James Pethokoukis

Politics and policy from inside Washington

Supply-side Obama?

Dec 9, 2009 17:41 UTC

Larry Kudlow has a strange but oh-so wonderful thought:

The president’s jobs proposal includes a zero capital-gains tax-rate for small-business investors, and full cash-expensing for small-business investment in plant and equipment. These are potentially powerful incentives for the job-creating small-biz sector. They may only last for a year or so, depending on the mark-up. But they are good things in and of themselves, and they suggest that Obama is aware of incentive effects on economic growth.

Sure, the new spending is all wrong. That won’t create jobs, and will only bloat the deficit. But Obama’s language was on the supply-side, even in addition to the tax-cut proposals. He said growth will bring in revenues to cut deficits.

And there’s more. CNBC is reporting that the administration will dedicate $175 billion of TARP money to deficit reduction. This will leave about $140 billion of unused TARP money for spending — or for incentive tax cuts.

Now just think what would happen if a zero capital-gains tax rate were applied economy-wide for all investors. Or if Obama’s new supply-side thinking leads him to leave the cap-gains tax rate right where it is at 15 percent. Are the markets sniffing out a more centrist, pro-growth Obama? The dollar is rising, and gold is falling, so that might be the case. Growth solves inflation, and it can restore King Dollar to its throne. Growth can absorb Ben Bernanke’s free-money balance-sheet cash creation.

Is it possible that we are looking at a supply-side solution to the economy and the deficit?

COMMENT

I agree. Larry Kudlow is the best! I’d like to see more of him and his common sense.

Posted by gotthardbahn | Report as abusive

Obama and jobs, take two

Dec 8, 2009 19:38 UTC

A few thoughts on the Brookings speech:

1) Lots of big ideas from liberal thinks on  how to boost jobs. Obama pretty much took a pass.

2) Obama proposals certainly aren’t game changers

3) To a great extent, Obama will still be relying on the unspent 70 percent of his $787 billion stimulus plan, passed earlier this year, to perk up the flaccid labor market.

4) It’s clear that the deficit is driving policy.The high government debt-to-GDP ratio of the U.S. risks crowding out private investment, reducing the future potential of the economy to grow. And rising deficits increase investors’ fears about the creditworthiness of the U.S. government.

5) Obama needs to keep interest rates as low as possible to boost growth and not worsen interest payments. So no mega-stimulus. This is his version of Clinton’s bond market strategy.

Here is Michael Feroli of JP Morgan:

For now, we’re not pencilling in any major change to our growth forecast for 2010. Many of the proposals — listed below — are business tax cuts which are infra-marginal and will probably have a muted impact on behavior. In addition, there are some one-time tax cuts or bonus payments which are less likely to affect household behavior than more permanent tax cuts. It is possible that accelerated infrastructure investment and some other secondary proposals will be significant enough to lead to a forecast revision.

Proposals:
* One year elimination of capital gains on small business stock
* One year expensing of up to $250,000 of capital investment for small businesses
* One year extension of bonus depreciation expensing
* “A new tax cut for small businesses to encourage hiring in 2010″
* Eliminating SBA fees and increasing guarantees
* More infrastructure spending, including “merit-based” infrastructure
* Incentives for energy efficient home retrofits, including expanding programs from the first stimulus
* Extending unemployment insurance (presumably extending past December 31, not extending past 99 weeks).
* Extending COBRA benefits
* Another $250 one-time bonus payment to social security recipients
* “Taking steps to ensure that state and local governments are not forced to layoff teachers”

Cost-benefit analysis of jobs stimulus

Dec 7, 2009 17:23 UTC

Hopefully any new plan will have a better ROI than the current stimulus package. Economic analyst  Ed Yardeni runs the numbers:

The Obama Administration is touting that their stimulus program has saved or created 640,329 jobs since it was enacted back in February through the end of October. This number is updated and posted on the Administration’s recovery.gov web site. That amounts to $246,436 per job based on the $157.8bn that has been awarded so far! Total compensation earned by the average payroll employee during October, on an annualized basis, was $59,867. If the government had simply used the funds awarded so far to pay for a year’s worth of labor, that would have paid for 2.6mn jobs!

James Pethokoukis is the money and politics columnist/blogger for Reuters Breakingviews. Previously, he was the economics columnist for U.S. News & World Report where he wrote the monthly Capital Commerce magazine column. Pethokoukis was also the managing editor of the magazine’s Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor’s Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network’s Kudlow & Company, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.james.pethokoukis@thomsonreuters.com

COMMENT

I agree with the above post, and the post above that. I highly doubt that jabs were actually considered with the health care.

Posted by josephmorris90 | Report as abusive

The White House and jobs stimulus

Dec 3, 2009 20:07 UTC

From Marc Ambinder:

Really: the White House does not seem to believe that (a) anything sensible to meanginfully reduce the unemployment rate can be proposed, completed and paid for — and executed — by next November. Nothing, in any event, that wouldn’t jeopardize recovery in the long-term. This frustrates people in the party to no end, as well it might.

More Washington budget gimmickry

Nov 27, 2009 18:18 UTC

Karl Rove makes a good point:

The administration says it is now instructing agencies to either freeze spending or propose 5% cuts in their budgets for next year. This won’t add up to much unless agencies use the budgets they had before the stimulus inflated their spending as their baseline in calculating their cuts.

For example, if the Education Department uses its current stimulus-inflated budget of $141 billion instead of the $60 billion budget it had before Mr. Obama moved into the White House, freezing its budget will do nothing to fix the fiscal mess the president has created.

Me: Indeed, one thing to watch out for is how these elevated, stimulus-related spending levels become incorporated into budget baselines.

COMMENT

There are some that have credibility on the deficit (Bartlett, Rubin etc.) there are others that do not. Those who cite folks like Rove and claim to be anything other than polemic deserve derision. Do you perceive Karl Rove as a legitimate expert? Can you rebut the substance of my comment which directly rebuts Rove’s alleged insight?

Posted by Chi Democrat | Report as abusive

Might the Bush tax cuts be repealed before 2011?

Nov 23, 2009 20:02 UTC

I have to admit, this scenario does make a lot of sense:

In a word, yes. Back in August 1993, President Clinton passed the largest tax increase in history – the Omnibus Budget Reconciliation Act of 1993 (OBRA) – and made it retroactive to January of that year.

It was challenged in court, and the court held that retroactive tax increases were legal. This was not the first time this sort of chicanery had been pulled. (You can read more on the topic of retroactive taxes by clicking here.)

Why am I so confident this trap is being set? Nancy Pelosi herself tipped her hand on the retroactive tax plan when she said last January she wanted Congress to repeal Bush’s tax cuts well before their scheduled expiration date. An early repeal of the Bush tax cuts was also one of President Obama’s campaign promises.

The administration and its allies have since gone quiet on its intentions. But that’s only because they want to avoid triggering a stock selloff before the end of 2009. That all changes once the ball drops in Times Square this coming New Year’s Eve. At that point, it will be too late to escape.

Me: Perhaps this is how Team Obama means to help pay for the second stimulus, assuming they don’t intend just to borrow it all.

Sinking Dem polls force Stimulus 2.0

Nov 13, 2009 12:31 UTC

Get ready for Stimulus 2.0 — Extreme Jobs Edition. Yes, the U.S. labor market is slowly healing. The declining number of monthly job losses and weekly initial unemployment claims show that. Yet President Obama still felt the need to announce a ‘jobs summit’ at the White House next month.

That’s compelling evidence that the White House doesn’t believe the job market is mending nearly fast enough to keep unemployment from trending higher — or Democratic electoral prospects in 2010 from trending lower.

The summit is likely a table setter for Obama to announce Stimulus 2.0 (though he surely won’t use the word ‘stimulus’) at his State of the Union address in January. Indeed, Harry Reid is already cooking up a plan in the Senate.

How much money are we talking about? Alec Phillips of Goldman Sachs calls $250 billion over three years a “conservative” estimate. And what might be in the bill? Look for more highway spending, more aid to state and local governments and some sort of business hiring tax credit.

All this represents a sharp departure in message from the White House, which has previously counseled patience. Let the $787 billion American Recovery and Reinvestment Act work, Team Obama kept saying. Even as the unemployment rate blew past 8 percent — a level of joblessness that the stimulus was supposed to prevent — the White House stuck to its guns and dismissed the need for significant new job creation efforts.

On the political side, there were fears that a new package would be tantamount to admitting Stimulus 1.0 was a failure and that it would distract from healthcare reform. On the economic side, many advisers wanted Obama to pivot toward deficit reduction as soon as possible and not spend more on stimulus.

(Indeed, the summit news came as the idea was floated that the administration might use unspent TARP funds for deficit reduction. Obama may also use the January address to announce a commission to deal with the long-term fiscal deficit as well as near-term limits on discretionary spending. Not only is the White House trying to appease bond vigilantes, but also moderate Democrats.)

But economic anxiety and impatience proved lethal for Democrats in the New Jersey and Virginia gubernatorial races, and may cost the party again in the 2010 midterms. That and the surge to double-digit unemployment changed the White House calculus. And don’t think David Axelrod didn’t notice that Republicans have overtaken Democrats 48-44 in the generic congressional ballot.

The new emphasis on jobs might be too late. Indeed, “new” is the appropriate word since the first package was not geared toward creating jobs so much as increasing economic output, as Lawrence Summers recently clarified. Temporary income tax cuts and credits, for instance, have a poor record of generating jobs.  As it is, some economists are looking for unemployment to hit 11 percent in 2010. David Rosenberg of Gluskin Sheff doesn’t see 13 percent as out of the question.

But better for the White House, from its perspective, to take the initiative and adjust their 2010 agenda now — so long cap-and-trade –  than have Speaker John Boehner do it for them in 2011.

COMMENT

The economy will heal faster if they just leave it alone.This is not a standard, run-of-the-mill recession, caused by routine business cycle oversupply and under-demand. I wish they would stop treating as one.This recession is a restructuring, driven by excessive debt… personal, business, and government; both here and abroad. And since all of this “stimulus” is borrowed money, the positive effects of the spending cannot exceed the negative effects of the new debt.After all, if the problem is too much debt, how can more debt fix it?

Posted by Three Chord Sloth | Report as abusive

Obama, crony capitalism and blue-collar jobs

Nov 11, 2009 15:43 UTC

Joel Kotkin has a great piece on how Obama can still save his presidency. The bit on jobs is particularly good:

The key rule of Chicago politics is delivering the spoils to supporters, and Obama’s stimulus program essentially fills this prescription. The stimulus’s biggest winners are such core backers as public employees, universities and rent-seeking businesses who leverage their access to government largesse, mostly by investing in nominally “green” industries. Roughly half the jobs saved form the ranks of teachers, a highly organized core constituency for the president and a mainstay of the political machine that supports the Democratic Party.

The other winners: big investment banks and private investment funds. People forget that Obama, even running against a sitting New York senator, emerged as an early favorite among the hedge fund grandees. As The New York Times’ Andrew Sorkin put it back in April, “Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote.”

The Chicago approach works better in a closed political system controlled by a few powerbrokers than in a massive continental economy like the U.S. Health care and education, which depend on government largesse, are surviving.

But the critical production side of the economy that generates good blue-collar jobs – like agriculture, manufacturing and construction – is getting the least from the stimulus.

These industries need more large-scale infrastructure spending, as well as more focused skills training and initiatives to free capital for politically unconnected entrepreneurial businesses. Instead, productive industries face the prospect of more regulation while capital for small businesses continues to dry up.

Those in post-industrial bastions tied to speculative capital – think Manhattan and the Hamptons – are the ones most benefiting from Obamanomics. College towns like Cambridge, Mass., Madison, Wis., Berkeley, Calif., and Palo Alto, Calif., will also prosper, becoming even richer and more self-important. It seems, then, that Obama has done best for elite graduates of Harvard and Stanford and other members of the “creative class.”

The rest of America, however, is still waiting for a real sustained recovery. Industrial and office properties remain widely abandoned not only in Detroit but Silicon Valley. The future sustainability of our economy depends mostly on what happens to those who previously staffed these facilities – those who produced actual goods and services – not just on a relative handful of people working at Google or the national laboratories. In other words, we need jobs for machinists, welders and marketers as well as scientists with Ph.D’s.

COMMENT

How can Obama save his presidency? It is the platform of the modern Democratic Party to lift up the impoverished, salute the failure, reward the takers, applaud the indecisive and elevate the self-centered to assure us more of these in the future. In giving away the treasure of the nation, they increase the line for hand-outs beyond all ability to satisfy. The downward slope increases its steepness and slip each moment. The result is to assign a willing dictator the control and management of what remains. Is this the future of America, once the greatest nation in the world for individual freedom and prosperity? The 19th century Democrat was the libertarian following Jefferson, cited in THE CHANGING FACE OF DEMOCRATS on Amazon and claysamerica.com. The 20th century Democrat follows Rousseau and Marx and condemns individual freedom, the free market and American exceptionalism to the ash heap of history, all at the hands of Obama and his cadre of communists. Khrushchev was right, that we will impose communism on ourselves, and we are doing it right now.

Geithner, the dollar and the deficit

Nov 11, 2009 15:10 UTC

First, Geithner on the dollar and deficits:

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” Geithner said in a meeting with Japanese reporters at the U.S. embassy.  “We bear a special responsibility for trying to make sure that we are implementing policies in the United States that will sustain confidence … in investors around the world that as growth recovers and growth strengthens that we’re going to bring our fiscal position back to a sustainable balance,” he said.

Now, Harry Reid on job creation:

Senate Democrats will take up a new job-creation bill in the wake of the 10.2 percent unemployment rate, Majority Leader Harry Reid told his colleagues Tuesday. … House Democrats have signaled openness to a tax credit for each new hire companies make, but lawmakers have yet to introduce a bill proposing it.

Me: Look, it is going to be jobs first, deficit second with the ObamaCrats. I would not be surprised if Obama’s State of the Union address paired a near-term jobs bill with some commission to deal with the longer-term deficit so as to not freak out the bond vigilantes. A jobs bill would also leapfrog past cap-and-trade, which is starting to look like a 2011 issue.

An economic counter-factual

Nov 4, 2009 21:39 UTC

Scott Grannis, the Calafia Beach Pundit, outlines a different “stimulus path”:

Meanwhile, though, the unemployment rate is going to remain uncomfortably high, especially for all those politicians who argued so fervently early this year that dumping a trillion dollars of tax rebates, transfer payments, make-work projects and general government largess into the economy over a period of years would guarantee a quick economic turnaround. As the evidence accumulates, we see instead that it would have been far better to just let the economy follow its own course. Better still, we could have used the money in a much more intelligent fashion by making permanent cuts in marginal tax rates that would have quickly resulted in more work and more investment.

COMMENT

But the banks needed the money.They NEEDED it! You know: to get money flowing again.or throw down with more Monster Bonuses.6 of 1… It all trickles down, right?

Posted by bryan | Report as abusive
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