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The Great Straddler???

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Post by Aaron Tue Jan 06, 2009 2:12 pm

Obama's kitchen-sink economics
His embrace of workable ideas could disarm a Congress used to ideological battles.
By The Monitor's Editorial Board
from the January 7, 2009 edition


What the US economy needs first is to be "stabilized," the president-elect told Congress this week as he re-entered a Washington used to ideological warfare. You name the economic approach – Keynesian, supply-side, monetary – and Barack Obama is up for doing what works, even with the kitchen sink thrown in.

"The monopoly on good ideas does not belong to a single party," he said, hoping to disarm even his leftist opponents as well as those on the right to get a package passed by mid-February.

The Great Straddler, however, seems reluctant to use the word "stimulus" after a year in which the economy remains in its worst downturn since World War II – despite rebate checks, Wall Street rescues, and near-zero interest rates.

Government still finds it hard to be a new locomotive for economic demand when its best role is laying down tracks for investors, businesses, and consumers to drive the market train.

Mr. Obama has now joined Ben Bernanke in declaring that orthodox thinking in government policy doesn't work in a severe crisis – a lesson the current Fed chief learned from his study of what failed before and during the Great Depression. The current aim, says Obama, is to simply "break the momentum of this recession."

Nimble, pragmatic steps so far by the Federal Reserve and Treasury have already broken the fall of Wall Street's credit markets, which were near collapse last autumn. Taxpayers may end up making money from their investments in distressed financial institutions.

But those moves only serve as a holding action while the general economy – from stocks to housing – continues to search for a market bottom at which investors and buyers will start to see value.

That point may come sooner if people are allowed to keep more of their money, which is why Obama plans to cut taxes for businesses, especially smaller ones that create the most new jobs, as well as for the nonrich, who tend to spend more of their income.

But even the rich – those households earning more than $200,000 – get a nod as Obama has decided not to repeal Bush tax cuts for them.

His nimbleness may come from the research of Christina Romer, his choice as chairwoman of his Council of Economic Advisers. Her work finds "tax increases have a large negative effect on investment." She also warns that history doesn't show that big government spending "is essential to ending recessions or ensuring strong recoveries."

In other words, there are no guarantees that Keynesian-style spending on roads, green jobs, or the like will create growth. Still, Obama is the promiser of hope, and his proposed spending package may at least stir a mass impression of forward motion even if it merely keeps the economy from tanking.

Congress may balk at Obama's attempt at nonideological economic management. Political pressure remains strong to help certain industries (home developers), financially troubled states (such as California), or homeowners who hold mortgages worth more than their houses.

But making people more dependent on government is hardly an economic boost. Creating conditions for them to thrive is a flag that everyone can rally around.
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Aaron
Aaron

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Post by Aaron Tue Jan 06, 2009 2:13 pm

His nimbleness may come from the research of Christina Romer, his choice as chairwoman of his Council of Economic Advisers. Her work finds "tax increases have a large negative effect on investment." She also warns that history doesn't show that big government spending "is essential to ending recessions or ensuring strong recoveries."

Sounds familar.
Aaron
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Post by sodbuster Tue Jan 06, 2009 2:53 pm

Well I kind of like the approach described here.

Everybody seems to want us all to declare if we are Keynesian or Smithian or whatever.

I say whatever works do it.

A rose is a rose. I dont care what they call it.

sodbuster

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Post by Aaron Tue Jan 06, 2009 2:55 pm

Seems the Great Orator thinks that tax increases reduces investment and spending doesn't stimulate the ecomony, neither of which originate from the democratic platform.
Aaron
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