Opinion

The Great Debate

The jobs proposal ignores economics

By David Callahan
The opinions expressed are his own.

It’s a cruel fact for millions of unemployed Americans that the jobs plan President Obama unveiled last night will never be fully enacted by Congress. What’s even crueler, though, is that the least effective elements of the plan have the best chance of passage. New direct federal spending, the most powerful form of stimulus, is widely considered DOA on Capitol Hill – while weaker tax cut options will get a real hearing.

That’s not how things would go if mainstream economists were calling the shots. Economics is not an exact science, but economists do have pretty good models to predict what “fiscal policy multipliers” will be most effective at stimulating growth and new hiring. Just last month, for example, the chief economist for Moody’s Analytics Mark Zandi released an analysis of stimulus measures work. Zandi advised John McCain in 2008 and is anything but a committed liberal. But his study, supported by the full weight of Moody’s modeling expertise, clearly shows that spending is the best form of stimulus.

The single most effective form of stimulus, the study found, are increased outlays for food stamps — which create $1.71 in economic activity for each dollar in federal spending. The other top two boosters are spending on unemployment benefits and infrastructure. Earlier studies, including by the Congressional Budget Office, have found largely the same thing.

Now, in case you didn’t notice, President Obama did not stand up last night and call for massive new spending on food stamps. While he did call for new infrastructure investments and again extending unemployment insurance, these were not the largest elements of his plan. Instead, the biggest ticket item by far – estimated to cost $244 billion – is an expanded payroll tax holiday for both workers and employers.

The only reason Obama is putting so many eggs in this basket is that a payroll tax cut is said to have a fighting chance in Congress, given that Republicans backed a holiday last year. But make no mistake: the appeal here is political, not analytical.

How would Keynes advise Obama on jobs?

By Nicholas Wapshott
The opinions expressed are his own.

It’s still the economy, stupid. So if Obama wants to keep his job – and we must assume he does, though he doesn’t seem to be enjoying himself much — he must boost the economy and get the jobless back to work. No president since 1948 has been elected with a jobless figure higher than 7.2 per cent, so with unemployment currently running at 9.1 per cent, he looks headed for certain defeat.

Add the pivotal fact that two of his core groups of supporters, blacks and hispanics, suffer disproportionately from joblessness, at 16.2 per cent and 11.6 per cent respectively, and the president’s prospects look even dimmer. With the White House admitting there is little chance unemployment will fall before the election next year, the president needs some good advice on how to get people back to work, and fast.

What would John Maynard Keynes tell Obama? He once advised Franklin Roosevelt on how to cure unemployment, but he didn’t make much headway. “I saw your friend Keynes,” FDR told his Labor Secretary Frances Perkins. “He left a whole rigmarole of figures.” In turn, Keynes told Perkins he had “supposed the president was more literate, economically speaking.”

Obama at the electoral tipping point

By Cliff Young and Chris Jackson
The opinions expressed are their own.

The Obama administration finds itself between a rock and a hard place.  On one side, an emboldened Republican Party smells blood, with their largely successful (politically speaking) full court press on the debt issue and dominance of the news cycle.  On the other, the economic news—both domestically and internationally—has been depressing at best, and downright scary at worst.

Given this dreary backdrop, the common wisdom among pundits and politicos is that Obama has been winged and is beatable in 2012.  Pundits offer varied reasons for this new found pessimism in Obama.

Some cite the dangers of a weakening economy on voters’ mood for “more of the same.”  Indeed, history suggests that no post-WWII president has won reelection when the unemployment rate was above 7.2 percent—bad news for Obama since unemployment looks to remain above 8.5 percent over the next year. Others stress Obama moving too far to the left with a “big government” agenda, while others say Obama has alienated his base by giving in too readily to Republican demands.  Underlining all these critiques are warnings of a Carter-esque “crisis of confidence” scenario where voters lose faith in Obama’s leadership.

Should Obama mimic David Cameron’s austerity?

By Nicholas Wapshott
The opinions expressed are his own.

In medieval times, a key member of a monarch’s retinue was the food taster, a hapless fellow who ate what his master was about to eat. If the taster survived, the food was deemed safe for the king’s consumption. President Obama has a taster of sorts in David Cameron, the British prime minister, who has embarked upon an economic experiment that echoes the recipe of wholesale public spending cuts and tax hikes needed if both sides in Congress are to agree to raising the federal government debt ceiling. How the British economy is faring offers Obama an idea of what a similarly radical policy of cutting and taxing here would mean to the American economy.

Cameron’s election in May 2010 coincided with the start of the Greek debt crisis. The Bank of England governor Mervyn King warned him that the public debt in the UK was so large that Britain, too, might see its lending become impossibly expensive, so Cameron decided that there was no time to lose in putting the fiscal books in order. He decided to slash public spending by 25 per cent over four years and immediately raise value added tax on goods and services from 17.5 to 20 per cent. Such a radical remedy found favor with the rump of British Conservatives who felt that Margaret Thatcher’s free-market, small government, “sound money” policies of the Eighties had not been pressed to their limit. In turn, Thatcher’s prescription to reduce the size of the state derived from her favorite thinker Friedrich Hayek, the author of “The Road to Serfdom,” who believed like many Tea Party supporters that government intervention inevitably leads to tyranny.

Cameron’s experiment in applying a radical cure to the British economy caught the attention of a number of conservatives here, among them George W. Bush’s speechwriter Michael Gerson, who wrote in the Washington Post, “If Cameron’s approach works — dramatically cutting deficits without stalling economic growth — it will be an obvious, powerful example for America.” “If only the Obama administration and the U.S. Congress had been so courageous. Instead, they are choosing to put off these big decisions,” moaned Matthew Bishop, New York bureau chief of the Economist, in a piece co-authored with Michael Green in the Wall Street Journal. Even Treasury Secretary Tim Geithner thought the British experiment worth trying. “I am very impressed, as one man’s view looking from a distance, at the basic strategy [Cameron] has adopted,” Geithner told the BBC.

Ireland could use a little audacity of hope

By Marian Harkin

The opinions expressed are her own.

Barack Obama’s infectious hope will help replenish the spirits of the beleaguered Irish people as we strive to emerge from recession, but more significantly his invoking our small nation’s educational and entrepreneurial talents help to show us the way forward.

A once-in-a-generation economic crisis might seem like an odd time for Ireland to issue back-to-back invitations to Queen Elizabeth II and U.S. President Obama, but as the sun shone through the rain cloud, illuminating the President as he visited his ancestral home in Moneygall Co. Offaly, it seemed a masterstroke, for it is precisely an injection of Obama-esque audacious hope and “yes we can” positivity that Ireland needs to kickstart our long road to recovery.

One week ago as her Majesty Queen Elizabeth II bowed her head before a Memorial to Ireland’s Republican dead, the message rang out to the high heavens – we work as equals and we can live in peace, and that peace can be the foundation upon which growth and prosperity is restored to this small island north and south.

from Bernd Debusmann:

Who is the superpower, America or Israel?

On February 18, the United States vetoed a U.N. Security Council resolution on Israeli settlements in occupied Palestinian territories. The vote raises a question: Who dominates in the alliance between America and Israel?

Judging from the extent to which one partner defies the will of the other, decade after decade, the world's only superpower is the weaker partner. When push comes to shove, American presidents tend to bow to Israeli wishes. Barack Obama is no exception, or he would not have instructed his ambassador at the United Nations to vote against a policy he himself stated clearly in the summer of 2009.

"The United States does not accept the legitimacy of continued Israeli settlements. This construction violates previous agreements and undermines efforts to achieve peace. It is time for these settlements to stop," he said in a much-lauded speech in Cairo.

from Bernd Debusmann:

In America, violence and guns forever

Another American mass shooting. Another rush to buy more guns.

On the Monday after the latest of the bloody rampages that are part of American life, gun sales in Arizona shot up by more than 60 percent and rose by an average of five percent across the entire country. The figures come from the FBI and speak volumes about a gun culture that has long baffled much of the world.

The Federal Bureau of Investigation compared January 10, 2011, with the corresponding Monday a year ago.

So what would prompt Americans to stock up their arsenals in the wake of the shooting in Tucson that killed six people and wounded 14, including Gabrielle Giffords, the congresswoman who was the target of an unhinged 22-year-old who has since been charged with attempted assassination?

Obama, Moses and exaggerated expectations

-Bernd Debusmann is a Reuters columnist. The opinions expressed are his own-

President Barack Obama is close to the half-way mark of his presidential mandate, a good time for a brief look at health care, unemployment, war, the level of the oceans, the health of the planet, and America’s image. They all featured in a 2008 Obama speech whose rhetoric soared to stratospheric heights.

“If…we are willing to work for it, and fight for it, and believe in it, then I’m absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs for the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last best hope on earth.”

The date was June 3, 2008. Obama had just won the Democratic Party’s nomination as presidential candidate. He was also winning the adulation of the majority of the American people, who shrugged off mockery from curmudgeonly Republicans who pointed out that the last historical figure to affect ocean levels was Moses and he had divine help when he parted the Red Sea.

Looking for Keynes’ angels

Keynesian stimulus works perfectly, but only if you can find politicians who don’t care about re-election and central bankers who aren’t interested in being liked.

The Obama administration, confronted with staggeringly high unemployment and a struggling economy, has proposed another round of, well, stimulus, this time in the form of tax cuts and investment incentives, but such is the toxicity of the word in current debate they can barely bring themselves to utter the “S” word.

As envisioned by economist John Maynard Keynes, in order to successfully run an economy based on counter-cyclical spending during downturns, you need to also have a policy of counter-cyclical savings during fat times. Budget surpluses must be built up so that they can be run down during recessions

The U.S. war in Iraq is over. Who won?

The end of America’s combat mission, after seven and a half costly years, has raised questions that will provide fodder for argument for a long time to come: Was it worth it? And who, if anyone, won?

It’s too early to answer the first question, according to U.S. Secretary of Defense Robert Gates, a man of sober judgment. “It really requires a historian’s perspective in terms of what happens here in the long run … How it all weighs in the balance over time remains to be seen.”

For a sizeable group of Middle East experts, the second question is easier to answer than the first. “So, who won the war in Iraq? Iran,” says the headline over an analysis by scholar Mohammed Bazzi for the Council on Foreign relations, a New York-based think-tank. His argument: “The U.S. ousted Tehran’s sworn enemy, Saddam Hussein, from power. Then Washington helped install a Shi’ite government for the first time in Iraq’s modern history.

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