My new column for National Journal looks at the case for a jobs bill.
Speaking to the Economic Club of New York this week, Federal Reserve Board Chairman Ben Bernanke gave a gloomier assessment of the economy than many were expecting. The recession is over, he declared, but the Fed expects no more than "moderate" growth next year. Banks are still reluctant to lend, and "jobs are likely to remain scarce for some time, keeping households cautious about spending." In the past, steep recoveries typically followed steep recessions. This time will be different, Bernanke said. The recovery might be more L-shaped than V-shaped.
Democrats in Congress were already turning their attention to a new fiscal stimulus -- and if Bernanke is right, a second stimulus may indeed be needed. Of course, Congress would rather call it something else. Polls suggest that voters are less than enchanted with the first one. With unemployment at 10.2 percent and rising, many see the $787 billion program already in place as an outright failure. Why throw good money after bad, they ask? Public debt is already on a sharply rising trajectory. Sooner or later, voters know, that will mean higher taxes. Why make this problem even worse, they say, if the extra spending will make no difference on unemployment anyway?
Avoiding the term "fiscal stimulus," House Speaker Nancy Pelosi has said nonetheless she hopes to move a "jobs bill" before Christmas. But she wants to be sure of backing the right initiative, she says, and exactly what that might be is in doubt. President Obama has called for a "jobs forum" next month. A tax credit for new jobs, direct public service employment, and measures to promote job sharing are all being talked about. Just don't say "stimulus."
With a still-weak economy, confusion over what the first stimulus has achieved, and rising fears over the long-term consequences of debt, the political options have narrowed in a dangerous way. This was never going to be an easy situation for the White House, and one needs to remember that it inherited this mess. Even so, I think that the Obama administration and its allies in Congress deserve some of the blame for the way their hands are tied.
Mr. Crook:
I clicked over to the NJ and read your full article, in which you make a number of excellent economic, fiscal, and -- importantly -- political points.
There is one point I would like to bring into the foreground, one you mentioned in passing, but I believe it to be a crucial one, and have been saying so for months to my representative and senators (all Republicans, and all highly critical): expectations in terms of time frames were unrealistic on our parts as individual citizens. I asked my representative and senators what they expected -- for the first stimulus money to be fully delivered in a few days and after another few days all of it to have been spent, with millions re-employed?
You do make a number of points I believe to be valid, especially in those places you address honesty. But I do strongly feel that we remember that even if it had been The Perfect Stimulus, it would have taken considerable to to kick in completely -- as we're seeing, though admittedly some of the delay was the Feds shooting themselves in the foot.
Excellent article -- thanks.
Mr. Crook,
While I might quibble with the focus on tax cuts, I am nevertheless impressed with the cogent article you produced. This is the sort of commentary missing in most of todays debate. The constant focus on process and not on the merits of the actual policy in question is amazingly frustrating.
I do have one question for you though, when you speak of the longterm policy implications, what sort of policy prescriptions are you advocating with regards to deficit management (cutting entitlement benifits, VATs, increased marginal rates, etc)?
Clive:
I can't believe that you are deciding to elide what Robert Barro pointed out in your February column: Dismal science revisited, and doubling down on Paul Krugman's theory that the stimulus was too small. The same Krugman who wrote in a column that, "Clive used to be a reasonable guy."
If you re-call your column, Barro inferred that the so-called stimulus plan was bound to fail because, "the only informative empirical work I know of (from Valerie Ramey and my own work) finds multipliers associated with defense spending that are positive but less than one." Thus, Barro ensued, "multipliers for other forms of government spending are imprecisely determined but are not significantly different from zero." And on a later e-mail Barro stated that, "this point holds even if the spending is deficit financed so that the public debt rises, although there can be deadweight losses in the future from financing the larger debt. In the same sense, if the multiplier is greater than 1, say 1.5, the free public goods really do come with the bonus of free private consumption or investment. I think this view is the one actually held by Summers, C. Romer, etc., and I really do think it's voodoo macroeconomics. I think you do not regard it as voodoo because you find it familiar and comfortable."
Economists that make nasty individual comments 1, Economists whose theoretical work turns out to be true, 0.