The president gave a strong, feisty speech last week. He addressed the dual problem of creating jobs in the short-run and reining in deficits and debt over the longer run. He gave very few details on his longer-run budget proposals but promised to supply these next week. I would have liked to have heard more of the details but will give him the benefit of the doubt for now. I find it encouraging that he signaled that he was going to ask the congressional super committee to “go big.” That is, he wants entitlement and tax reform to be part of a much bigger package, including greater restraint of Medicare and Medicaid spending. That won’t be pleasant news for his liberal base. But if he includes new revenues in the package that will be anathema to conservatives as well. The fact remains that we need both.
From a policy perspective, the jobs plan was full of worthy ideas that, if enacted, could have a very significant impact, reducing the unemployment rate by about one percentage point next year. The package was just under $450 billion and on an annualized basis is as big as the initial Recovery Act which, according to CBO, will reduce the 2011 unemployment rates between half and one and a half percentage points. (The effects were even bigger in 2010 when the fiscal stimulus was at its peak.)
The package contains a mix of job creating policies. However, it is more than half tax cuts, mainly payroll tax cuts for both workers and their employers. The average family will get an extra $1500 in take-home pay as a result. It also calls for an extension of unemployment insurance benefits but gives states a lot of flexibility to spend the money in new and innovative ways: they can use the funds to help someone start a small business, to allow people to work shorter hours, or to subsidize retraining and reemployment programs. Most of these provisions could go into effect almost immediately if Congress enacts them. Some of the infrastructure proposals are likely to take longer but even here there is innovation in the form of an infrastructure bank that will take decisions about which projects to fund out of political hands and leverage private sector capital.
From a political perspective, the president has a huge challenge in front of him. The term “stimulus” is now a dirty word, and most of the public believes (wrongly, in my view) that the Recovery Act was a failure and that it would be a waste of money to go down that road again. Republicans will play on and reinforce this view. But the president has laid down the gauntlet and put the ball in Congress’s court by proposing specific legislation and urging repeatedly in his speech that they enact his bill. If the economy continues to deteriorate, he can share the blame with them or even try the Harry Truman tactic of labeling them a “do-nothing” congress.
The president has also kept his moderate stripes. This has been a theme of his Presidency and one that seems to have the effect of pushing the Republicans ever farther to the right. Witness the kinds of nihilistic statements we heard from the Republican presidential candidates last week about Social Security, regulations of any kind, the value of fiscal and monetary policy, and the scientific validity of evolution and global warming. As the Washington Post’s Steven Pearlstein put it, if you want to repeal the 20th century, vote GOP. Despite the current strength of the Tea Party, in the end, the public may vote for moderation over a radical revision of the social contract.
But the outcome of the election depends primarily on the economy. And without something like the package the president is proposing – one that combines short-run job creating measures with long-term restraint – the economy, as well as his reelection prospects, are in big trouble.