Making Sense on the Stimulus
Timothy Geithner announces new recovery measures using existing funds (official photo)
Brad DeLong observes that Obama administration officials being put out there to deny that no further fiscal stimulus is necessary aren’t making a great deal of sense. And of course they’re not making sense because they’re in a political predicament. But I think they’d do better to just admit that:
Congress gave us less stimulus than we asked for last time around so we don’t see any point in making a futile effort to go back to the well; if it looks like Congress is prepared to act then we can start talking about what appropriate action would look like. Until then we’re working with the tools that we have, tools that we think are making the situation much better than it otherwise would be, but recovery will take time.
Trying to demand additional stimulus when the votes aren’t there in congress could do more harm than good. But pretending to believe that what’s been done is adequate is a fool’s game and just invites the criticism that the stimulus hasn’t “worked.”
25 Responses to “Making Sense on the Stimulus”
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July 13th, 2009 at 11:02 am
The problem with just speaking their minds is that the tone set by the Administration can actually have an affect on the economic outcome. So assuming it is correct that they can’t do a second stimulus for political reasons right now, the responsible thing to do is strike the most optimistic tone the circumstances will allow.
July 13th, 2009 at 11:07 am
It takes time to turn an aircraft carrier: I doubt the problems we’re experiencing right now have much to do with the insufficient size of the stimulus package, as much as I would have preferred a larger one (and let’s fact it, the structure of said bill wasn’t exactly conducive to quick results). No, the failure to make the stimulus legislation one or two or three hundred billion larger will mostly be felt in the needlessly tepid growth we’ll be experiencing in 2010.
I say the White House is playing this about as well as it can: preserve every ounce of political capital to enact a maximally strong healthcare reform bill, and then take on other initiatives.
July 13th, 2009 at 11:08 am
Brad DeLong “The financial crisis of last fall hit the economy’s levels of production, spending, and employment much harder than people thought at the time.”
“People.” What people. Don’t include me. I knew how bad things were and I am just a smuck from Kalamazoo.
Brad DeLong “I would be rushing a clean $170 billion–$500 per citizen–aid-to-states-that-maintain-effort package through the congress this week.”
“Clean.” No such thing. Semi-dirty, maybe. And 500 bucks per American is not going to make a damn bit of difference.
July 13th, 2009 at 11:30 am
I don’t really see any damning inconsistency in Obama’s claims. He can consistently acknowledge both 1) that the economy is worse than he’d thought, and 2) that his stimulus package SEEMED adequately large at the time.
When he says that he’d have done nothing differently, he means that he would not have decided differently, given the information that he’d had. The problem is that, as he stated, his information was “incomplete,” or severely inadequate in some way. But when he imagines himself making the decision again — when he questions whether he’d have decided differently — he imagines deliberating with his evidence at the time. He’s not making the claim, as the Post seems to suggest, that he’d not have done differently had he known how bad the economy really was. To the contrary, Obama is saying simply that he’d have reached the same decision given his admittedly misleading evidence.
Of course, political pressures imposed limitations on the stimulus effort, and it’s worth questioning whether Obama could have predicted the need for a larger stimulus, given what he knew at the time (or whether he ought to have more carefully and diligently pursued evidence). But this is an entirely different problem from the supposed inconsistency of his economic claims.
July 13th, 2009 at 11:35 am
Of course leadership requires actually leading not running and hiding because Congress doesn’t do everything you exactly want.
July 13th, 2009 at 11:43 am
“Trying to demand additional stimulus when the votes aren’t there ”
Talk about mixing metaphors!!
Let me translate.
“Trying to demand more shoelaces when we do not want to pay for them”
Yglesias does not even believe in a monetary systems of payment, he wants everything directed by some Federal social director.
July 13th, 2009 at 11:45 am
“it’s important to have a media that contain diverse revenue models”
So, is the word “media” singular or plural? I vote for plural.
July 13th, 2009 at 11:58 am
Not only are the votes “not out there in congress”, they aren’t there period. The voters aren’t interested in a second stimulus. See http://www.politico.com/news/stories/0709/24611.html
The real problem for Obama is that the stimulus was a political contrivance. So naturally it’s being evaluated in political terms, meaning that people are looking for quick results.
July 13th, 2009 at 12:13 pm
Whether or not Congress or public opinion favors a second stimulus, there’s an all-too-large likelihood that by October 2010, the public will wish the government had done more to ease the unemployment picture.
And if that likelihood comes to pass, the Dems had better be ready to argue that they tried to pass another stimulus bill, but they were blocked by a solid GOP wall of opposition, with the help of one or two Dem turncoats. Otherwise the GOP will be able to run against Democratic failure in dealing with the economy, and few will notice that the GOP approach would have failed even more.
And if by some miracle the public in October 2010 is more worried about deficits than about unemployment, an attempt by the Obama Administration to pass a second stimulus won’t be that big a political cudgel to use against them, especially if they pass universal health care.
July 13th, 2009 at 12:18 pm
Obama’s really big mistake was in appointing Geithner and Summers. Summers has screwed-up every job he ever had and Geithner is a lap dog for bankers.
Admittedly there aren’t a lot of competent economists in this country today, after 30-odd years of purging by the plutocrats. But Obama had Volcker right there and he probably could have gotten Galbraith or Stiglitz.
The people he appointed virtually assure disaster.
July 13th, 2009 at 12:26 pm
And I suppose that none of this has anything to do with the way the first stimulus was handled? That, because of “political reasons,” it twisted in the wind until nearly half of Americans were against it?
These political judgements that have been made in the past, and are being made again, “for political reasons,” don’t substitute for leadership.
Let me get this straight, DTM: You are suggesting that it is “responsible” for BHO to pretend that the first stimulus was enough, because if he admits it wasn’t enough — even if it wasn’t enough — that will doom the chances of getting what he now says isn’t needed?
Is this still part of the chess game?
July 13th, 2009 at 12:27 pm
Obama’s real problem is that he cannot say that $787 billion is inadequate to fix the economy. That kind of segues to the next question “Why then did you throw $2+ trillion on the banks for no visible benefit besides gigantic Wall St bonuses?”
July 13th, 2009 at 12:31 pm
low-tech cyclist
Agree.
The Obama administration needs to design, in-house, a solid, coherent, and farsighted stimulus package focused on one thing, providing long-term jobs.
If it flies, great. If it doesn’t, the Republicans will have to pay the piper come next election cycle.
July 13th, 2009 at 12:39 pm
Let me get this straight, DTM: You are suggesting that it is “responsible” for BHO to pretend that the first stimulus was enough, because if he admits it wasn’t enough — even if it wasn’t enough — that will doom the chances of getting what he now says isn’t needed?
Unsurprisingly, you got that entirely wrong.
I’m not saying the Obama Administration should set an optimistic tone right now for political reasons. I’m saying the Administration should do that for economic reasons: the more optimistic people are about the economy (in relative terms, so equally the less pessimistic that they are), the quicker and stronger a recovery is likely to be.
July 13th, 2009 at 12:52 pm
The smart thing for an uncompromised politician to do would be to institute a new Pecora Commission. Once the facts were spelled out, the answers would be obvious.
Of course, Obama is not an uncompromised politician.
July 13th, 2009 at 1:05 pm
I’m not saying the Obama Administration should set an optimistic tone right now for political reasons. I’m saying the Administration should do that for economic reasons: the more optimistic people are about the economy (in relative terms, so equally the less pessimistic that they are), the quicker and stronger a recovery is likely to be.
Goldman Sachs has reason for optimism. There’s talk that Goldman will report profits of more than $2 billion in the March-June period. They should really find some way to thank us taxpayers who saved the system which allows them to make so much money.
(cue rants from the peanut gallery)
July 13th, 2009 at 1:11 pm
ronald:
Admittedly there aren’t a lot of competent economists in this country today, after 30-odd years of purging by the plutocrats. But Obama had Volcker right there and he probably could have gotten Galbraith or Stiglitz.
Volcker’s not bad but I don’t see him being that great. His great accomplishment was to jack rates until they brought on a recession which broke inflation. Big whoop.
Judging by the results, Summers and Geithner have done pretty well considering their history. The main thing is they avoided economic collapse.
July 13th, 2009 at 1:18 pm
The next big piece of economic news will be that the GDP contraction slowed or even ended in the second quarter. Some Wall St. firms are even forecasting growth. Of course GDP growth does not equate to rising employment right away, but the turnaround is going to look dramatic.
Obama will look vindicated, Republicans will look even more stupid than usual, and those demanding more stimulus now will have some egg on their faces.
July 13th, 2009 at 1:32 pm
Judging by the results, Summers and Geithner have done pretty well considering their history. The main thing is they avoided economic collapse.
So we don’t have economic collapse today?
You are assuming economic collapse based on Paulson’s word – not someone I would credit.
Without the bailout, 5 or 6 major banks would probably have failed. Regional banks were never in such bad shape. The major banks were dealing much more in capital transactions than in lending. After the bailout, the FED replaced the major banks as major lender, for commercial paper, etc. The bailout saved the major banks, it did nothing for the real economy.
The real economy will fare according to stimulus efforts. So far, IMHO, those efforts have been much too puny.
And Volcker did what was possible, since no other approach was going to be tried. At least he hasn’t taken $millions fron wall street like Summers and Emanuel – and Geithner later.
July 13th, 2009 at 1:34 pm
Of course GDP growth does not equate to rising employment right away, but the turnaround is going to look dramatic.
I think that is actually going to be an ongoing problem in the short term: people will continue to get excited by GDP-related news, then disappointed by employment-related news, even though we know to expect this divergence for a while.
Obama will look vindicated, Republicans will look even more stupid than usual, and those demanding more stimulus now will have some egg on their faces.
I think the last of those three claims is unwarranted. The case for additional stimulus is based on the worse-than-hoped employment figures, so in some sense that case has already been made. Accordingly, while we may nonetheless muddle through without a second stimulus, I don’t think proponents of more stimulus are likely to look bad in retrospect.
July 13th, 2009 at 1:44 pm
You are assuming economic collapse based on Paulson’s word.
Charts of the relevant spreads and volumes are enough for me: credit was frozen.
Regional banks were never in such bad shape.
Some certainly were (see, e.g., WaMu, National City, IndyMac, BankUnited, and so on). I think the growing problems in commercial lending are also likely to expose a lot more weakness in smaller banks going forward.
July 13th, 2009 at 2:11 pm
Charts of the relevant spreads and volumes are enough for me: credit was frozen
The Fed thawed credit, not TARP. Paulson was saving major banks, not the economy.
Some certainly were (see, e.g., WaMu, National City, IndyMac, BankUnited, and so on).
FDIC, not TARP. Regional banks were manageble.
July 13th, 2009 at 4:24 pm
DTM, you always believe whatever bankers tell you. It’s more or less your defining characteristic. Thats why you talk about ‘recovies’ nobody outside of washington sees, and you treat a return to made-up profits rigged by financial gamesmanship as terrific news.
Whether you’ve sold out or bought in is the only point of real debate. Its like ’stupid or corrupt’ for fake-progressives.
July 13th, 2009 at 9:55 pm
The Fed thawed credit, not TARP.
That is a different question from whether or not there was an incipient collapse. I think the Fed’s programs and the TARP both played an important role, but it is difficult if not impossible to disentangle the effects.
FDIC, not TARP. Regional banks were manageble.
Actually, the big ones (I forgot to list Wachovia too) were only manageable because they were sold off to banks that themselves got TARP funds (Wachovia to Wells, WaMu to JPMorgan, and National City to PNC). Again, though, I agree it is difficult to tell how important the TARP funds were to the ability of the buyers to digest these acquisitions.
July 13th, 2009 at 10:33 pm
The question was whether or not TARP and Summers/Geithner’s role avoided economic collapse. My contention was that TARP was irrelevant and S/G were propping-up big banks, not saving the economy. I think the FED provided the credit, not the big banks and I think the FDIC could have handled any necessary bank restructurings.
I also think that the stimulus was far short of adequate and conditions will get much worse.
We’ll see in about a year.