Friday, September 30, 2011

The Economic Policy Mess in the US

Here is the opening bit from a post by Jared Bernstein in his blog:
It’s one thing to be up the creek without a paddle. It’s quite another to be stuck up the creek with a paddle that you can’t use.

The latter describes where we are in terms of economic policy. The Federal Reserve is trying to do their part with more easing of interest rates, but absent more action on the fiscal side, like the measures in the President’s jobs plan, I don’t expect anyone much to take advantage of lower rates. What’s missing is demand, customers, orders, projects that inspire investors to come in off the sidelines.

In other words, I think that at a time like this, sequencing matters when it comes to monetary and fiscal stimulus, and fiscal needs to go first…without more demand, I fear we’re unlikely to see the incentive of lower rates gain more traction.

So what’s blocking the fiscal push, as in the jobs plan?

A friend of mine (hat-tip JB) reminded me of this interesting albeit disheartening analysis by James Surowiecki (btw, imho this dude writes a consistently excellent weekly economics column for the New Yorker). His answer to the above question is, of course, Republicans (though I must say, I haven’t seen nearly enough push from the D’s either on the jobs plan), but that begs another question: why is it politically costless for R’s to go to the do-nothing, or worse (austerity!), place on jobs?

Again, the obvious answer is that what hurts the President helps his opponents, but doesn’t that tactic put them in the position I started with: stuck up a creek but not using your paddle to get out?

In order to seal that part of the deal, the R’s have to argue that the paddle doesn’t work—worse, it’s an wasteful, expensive paddle that we should put through the wood-chipper. And that argument has been made much easier for them by the fact that nobody does “counterfactuals”—what would likely have occurred absent the stimulus.

The Recovery Act passed and unemployment got higher. It would have gone higher still without the Recovery Act—that’s a consensus among non-partisan experts—but that’s an awfully hard hand to play.
I blame all the politicos in Washington. The Republicans carry the deepest blame for being cynical nihilist willing to burn down government rather than preserve the country. But I blame the Democrats for being timid and disorganized. And I blame Obama for winning an epic election and then frittering the win away by failing to lead. He is a gutless wonder when it comes to leading. He is a classic politician, i.e. a blowhard who can give a good speech but is a do-nothing when it comes to practical action or leading the troops.

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