James Pethokoukis

Politics and policy from inside Washington

An economic inflection point for Obama?

Jul 8, 2009 21:27 UTC

The current state of Obamanomics, according to former White House economist Keith Hennessey:

For the time being, the Administration and its allies are implicitly wagering that the new jobs report is not an early warning sign of a new downward trend.  They are sticking to their existing policy and message.

I see at least five challenges on the path they have chosen:

  1. It might be wrong.  If the July employment report (to be released August 7th) is worse than the June report, the Obama team will look like they have missed a turning point.  In their preemptive defense, it’s often quite difficult to identify turning points.
  2. The Vice President’s comment that “we misread the economy,” followed by the President’s comment that “we had incomplete information,” undermines confidence in the Administration’s ability to diagnose and address major macroeconomic trends.  Sticking with the current path under potentially changed circumstances risks reinforcing this feeling.
  3. They have to rally nervous allies to echo their message that “the stimulus is working,” while the evidence to prove this is in question.  Just as it’s impossible for opponents to prove that the stimulus did not “save or create” jobs, it’s impossible for the Administration to demonstrate that 467,000 lost jobs is better than it would have been without the stimulus.  On a raw political level, how do you convince people that the stimulus is working when the economy is still in visible decline?
  4. They have to publish the Mid-Session Review of the President’s Budget this month, with a new updated economic forecast.  That forecast was almost certainly locked down weeks ago.  Do they revise it downward based on last week’s bad jobs data?  Either choice has significant downsides.
  5. They have to combat a press trend for a “weakening U.S. economy” storyline to overwhelm their desire to move health care legislation through the Congress in July.  This storyline has exploded today in the Washington-centric press.

The healthcare surtax and US competitiveness

Jul 8, 2009 19:14 UTC

The Cato Institute put together a nice chart looking at global tax rates:



i wonder just how long before living here in the US is just not worth it any more and time to head over seas. I am not interested in working for the gov and having my wife and daughter working for the gov. And yes i believe that the IRS, Congress and President Obama wants everyone to work and die with nothing. Just kick back and see what happens when more and more Rich people head out of the country to escape taxes.

Posted by roger o. | Report as abusive

A lose-lose proposition for Obama

Jul 8, 2009 17:13 UTC

My sometimes CNBC debating partner Noam Scheiber wonders at what point people totally start freaking out over the unemployment rate,  so much so that they don’t care about the deficit:

If you’re Obama, I guess the problem is that you want to prevent us from getting to that point. But, if you’re successful, then those pesky deficit concerns stick around. It’s not very comforting to know that you suddenly won’t have to worry about the deficit (politically) when unemployment is persistently in double-digits.

My spin: Actually, it’s much worse for that.  High unemployment will heighten the feeling that the all that red ink was completely wasted by the Obamacrats.


Agree with your spin. Plus Noam Scheiber is generalizing that deficit spending by the gov. creates jobs, so you have to suffer one to improve the other. Completely false premise.

Deficit spending by the Fed’s for job creation is an exercise in ineffiency. It’s like going to a well to fill a bucket with water to take across a field to the seeds & thirsty, little green shoots. The hitch is that the “bucket” is Congress & it’s riddled with holes, & so the bulk of the water slips away to things that don’t count or help. Hey – it’s only water, could go back and fill the bucket again or just start borrowing from your neighbor.

Noam narrows ithe political problem to either/or — unemployment/deficits. Of more serious concern would be a coupling of food price inflation (it’s an El Nino year — droughts, anticipation of grain price increases) and unemployment. Or unemployment and a geopolitical event or some hacker messing with the electrical grid. Those would definately move those pesky deficit worries further down the list.

State Dept. Website Still Under Attack
http://www.bloomberg.com/apps/news?pid=2 0601087&sid=a.IwUiOEywSo

Posted by Siobhan Sack | Report as abusive

Maybe this is why the stimulus isn’t creating tons of jobs yet

Jul 8, 2009 16:53 UTC

Here is what the Government Accounting Office is saying about the progress of stimulus spending:

Across the United States, as of June 19, 2009, Treasury had outlayed about $29 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009.

And how is that $29 billion being spent? Like this (hint, not on infrastructure projects):


Obama, Congress made the stimulus ineffective as stimulus

Jul 8, 2009 14:17 UTC

Dan Clifton of Strategas Research makes some great points on the choices the Obamacrats made when constructing the stimulus plan:

We believe it’s not a question of the simulus being too small. The real issue is that it was designed very inefficiently, focused on longer term projects with long lags in distribution, and not focused on remedying US economic problems.

At the end of the legislative process, three major provisions were scaled back to ensure the stimulus had very little impact in the near term: 1) Income tax cuts were reduced in size and scope, 2) The housing tax credit conditions made the provision meaningless and 3) The Net Operating Loss impacted very few companies. If these provisions survived in their original form, it would not matter much that the spending won’t really start having an impact by 2010.

But now that spending is the focus of the package, by its very nature it will take time to be spent and then actually impact jobs. Which begs the question, if another stimulus is put forth, is it just additional spending on top of what is approved?

My spin: When people say, “It’s Obama’s economy now,” this is what they mean.


What a waste. Is the government only capable of spending money inefficiently? How can Obama and Co. claim that they are committed to reducing the deficit & debt, when they are so eager to add additional spending that is not guaranteed to accomplish anything? It won’t be a stimulus, it will just be another feeding trough.

This brings up another point, regarding taxes. Obviously, the tax rebate and housing credit were ineffective, and the net-operating loss provision too narrow. So why don’t we take a different tax approach? We need an actively modulated corporate tax policy, that is specifically tailored to an economic climate, and takes into consideration sector strength.

Instead of credits, the IRS should vary corporate tax rates quarterly, based on macroeconomic conditions & net profits. This would then reduce the tax burden on struggling companies, but maintain or increase the rate on successful companies. When times are good the rate goes up, but when times are bad, the rate goes down. Currently, companies have a higher tax burden during recessions versus booms. This makes recovery even more difficult.

Posted by Greg | Report as abusive

Healthcare surtax another burden on US economy

Jul 8, 2009 13:51 UTC

As you are contemplating the idea of a (perhaps ) $300 billion surtax on wealthier Americans to help pay for healthcare reform, consider that ALREADY the potential growth rate of the US economy has been lowered by all the government intervention in the economy. In a recent research note, economist David Rosenberg said he was worried about the price-earnings ratio of the stock markets:

As an aside, with the U.S. government now putting its fingers into more than one-third of the economy (health, finance, autos, energy, housing), one would expect that the fair-value multiple in the future will be lower than it has been — given the implications for productivity and the potential non-inflationary growth potential.

Recall that already the top income rate is being raised to 40 percent … and higher investment taxes … and a possible cap-and-trade energy tax … and a possible Social Security tax hike. In addition, more of tax burden is being placed on a smaller segment of the population — nearly half of Americans pay no taxes. This is exactly one of the big problems California faces. In the end, Democrats are pusing for a costly healthcare reform measure at a time of huge deficits and tax increases during a terrible recession. Wrong formula, wrong model.


>In the end, Democrats are pusing for a costly healthcare reform measure at a time of huge deficits and tax increases during a terrible recession.

What are you talking about? The stimulus included $288 bln of tax cuts. It is simply not true that the Democrats have raised taxes during this recession. You’re not on Fox News or CNBC now — when you write in print these facts can easily be checked.

Posted by Kramer | Report as abusive