Wednesday, February 11, 2009

In Obama's Press Conference on the Stimulus

Obama's Press Conference on the Stimulus Was Not Reassuring. By Philip I. Levy, Wednesday, February 11, 2009

The most interesting aspect of President Obama's prime time press conference yesterday was not the substance but the style. Without introducing any new plans, the president was making the case for the stimulus bill as best he could. I was disturbed by some of the rhetorical approaches he has adopted.

1. The Straw Man

"[T]he one concern I've got on the stimulus package, in terms of the debate and listening to some of what's been said in Congress is that there seems to be a set of folks who--I don't doubt their sincerity--who just believe that we should do nothing."

It's hard to rule out the possibility that there are such folks, but they are well-hidden. As far as I can see, there's pretty broad agreement that we have a crisis. There's pretty broad agreement that we should at least run a record-setting deficit of over $1.2 trillion this year (before any stimulus package). Then there are arguments over how we should spend trillions on some combination of spending programs, tax cuts, fiscal resuscitation, or housing market revival. Yet at least since his George Mason speech of early January, President Obama has made the argument that those who oppose his version of the stimulus favor inaction.

2. Fear

The President has argued repeatedly that if his plan is not adopted, disaster will ensue. This led to the first question last night, from Jennifer Loven of the Associated Press:

Earlier today in Indiana you said something striking. You said that this nation could end up in a crisis, without action, that we would be unable to reverse. Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?

Obama backed off a little, but not much. This is a particularly dangerous game. Some of the time, the administration pretends that they are responding to the crisis with scientific precision ("$800 billion... wasn't just some random number that I plucked out of a hat"). Other times, there's a recognition that public sentiment is playing a major role. $800 billion over several years is fairly small relative to the size of the economy; the goal is to lift public spirits. But the cries of impending doom can have the opposite effect. John Taylor argues that such cries from then-Secretary Hank Paulson and Fed Chairman Ben Bernanke, coupled with an inadequate response, helped bring on the worst of the crisis last fall.

The president's message seems to be that we should be so scared that we should not stop and subject the proposal to scrutiny. This was the sort of approach the president's supporters roundly denounced when it emerged in national security debates during the Bush administration.

3. Taxes and the election

Arguing against alternative proposals that rely heavily on tax cuts, the president said:

"What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested and they have failed. And that's part of what the election in November was all about."

My recollection of the November election was somewhat different. I recall promises of a tax cut for 95 percent of the public. I recall large posters on street corners in Northern Virginia that read "Obama-Biden: Lower Taxes." Neither then nor afterward do I recall the argument about how lower taxes brought on the current crisis. One might make that argument with respect to the deductibility of mortgage interest--a large subsidy to housing--but I don't believe the president has done so.

4. Earmarks and waste

"But when [critics] start characterizing this as pork without acknowledging that there are no earmarks in this package--something, again, that was pretty rare over the last eight years--then you get a feeling that maybe we're playing politics instead of actually trying to solve problems for the American people."

Here the president either misunderstands the concerns about wasteful spending or has succumbed to the peculiarities of Capitol Hill thinking in his short time there. He is correct that one can define an earmark as a spending suggestion tucked into a bill by a single lawmaker and not subjected to broad scrutiny. That's a more technical definition. A broader description, one more likely to drive public concern, is wasteful spending. Greg Mankiw cites an example from Milwaukee, which was to receive $88.6 million for new school construction in the stimulus package, even though it had vacant schools and declining enrollment.

That example is small relative to the overall package, but the lack of hearings and planning raise legitimate concerns that bigger ticket items, like approaches to renewable energy, could be equally misguided. The president is sidestepping the substance of the concern by focusing on the procedure: whether it is wasteful or not, it will receive a full Congressional vote and will be monitored to make sure the funds are spent as intended. That's not so reassuring.

5. Four million jobs

The key selling point, to which the president kept returning, was the jobs impact of the stimulus package. As he said ast night: "So my bottom line when it comes to the recovery package is send me a bill that creates or saves 4 million jobs...."

The implication is that White House economists can turn the dials and adjust the levers so as to achieve a particular level of employment in the economy. They cannot. He is basing the jobs estimate on an analysis by Christina Romer and Jared Bernstein. Romer is a highly respected economist and the numbers they provide are a reasonable guess. But they're just that--a guess amidst enormous uncertainty. A little history shows why it is misleading to think we can call up 4 million help wanted ads with a calibrated stimulus plan.

As Ben Bernanke noted in a 2004 speech, the economy in an average year creates 17 million jobs and loses 15 million, for a net gain of 2 million jobs. The President says he wants to "create or save" 4 million jobs, and this will be the key measure of his package's success. Given both normal and extraordinary labor market turmoil, such a change would be very difficult to measure. If the economy revives, 4 million gross jobs will seem small. If the economy does not, one can always argue that it could have been worse.

Last year the economy suffered a net loss of 3.6 million jobs. One of the striking features of that job-loss was that it occurred at a time when the economy was growing by 1.3 percent. This divergence between jobs and growth led to the breakdown of the old rule of thumb: a recession occurs when there are two consecutive quarters of negative growth. Yet it is exactly that broken-down relationship between spending and jobs that underlies the analysis promising the new jobs. The numbers are far more tenuous than the president lets on.

6. Bipartisanship

Throughout the press conference, the president was repeatedly asked about his pledges of bipartisanship. He noted that he had gone to visit Republicans on Capitol Hill and invited them to the White House. Perhaps a better measure of bipartisanship is the willingness to treat an opponent's arguments with respect.

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