money to do these stimulative activites?

I mean, the purpose of a stimulus bill is to spend money, right? I mean, that's the whole point...seriously...

Spending money is not the whole point. What the stimulus money is spent on does matter. The purpose of stimulus spending is to get sufficient funds out in the most rapid possible manner.

This monstrosity of a bill does not pass that test.

[dave]

So will Obama move out of the white house? It was built even before 1850 so it must be all old and rusty....

[Tim Kane]

Tyler,
The beauty of having an Obama-GOP bill that passes the House but with hard-line Dems opposed would be the greatest thing the President could do for himself and for the country. Welfare reform and Clinton. China and Nixon. Leading against type is what makes greatness and breaks ideology. President Bush tried this with immigration reform, but it was too late to bury the hatchet.

GG,
Yes. You are right that Clinton was a growth Democrat. My hunch is that no other kind of Democrat can win the presidency.

Tim,
YOu wrote "I think the conservative/liberal economic debate has been worn out for quite a while now." No argument here. Indeed, isn't the notion of socialism and the edn of capitalism a little overdone already? It would be a much smarter debate to accept that the economy is and will be fundamentally capitalist (i.e. with innovation and investment and resource allocation driven primarily by the private sector / price mechanism), but that it will continue to evolve in new directions. Likewise, should we really be comparing today's economy to that of 1929? Things have changed in 80 years. I wouldn't recommend a Model T mecahnic from those days to fix your Toyota Prius. And yet, that's the IQ level of the economic debate in DC.

[chet brewer]

Posted by: CenterVoice | February 10, 2009 at 11:53 AM

Too bad we blew all our money on Iraq and have none left to fix our own country.

Thanks Bush."

That's the dumbest comment made here so far. The total bill for 6 years of war in Iraq is estimatd to be $600 billion.

Obama's $1 trillion spending bill made that look like chicken feed in his first month in office. So, go ahead and keep repeating the campaign talk of the "Bush deficits" while Obama and the liberal Congress pass Bush by a country mile.

Actually its not the stupidist comment on the board, in fact, Mr Bush made the situation much worse by not paying for the war when we had the economic ability to do so, had he not run massive war deficits and required no sacrifice of the American People this situation would not be nearly as dire as it is. Tax hikes and associated interest rate hikes might have kept us out of the mess we are in now, oh well, hind sight is 20:20

The stimulus package will have to be paid for eventually hopefully sooner rather then later, but we will need pay for a lot of things and tax hikes will be inevitable when the butchers bill comes due

[Holly from Oregon]

Thoughtful column and I found it to be balanced and informative. Thanks

[Charles Johnson]

It's too bad to see President Obama becoming the partisan many of us feared he would be.

Dan Mitchell of Cato said it best. This stimulus plan is Bush on steroids!

[high school ged]

Amazing one, i appreciate this work....

[online bachelor degree in accounting]

Washington is dysfunctional and I don't see either party crossing the lines to help the country.