James Pethokoukis

Politics and policy from inside Washington

Obama pulled two ways on stimulus 2.0

Sep 2, 2010 20:20 UTC

Departing White House economic adviser Christina Romer says last year’s $814 billion stimulus package fell short. That may suggest those arguing for more fiscal action are gaining ground with the administration. But short of a renewed economic slump, electoral politics are working against more stimulus.

Not that Romer thinks all the spending and tax credits — originally calculated at $787 billion — didn’t work more or less as expected. She believes the U.S. economy would be in far worse shape today without them. But in her valedictory on Wednesday, Romer said the economic team failed to anticipate the violence of the recession. So despite the stimulus, the output gap and unemployment rate are far worse today than they expected in early 2009. But even with those original, overly rosy assumptions, Romer’s analysis back then suggested the stimulus plan should be bigger, around $1.2 trillion.

Her view was countered by rival adviser Lawrence Summers — he didn’t want President Barack Obama to even see that pricier option — and White House chief of staff Rahm Emanuel, who both thought the plan should be smaller for economic and political reasons. They won that debate. But Romer still thinks additional government action — more spending and more tax cuts — is needed. And given that the White House seems to be mulling fresh stimulus options, the president may now be inclined to agree with her.

Romer’s speech will surely give hope to liberal critics such as newspaper columnist and economist Paul Krugman who have been hectoring Team Obama to do more. And if Democrats suffer historic losses in the November midterms, her remarks may be a cornerstone of the case to replace Summers and perhaps even Treasury Secretary Timothy Geithner. The heightened expectation of changes in the administration’s economic team is illustrated by the speed with which a now-dispelled rumor about New York City Mayor Michael Bloomberg replacing Geithner spread through Wall Street and Washington this week.

But even a dramatic personnel shuffle won’t change the reality that the White House will almost surely face a far more hostile Congress in 2011. Angry liberals will want more spending, emboldened conservatives more tax cuts. Fashioning a politically viable compromise that makes economic sense and won’t alarm bond vigilantes will be a huge challenge. Romer should be relieved that it will be someone else’s.

And the Senate isn’t looking so hot, either …

Sep 2, 2010 19:29 UTC

The respected Cook Political Report:

The macro political landscape strongly favors Republicans and it is not likely that it will change much between now and November. As a result, a look at the 37 Senate races on the ballot shows some deterioration for Democrats in some of the 19 seats they are defending, while Republicans’ prospects have stayed the same or improved slightly in their most competitive seats. As such, it is now likely that Republicans will score a net gain of between seven and nine seats. While there is a plausible argument for how Republicans could net the 10 seats they need to win the majority, it remains an unlikely scenario today.

Right, Intrade gives a 45 percent chance of the GOP either taking the Senate (30 percent) or neither party controlling (15 percent).

Will Democrats lose 100 House seats?

Sep 2, 2010 17:54 UTC

Certainly the “whisper estimate” for Democratic House loses is now 50+ with plenty of upside risk. But my pal Andy Roth at the Club for Growth thinks the upside number could be quite large, indeed:

I’m tracking four of the prognosticators who rate House races — Cook, Rothenberg, Sabato and CQ.

There have been some updates since my last blog post, so I thought I’d update my rankings of Democratic seats in play.

Between the four an incredible 104 Democratic seats are in play, up from 103.  I think there are a few more seats that will come into play over the coming weeks.

– 36 (was 26) seats are very slightly to strongly leaning Republican.

– 21 (was 16) are pure toss ups to very slightly tilting Democratic.

– 29 (was 25) are leaning Democratic

That means an incredible 77 seats are very seriously in play.  Now, in fairness, I did change the methodology slightly.  I’m now using the most aggressive prognosticator.  I’m doing this because updates are slow in coming and the first one to call a race more competitive seems accurate.

Another 27 seats are rated likely Democratic but at least one of the four, and in 15 cases two or more of the prognosticators.

Obama’s Immaculate Concession?

Sep 2, 2010 17:25 UTC

The White House may be warming to the idea of using tax cuts to boost the U.S. economy. It’s a possible plan that could have scored loads of Republican votes had it been proposed in early 2009. But with the president’s popularity falling and congressional elections looming, support won’t be so easy to coalesce.

The Democrats must contend with a political crisis along with the possibility of another economic one. The November midterms could cost them losses on a scale of the 1994 defeats when Republicans took both the House and Senate. A Reuters-Ipsos survey shows more people now disapprove than approve of President Barack Obama’s job performance by 52 percent to 45 percent. And the GOP leads on issues such as the economy, spending and jobs in a new Gallup poll.

Not surprisingly, the administration would like to make a bold move on the economy. GDP growth has been decelerating, and unemployment seems stuck at close to 10 percent. But with Republicans blocking even a $30 billion small business lending proposal on Capitol Hill, more grandiose ideas seem like nonstarters.

On the surface, at least, tax breaks seem like potential logjam-breakers. Republicans already wants to extend all the 2001 and 2003 Bush cuts without paying for them. And cutting payroll taxes, an idea favored by many conservatives 18 months ago, may be one of the options the White House is examining. The approach makes some economic sense. The Congressional Budget Office ranks payroll tax cuts as one of the top ways to create jobs.

But the opposing philosophies haven’t yet gelled. The White House is still insisting on higher taxes for wealthier Americans, even though many Democrats are willing to extend those rate reductions. And Republicans are unlikely to go along with any plan that raises any taxes in 2010 – and they’re in position to just stall until 2011.

As it is, some critics are already calling Obama’s potential tax-cut embrace the “Immaculate Concession.” A really bad jobs report or a market plunge could help the two parties find common ground. But absent that, even tax cuts probably stand little chance in a hopelessly gridlocked Congress.