海角大神

With today being the of 2009 (more commonly referred to as 鈥渢he stimulus鈥�), and President Obama expected for deficit reduction, I鈥檓 hearing a lot of claims and rhetoric about what has 鈥渨orked鈥� versus what has not, and what has to be done going forward versus what should remain 鈥渙ff limits.鈥�

In all these arguments and politically-colored 鈥渆valuations鈥�, I hear misplaced focus on (the stark and easy-to-talk-about) absolutes, averages, and aggregates, when what matters economically are relatives, marginals, and individuals.

Let me elaborate a bit with the two issues at hand鈥�

On the Stimulus: Republican critics of the stimulus argue that the 鈥減roof鈥� that the stimulus hasn鈥檛 worked lies in the still-bad numbers of the unemployed鈥搕hat since ARRA鈥檚 passage last year, total jobs in the economy have decreased, not increased. As the New York Times鈥� :

The reasons for the stimulus鈥檚 aren鈥檛 a mystery. The unemployment rate remains near 10 percent, and many families are struggling. Saying that things could have been even worse 诲辞别蝉苍鈥檛 exactly inspire鈥�

[T]he debate is largely disconnected from the huge stimulus experiment we just ran. Why? As Senator of Massachusetts, the newest member of Congress, , in a nice summary of the misperceptions, the stimulus might have saved some jobs, but it 鈥渄idn鈥檛 create one new job.鈥�

But of course ARRA made a difference and surely did 鈥渃reate jobs鈥� at the margin鈥揺ven if the economy continued to lose jobs in aggregate. If the net job losses would have been greater without the stimulus, then the stimulus 鈥渃reated鈥� jobs. That ARRA prevented some jobs from being lost is surely the case in the state and local government sector, where it did not matter what kind of incentive (鈥漵ubstitution鈥� or relative price) effects the stimulus set up for those governments; those governments have budgets that have been so thoroughly bumped up against their binding constraints that any kind of transfers to those governments (even pure cash ones) have to have prevented some of their workers from being let go.

That 诲辞别蝉苍鈥檛 mean that ARRA couldn鈥檛 have been better designed to get more (or faster) 鈥渂ang per buck鈥�; there were steering the longer-term economy in a slightly different direction than about stimulating economic activity (any kind of economic activity) now. And even the parts of ARRA that were done in the name of 鈥渟timulus鈥� weren鈥檛 always so 鈥渟timulative鈥�, because there was too much worry about getting the 鈥渞ight mix鈥� of tax cuts versus spending鈥搘here the notion of 鈥渏ust right鈥� depended on the politics, not the economics.

On the President鈥檚 Fiscal Commission: The big question is whether Republicans are going to participate. Get ready for tomorrow鈥檚 rhetoric from the Republicans that there 诲辞别蝉苍鈥檛 need to be a (general) 鈥渇iscal鈥� commission鈥搕here needs to be a 鈥渟pending鈥� (cuts only) commission, their argument being that the long-term fiscal challenge is mostly on the spending side of the budget, not the tax side. As the Washington Post鈥檚 :

On Tuesday, however, House Minority Leader John A. Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) again declined to say whether they would name members of the panel. 鈥淏lue-ribbon commissions are fine and dandy, but we鈥檙e still waiting for a response from the president on our proposal to start cutting spending right now,鈥� said Boehner spokesman Michael Steel.

But this presidential commission/advisory panel is going to be different than the President鈥檚 earlier 鈥渢ax reform鈥� one. The New York Times鈥� that this advisory body is going to leave everything on the table, including tax increases that contradict the President鈥檚 own campaign promises:

Elected Republicans, however, are under intense pressure from their party鈥檚 conservative base to oppose any tax increases 鈥� a line in the sand that dims any prospects for bipartisan cooperation. Yet economists, including veterans of past Republican administrations, are vocal in insisting that the debt problem is too great to be solved without increasing revenues somehow and perhaps moving to a new consumption tax system like Europe鈥檚.

The same economists also say a significant deficit-reduction plan is not possible unless Mr. Obama breaks his campaign promise not to raise taxes for households making less than $250,000. Last week, Mr. Obama said he would not impose that condition or any other on a fiscal commission.

And of course I think that鈥檚 a good thing to leave on the table, because even though it鈥檚 true that growing entitlement spending, especially health spending, is our greater challenge over the longer term, it鈥檚 also true that 鈥渂ending the health cost curve鈥� isn鈥檛 going to get us to the President鈥檚 goal of 3 percent of GDP deficits by 2015. And although one shouldn鈥檛 push for absolutely balanced budgets and complete elimination of the deficit now or even decades from now, we still need to work on relative deficit reduction鈥揳nd relatively more fiscally responsible policies鈥揳s soon as possible. How to do it sooner rather than later? Given the present 鈥渕argin鈥� of policy choices, you have to consider tax increases, and you have to consider smart tax increases that raise revenues in more efficient ways than just raising statutory tax rates. There are ways of achieving a more sufficient level of revenue that don鈥檛 have to involve trading off with the goal of promoting a strong economy, as long as we鈥檙e able to get rid of the constraint of President Obama鈥檚 campaign promise by allowing the new commission to work unencumbered by it.

The first place to start is letting go of the notion that 鈥淥bama tax policy鈥� has to include Bush tax policy extended. For as Jackie Calmes also writes:

When George W. Bush took office in 2001, the government projected surpluses of $5.6 trillion for the coming decade.

In an analysis of what happened next, the economists Alan J. Auerbach and William G. Gale found that much of the accumulated debt owes to Bush-era policies and to the recession, with its costs in lost income taxes and automatic benefits for the unemployed. The one-time costs of stimulus and bailout measures are 鈥渞eally small stuff鈥� relative to the rest, Mr. Auerbach said.

More than Mr. Obama could have imagined, the situation now tests his promise to break Washington鈥檚 gridlock and to lead in making 鈥渢he hard choices.鈥�

today about this upcoming test of the President鈥檚 leadership:

Viewed in that context, the current political disarray need not be an insurmountable problem for President Obama, but rather could represent a golden opportunity to demonstrate the leadership the country needs and craves. He will not demonstrate that leadership by running around to carefully staged events in which he tells ordinary voters what he thinks they want to hear. Nor will he demonstrate it by redoubling efforts of his PR war room to respond to every attack or piece of Republican disinformation with overwhelming rhetorical force. Rather, the real challenge is whether the president can strengthen the bond of trust between himself and the American people by having the courage to tell the hard truths and make the hard decisions, irrespective of short-term political consequences and the tut-tutting of the commentariat.

The irony is that only by doing that which may be unpopular and unpolitic can the president revive his longer-run political fortunes鈥�

I鈥檓 hoping the fiscal commission will serve as a good 鈥渢utor鈥� to the President on this leadership test, which is all about helping the American people accept the 鈥渉ard choices鈥� that will pay off in the longer term. It has to start with the President being willing to talk about them more. More tomorrow.

.

---------------------------

海角大神 has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.