Obama And The Economy: Going The Way Of The Timid

The President should advance ideas that work, and go to battle for them. 

—Robert Reich

Today’s Joplin Globe featured a column by Robert Reich in which the former Clinton cabinet member scolds President Obama for not being bold enough in “spurring growth of jobs and wages.”

Saying that Obama is embracing ideas that appeal to Republicans, including “a corporate tax cut, accompanied by the closing of some corporate tax loopholes,” Reich makes the point that all economists this side of Sean Hannity are making:

Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash hoard estimated to be upwards of $1.9 trillion… The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell… The reason consumers aren’t buying is consumers’ paychecks are dropping, adjusted for inflation.

Now, that’s a pretty standard analysis of the situation. Yet, mainly because of the fact that Republicans control the House and essentially control the Senate—the filibuster now gives the minority party veto power over everything—Obama can’t successfully act boldly to do what needs to be done.

Reich offers some ideas on how to solve the problem of the “continuing crisis on the demand side,” which includes:

♦ Exempt the first $20,000 of income from payroll taxes for a year.

♦ Create a WPA for the long-term unemployed.

♦ Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans.

♦ Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

Of course, there is about the same chance of Newt Gingrich becoming president as there is of seeing the kinds of things Reich proposes getting passed through Congress.  And part of the reason why is demonstrated by today’s editorial from the Joplin Globe, which—back to its usual conservative line—spurted the following falsehood:

Voters have rejected the liberal approach to spend our way back to prosperity. That approach has not worked as the economy teeters on the edge and unemployment seems to be unsolvable, at least in the short term.

The stimulus bill passed in 2009 was a relatively moderate approach to the problem of a severely damaged economy and, thus, it had rather moderate results.  But it did have results.  Now that the money from the stimulus has mostly made its way through the economy, what we have is an obvious need for more short-term stimulus to keep the recovery going. 

As was proved in 1937 here in America and in Japan in 1997 and as is being proved in the United Kingdom and Ireland and Greece and elsewhere in Europe today, cutting back government spending and emphasizing debt reduction in times like these is a recipe for stagnation, or worse.

Unfortunately, as Paul Krugman and others have pointed out, the Obama administration has bought into the idea that worry over deficits is more important than worry over jobs and wages. David Dayen notes that,

Republicans theorize that a deficit deal would increase confidence in the business sector and financial markets, spurring economic growth all by itself.

You hear that all the time from Republicans.  Business hates uncertainty.  Business needs confidence.   

Sadly, Mike Konczal, of the Roosevelt Institute, relays this:

Someone noted that with Goolsbee leaving all of the big names surrounding economic policy are no longer economists but lawyers and people associated with Wall Street. And it is also telling that, with the Larry Summers editorial from the weekend, all of the economists you’d recognize who have left the administration are calling for more stimulus, while it is those there now calling for confidence.

Confidence it is, I suppose. A Democratic administration, in the face of a turtle-like economic recovery, with a game-changing election on the horizon, appears to be going the way of the timid, embracing the tried-and-failed economic theories of the Republican Party.

Perhaps the administration and fanatical Republicans in Congress can come up with a way for challenged consumers to spend that magical business confidence at the grocery store or at the appliance store or at the car dealership.



  1. I agree that the problem is lack of demand, and that diminished demand is due to too little money in consumers’ pockets. But increasing the money supply through debt financing is, in my opinion, bad medicine for the long term. That’s simply because the debt and deficit problems have gotten so terribly bad. Instead I believe we should remedy the root causes of our fiscal problems. Reich wants to remedy the symptoms, and that’s not going to stop the disease in America any more than it is in Greece.


    • Jim,

      We just disagree on this one. If my house had been on fire, and if the fire had mostly been extinguished, I wouldn’t hesitate to spend more money to finish the job of putting it completely out. Otherwise the flames might return and consume what’s left.

      There is time to do both: add more stimulus and deal with the mid-term and long-term debt.



  2. ansonburlingame

     /  June 15, 2011


    This blog is simply another call for more stimulus money to be spent by the federal government. Using traditional liberal ideas expressed by Reich, Krugman and others you endorse those ideas and call for a greater deficit, above and beyond the current $1.5 Trillion deficit this year.

    You excuse the failure of the Obama stimulus of close to $1 Trillion of now 2 years ago as simply not enough money as opposed to putting the money where it will do the most good.

    Two years and stagnation at the best or even worst things on the horizon following Obama’s lead. And you say he did not lead “enough” because the Republicans would not let him do what he really wanted to do, right?

    OK now a simple question. Had Obama been able to do all that he wanted to do (with a majority control in both houses of Congress and only thwarted by the Republican filibuster) just how much would our deficit spending have been for the last two years, actually three now by Sept 2011.

    And you admit that something close to $2 Trillion is being withheld from the economy by corporations sitting on it, right? Do you think that if government runs up the deficit again as you suggest that those $2 Trillion will be “let loose” by corporations and returned into the economy thru wise investments? Are you kidding me? Why are they sitting on the money in the first place?

    Is it some grand scheme to do all possible just to make Obama fail? I’ll bet some of your supporters would endore that idea.

    In a broad sense, what you and others seem to be saying is that debt and deficits are NOT the problem. The problem is that the federal government is not BIG enough instead.

    I am actually trying to understand your position. But it simply runs in the face of any sound financial thinking that I have ever heard, read or tried to practice on my own with my small change.

    You don’t spend your way out of debt that is strangling you. You cut back, work harder, find a new job, or make wise investments over time that produce the results desired by all.

    I see no way to break this gridlock, individually between us or politically in the entire country as well. It is really serious business and great danger is upon us. I know what I would do if this was my own personal situation.

    But I have no idea how to find an acceptable political way out of this morass until the roof caves in on all of us. And for sure I do not see November 2012 bringing it all to a head and being able to move forward to do the right things. I simply see more stalemate.


    this blog is simply a call for yet again more spending by the federal government to rescue the economy.


    • Anson,

      Yes, this is a call for more stimulus, albeit a call that will go unheeded.

      I don’t disagree that some of the original stimulus money could have been better spent. It was essentially designed to get some Republican votes, which, alas, didn’t happen. And it turns out it was too small, as Krugman and others warned at the time.

      If you paid attention to the piece, it is a lack of demand that keeps most of the corporate profits on the sideline, out of the game. Believe me, if the demand was there, the investments would be made. Just look at Joplin: since the tornado, the construction-related businesses are hiring folks to work. Why? Demand. It’s that simple.

      And debt and deficits are a big problem. But right now a bigger problem is lackluster economic activity, which, by the way, is adding to the deficit itself through decreased revenue.

      Look, I understand that what many economists are saying about additional stimulus runs counter to your household budget thinking, but the entire U.S. economy is not a household economy, Anson. It’s different. Sort of like the law of large numbers turns things into different kinds of things.

      In any case, I respect your position, as likely being the one that prevails, but it will take a long, long time to dig ourselves out of this mess using your method of “cut back [we have cut back], work harder [as if people aren’t working hard enough], find a new job [as if jobs were plentiful], or make wise investments [that’s the point, Anson, more stimulus is a wise investment]…”



  3. ansonburlingame

     /  June 16, 2011


    I do not disagree that consumer demand is needed to return the economy to a sound footing. Like it or not we are a consumer society (wants not needs primarily) and 70% of our economy (I assume that means GDP) is driven by such.

    So how do we get people to buy more stuff? Hard to do with unemployment still at 9%. Return some 10 million or so people to work at good jobs and GDP will go up.

    Well we tried that with a $1 Trillion stimulus and hired what, more government workers it seems to a great extent, right.

    Well read the “Brinkley” (or whatever his name is) column in today’s Globe about how government workers disburse foreign aid in Afghanistan. 18 new hires in Tampa, FL overseeing Afghanistan aid contracts at the rate of maybe one contract a month!!!

    Government workers are some of the most inefficient workers in America. Other than “regulations” they produce little of value to the country. Government does not build ships, private citizens build such ships or refrigerators or whatever. All government workers do is push paper around. So no wonder the $1 Trillion is stimulus did not PRODUCE anything of value other than more regulations.

    And guess in part what keeps that $2 Trillion in private money out of the economy? Yep, you got it, more government “rules’ about how to spend the money or how much to pay back to government after you invest it and earn more money. There is a “tipping point” where such private money will simply be “stashed” until things improve. OR it instead of being stashed it will go elsewhere, like overseas.

    In my view the administration lost sight of that “tipping point” a long time ago and blames it on “fat cats”, Wall Street, “rich” people, etc. Well whatever their motivation, most of those folks are not stupid with their money. If they were they would not be “fat cats”, “rich” etc.

    And for now there is no way in a free society that government can force those folks to invest their money, much to the chagrin of some. Freedom does come at some cost, particularly to those attempting to squash freedom of choice in the market place. And of course such freedom of choice in a market comes with attendant risk as well. And many want a risk free society as well expecting government to lower the risks to ever lower levels. And look at the cost when government does that.



    • Anson,

      Okay, the gloves are coming off.

      You made this inane statement,

      Government workers are some of the most inefficient workers in America. Other than “regulations” they produce little of value to the country.

      You have a bad habit of extrapolating in inappropriate ways from your own experiences. You did it with your brief stint at substitute teaching, and you are doing it now with your experiences, I assume, at the Pentagon.

      Well, I will give you that there are vast amounts of waste in the Defense Department. But I will not allow you without challenge to assert a falsehood about government workers. I know plenty of government workers who work their asses off to educate our children, protect our streets, put out our fires, inspect our food, control our airplanes, deliver our mail, and that’s not to mention the men and women who lay their lives on the line every day in the military, who, by the way, also happen to be government workers.

      Your statement is not only false, it is offensively false. It would sort of be like saying this: American soldiers are some of the most murderous thugs in the world. Other than murdering members of the civilian population in Afghanistan and Pakistan, they are not very efficient at killing the enemy. Now, as absurd as that statement is, it is no less absurd than yours.

      As far as those wanting to eliminate risk from society, it seems to be that you should start with bankers and insurance giants and plugged-in corporations who want the government to protect them from competition. You might also include large farming operations on that list.



  4. ansonburlingame

     /  June 17, 2011


    I seldom see you with any gloves ON, for starters.

    Now join me in a tour of Washington, DC. Let us roam the halls of any bureaucracy you choose. Pentagon is fine but I have been inside DOE and others as well. There are hundreds of thousands of paper pushers that do NOTHING constructive other than push paper around. My former father-in-law was one of them for about 30 years and HE thought HE was doing an important job. BS.

    Of course I am not talking about “good” policemen, fire fighters or even postal workers delivering the mail. I will admit that some of the stories I have heard about “going postal” give me some concern, but then I did not like the Crazy Major either.

    Now let us go tour a social services office in any city of your choosing and see those paper pushers doing their thing. No I am not talking about the social worker out in the streets doing his or her best to solve intractable problems. They are like to soldiers, sailor, police and firemen that do their jobs well.

    But I would include the “slugs” that act like police, fire or uniformed members of the armed services perpetuating bureaucracy in the Pentagon or other places as well.

    As for teachers, of course there are good ones that deserve more, much more money. But tell me I you can that there are not a lot of “teachers” acting like teachers but….. Want to take a tour of JHS to see what I mean.

    I have “battled with bureaucrats” for my entire professional life including “Congression bureaucrats”, particularly the staffs of those Congress people. They are the ones pushing the paper at the Pentagon in large part and the bureaucrats in the Pentagon push it right back to them. And NOTHING constructive gets accomplished, NOTHING, in such paper pushing.

    And then of course if you like we can tour any factory floor you like and see union workers “pushing paper” to game the overtime or work rules system to make life easy on themselves or the “managers” that game the system to avoid having to “manage” very much of anything.

    Or the “fat cat” farmer colllecting his farm subsidy check from the government while he sips his “morning mint julep” on his front porch like plantation owners of older days.

    Now tell me there is not HUGE inefficiency everywhere you choose to look with government being at the top of my list, government bureaucrats being the target, not those trying to maintain safety or save lives or even teach to the best of their ability and achieve good results.

    There is waste, fraud and abuse, anywhere in America you might choose to look, carefully. And again because the pile of money is so HUGE, I choose to start with government bureaucrats to CUT, and I mean really CUT.

    And if you want to start in the DOD, good, I will help you look there as well. Just check out the “logistics” tail wagging the “dogs” in Afghanistan. And by that I mean those 18 new hires in Tampa supervising contracts in Afghanistan. Makes me sick to think about it.

    I will join you in that tour in DC as soon as I finish going through grocery stores with Wheeler to figure out what we SHOULD be spending on food stamps. But you’ll have to read his blog comments to get my gist on that point.

    And THEN we can go look at the CDC if you like as well!!!



  5. Ames Tiedeman

     /  July 17, 2011

    “The United States of America has not had a trade surplus since 1975. We have not had a trade surplus with Japan since April, 1976. Every year since 1983 we have been in deficit with Europe. The last time America had a trade surplus with both Russia and China was a very brief period during the Cold War. We have been running ever increasing trade deficits with South Korea since 1998. Our 1993 trade surplus with Mexico is now a 100 billion a year trade deficit. In the 1970’s, 80’s, and much of the 1990’s our trade deficit was never more than one half of 1% of GDP. We now find ourselves with a trade deficit of between 5% and 7% of GDP depending on how you count. From 2002 to 2007 the trade deficit exploded. The only reason unemployment stayed well under 6% is because of the credit bubble. 63% of all jobs created from 2000 to 2006 were housing or credit bubble related. We did not feel the destructive affects of the trade deficit because of this credit bubble. I have concluded from work I have been doing that America will never get unemployment even under 7% with a trade deficit of over 3% of GDP, without a major credit bubble. The U.S. Economy has actually stopped functioning like a real economy. We literally need a credit bubble to function. America must move from the ideology of free trade to the economic policy of balanced trade. Until this structural shift takes place you can bank on the American economy being the laughing stock of the world economy.”
    -Ames F. Tiedeman


    • Mr. T,

      Based on what I read of BT vs. FT in Wikipedia, it appears to me that the primary effect of BT is to raise tariffs. I am impressed that no less a thinker than Warren Buffett is a fan of BT. However, I don’t think it would work well pragmatically and it would raise the price of everything, since America gets most stuff from outside its borders. That might indeed be part of the medicine our economy needs, but would the body politic swallow it? Would Congress swallow it? Heck, we can’t even get Congress to stop subsidizing Big Oil. And besides, isn’t going to BT just treating the symptoms and not the underlying causes of our fiscal malaise?

      As for my take on such underlying, or root, causes, please tell me if you agree with me on what they are. Here is a link on my take:



  6. ansonburlingame

     /  July 18, 2011


    I won’t dispute your statistics on balance of trade. Probably correct is my view and too hard to “look up” to challenge you.

    It is your solution that astounds me when you say “America must move from the ideology of free trade to the economic policy of balanced trade”

    America must give up competitive, thus FREE, trade to government controlled trade?

    I wonder what the Founders would say about that solution???



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