The Obama presidential campaign was one of the all-time great branding efforts, from message to packaging to platform. So how disappointing it must be for the Obama administration that its signature achievement so far, the $787 billion American Recovery and Reinvestment Act, has been utterly misunderstood by the American public. Listen to what megabillionaire Warren Buffett, an unofficial Obama economic adviser, had to say earlier this week: “Our first stimulus bill, it seemed to me, was sort of like taking a half a tablet of Viagra and then having also a bunch of candy mixed in … It doesn’t have really quite the wallop that might have been anticipated there.”
And apparently the Oracle of Omaha isn’t the only person disappointed by the lack of a priapic jolt. A recent Rasmussen poll found that 45 percent of Americans think so little of the results so far that they want the rest of the new government spending in the plan canceled, compared to 36 percent who disagree and 20 percent who aren’t sure. Not surprisingly, 60 percent oppose a second stimulus plan, against 27 percent in favor. Been there, done that, didn’t get much out of it.
But the Obama plan was never meant to be Viagra. It was designed so that three-fourths of the spending would occur after 2009. Now the fastest way to inject money into a struggling economy is through tax cuts to individuals. But those made up just 70 percent of the Obama plan. And while government spending on infrastructure projects may provide more stimulus per dollar spent — at least this is what Team Obama believes — it is slower to come on line. Even the name of the plan was designed to send a “be patient” message. It could have been called the Get America Moving Act or the American Job Creation Act, but those titles would have been tremendously out of sync with what the ARRA was actually intended to do: boost the economy and jobs over the course of a long recession while also providing a downpayment on Obama’s healthcare, energy and education agenda. A two-for-the-price-of-one sort of deal.
And that political and economic calculus might have worked had the economy not fallen off a cliff. The unemployment rate is already higher than the administration’s worst-case scenario from last January and perhaps headed higher than the worst-case scenario found in its stress test for the banks.
And rising joblessness has joined with the housing crisis to create a vicious economic circle. Given all that, a pure dose of Viagra economics for the economy doesn’t sound like such a bad idea right about now, perhaps in the form a massive payroll tax cut. “The payroll tax cut of US$400 billion that we advocated last fall, if enacted in February, would likely have pushed us out of recession by now,” argue Morgan Stanley economists Richard Berner and David Greenlaw in a new research note. Instead, American got a program that was “heavily back-loaded and full of spending that is unlikely to be stimulative.”
Or perhaps with business and investor confidence so depressed, we need some Prozac economics, via a cut in corporate and capital gains taxes. At this point, the White House seems inclined to do none of the above, arguing for a wait-and-see approach, given than only 10 percent of the “stimulus” money has been pushed out the door. Maybe Team Obama fears a nasty bond market reaction at the prospect of even more government spending? Perhaps, though deflation rather than inflation seems in vogue among Wall Street worries.
But if a bond vigilante revolt is a concern — and it probably should be a consideration — why not combine a second stimulus with a plan to fix Social Security by moving back the retirement age and indexing benefits to wages rather than inflation? Such a move would turn the program’s long-term deficit into a surplus and show the United States is serious about fiscal reform.
In any event, cutting taxes seems to be nowhere on the congressional agenda. For instance, higher taxes on incomes and capital gains are being floated as one way to pay for healthcare reform. But as the jobless rate continues to rise — Buffett thinks 11 percent isn’t out of the question — both the White House and Congress might finally start reaching for the pills.