Blog on the Run: Reloaded

Tuesday, August 23, 2011 8:11 pm

We’re so screwed, J. Bradford DeLong edition

Filed under: We're so screwed — Lex @ 8:11 pm
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Brad DeLong is an economist who firmly believes that to put people back to work, we need to be doing things we’re not doing now. And he is very concerned about the near- and medium-term future:

Back at the end of 2008, our questions (at least my questions) were: “What if the downturn is bigger than we currently think it will be? What if worries about a jobless recovery and the absence of labor-market mean-reversion turn out to be true? What if–as has happened in the past–this financial crisis turns into sovereign crises and the world economy gets hit by additional shocks? Then your polices will not be bold enough. What is Plan B?” And the answers were all along the lines of:

  1. You are a pessimist. We are already doing unprecedented things to stabilize the economy–and odds are that in a year we will be worrying about inflation and unwinding the stimulus rather than about unemployment.
  2. Obama is genuinely post-partisan, and won’t have anything like the trouble Clinton had negotiating with Republicans: our policies will evolve as the situation evolves.

Back in the late summer of 2009, our questions (or at least my questions) were: “You aren’t getting any cooperation from Republicans–they appear to have doubled down on the Gingrich-Dole strategy that you win the next election by making the Democratic President a failure. The economy really needs more stimulus. What are you going to do? Isn’t it time to use the President’s powers more aggressively–to use Fed appointment powers and the Treasury’s TARP authority and Reconciliation to do major stimulus?” And the answers were:

  1. We are doing all that we can.
  2. This is really hard.
  3. Things will probably still work out all right.
  4. If worst comes to worst, we will trade long-run budget balance via a spending cut-heavy package of long-run spending cuts and tax increases for short-term stimulus to get us out of the short-term unemployment mess.
  5. Hippie punching.

By the late summer of 2010, our questions (or at least my questions) were: “You are in a total war with the Republican Party. They aren’t giving you anything. It is time to seriously push the envelope of executive authority to put policies in place that will reduce unemployment.” And the answers were:

  1. The best policy is to achieve long-run fiscal discipline so that the confidence fairy will show up.
  2. Hippie punching.

And now it is the late summer of 2011. Our big question still is: how is Obama going to use executive branch authority to reduce unemployment? There are lots of options: adjourn congress and do some recess appointments to get the Federal Reserve more engaged in actually pursuing its dual mandate, quantitative easing via the Treasury Department, shifting Fannie Mae and Freddie Mac from their do-nothing position by giving them a microeconomic stabilization mission, talking about how a weak dollar is in America’s interest.

And this time what I am hearing back is only:

  1. Hippie punching.

It is difficult to read this in any way but as a group of people inside a bunker who (1) have been wrong about the situation, (2) are scared to use the powers they have to try to make things better, and (3) really do not like being reminded that they were wrong about the situation.

That seems to me to mean that the Obama administration right now has one and only one macroeconomic policy idea: hope that the country gets lucky.

As I’ve mentioned, there’s been some back-and-forth on the left about whether what Obama is doing is the right thing to do (and why he’s doing/failing to do what he’s doing/failing to do). This discussion, as have most of our discussions about politics and government during the past 30 years or so, has tended to focus more on tactics than on substance: Obama is doing all he can do in this environment vs. Obama should be using the bully pulpit to call out recalcitrant Republicans who are supposedly keeping him from doing the right thing.

My own suspicion is that Obama, for reasons I cannot fathom, has decided that the suffering of millions of un- and under-employed Americans here and now matters less than arriving at some kind of grand bargain on federal spending that may or may not make us better off in the future. I find this approach problematic for a number of reasons, not least the likelihood that nontrivial numbers of Americans will die prematurely as a direct consequence of Obama’s inaction on jobs.

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