Why the President Doesn’t Present a Bold Plan to Create Jobs and Jumpstart the Economy

by on August 11, 2011 · 6 comments

in Economy

By Robert Reich / Tuesday, August 9, 2011

Americans are deeply confused about why the economy is so bad – and their President isn’t telling them. In fact, the White House apparently has decided to join with Republicans and blame it on the long-term budget deficit.

Before I turn to the President, though, let’s be clear: The lousy economy is due to insufficient demand. Consumers – who are 70 percent of the economy — can’t and won’t buy because they’re running out of cash. They can’t borrow against homes that are worth a third less than they were five years ago, and most consumers are bad credit risks anyway because they’re losing their jobs and their wages are dropping. They also have to start saving for the kids’ college or for retirement, which will cut their spending even more.

Without enough consumers, businesses won’t hire enough people and pay them enough to reverse the vicious cycle. So we’re dead in the water. Even the stock market has caught on to the truth.

Which means government has to step in to boost the economy – as it has every time the economy has fallen into recession over the last eight downturns. Include the massive spending on World War II that lifted us out of the Great Recession, and it’s nine. The Fed can help, but it can’t do it alone. And it’s least helpful after a huge asset bubble has burst because the financial system won’t channel low interest rates where they’re most needed – to small businesses and average consumers.

This time we tried one stimulus that was way too small relative to the size of the falloff in demand that started in 2008 — especially given that states and locales cut their spending by almost as much as the federal government increased it.

So we need another – a bold jobs plan. (I’ve offered an outline of what it might look like in prior posts.)

Which gets me to the President. Even though the President’s two former top economic advisors (Larry Summers and Christy Roemer) have called for a major fiscal boost to the economy, the President has remained mum. Why?

I’m told White House political operatives are against a bold jobs plan. They believe the only jobs plan that could get through Congress would be so watered down as to have almost no impact by Election Day. They also worry the public wouldn’t understand how more government spending in the near term can be consistent with long-term deficit reduction. And they fear Republicans would use any such initiative to further bash Obama as a big spender.

So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit. The idea is to keep the public focused on the deficit drama – to convince them their current economic woes have something to do with it, decry Washington’s paralysis over fixing it, and then claim victory over whatever outcome emerges from the process recently negotiated to fix it. They hope all this will distract the public’s attention from the President’s failure to do anything about continuing high unemployment and economic anemia.

When I first heard this I didn’t want to believe it. But then I listened to the President’s statement yesterday in the midst of yesterday’s 634-point drop in the Dow.

At a time when the nation’s eyes were on him, seeking an answer to what was happening, he chose not to talk about the need for a bold jobs plan but to talk instead about the budget deficit – as if it were responsible for the terrible economy, including Wall Street’s plunge. He spoke of Standard & Poor’s decision to downgrade the nation’s debt as proof that Washington’s political paralysis over deficit reduction “could do enormous damage to our economy and the world’s,” and said the nation could reduce its deficit and jump-start the economy if there was “political will in Washington.”

The President then called upon the nation’s political leadership to stop “drawing lines in the sand.” The lines were obviously Republicans’ insistence on cutting entitlements and enacting a balanced-budget amendment while refusing to raise taxes on the rich, and the Democrats’ insistence on tax increases on the rich while refusing to cut entitlements.

These partisan “lines in the sand” are irrelevant to the current crisis. They’re not even relevant to the budget standoff now that Congress and the President have agreed to a process that postpones the next round of debt-ceiling chicken until after the election.

But that process itself will offer enough distraction over coming months to let the White House avoid coming up with a bold jobs plan – even if the nation succumbs to a double dip.

The drama continues this week and next as congressional leaders decide on their “super committee” of 12 lawmakers (six from each party). It then runs for another three months as the super committee decides on $1.2 trillion of proposed cuts, culminating in a tumultuous December when Congress votes on the package. Then we’ll have more drama if, as seems likely, Congress votes it down and the budget triggers go into effect – cutting sharply into defense and Medicare. But this stage won’t require any new decisions from Congress or the White House because the cuts happen automatically.

After that, we’re deep into campaign season and very possibly a double dip recession. Republicans will blame “big government” and the President and Democrats will blame Republican intransigence over the budget.

During yesterday’s pep talk, Obama restated his small-bore calls for extending a payroll tax cut that expires at the end of the year, extending unemployment insurance benefits, and creating an ill-defined “infrastructure bank” to create construction jobs. But these policy miniatures were added as a postscript to the debt talk, as if he felt obligated to mention jobs.

There’s still time for political operatives in the White House – and the person they work for – to change their minds. If economic stresses increase, Americans may insist on government doing more. A CNN poll released Monday found 60% believe the nation remains in an economic downturn and conditions are worsening. Only 36% believed that in April.

But for now the President is being badly advised. The magnitude of the current jobs and growth crisis demands a boldness and urgency that’s utterly lacking. As the President continues to wallow in the quagmire of long-term debt reduction, Congress is on summer recess and the rest of Washington is asleep.

The President should present a bold plan, summon lawmakers back to Washington to pass it, and, if they don’t, vow to fight for it right up through Election Day.

{ 6 comments… read them below or add one }

avatar Andrea Bois August 11, 2011 at 3:11 pm

I tweeted my solution to BO, it’s simple:make EVERYTHING cost 75% less than is does now. Done. Next? He has not responded…
It would be a win/win for everyone, even them…
Just think how rich you’d be!


avatar SDBeachguy August 11, 2011 at 4:06 pm

Too bad no one listens to Bob Reich! His continued calls for fed investment fall on closed ears and minds as the Capitol crowd runs for cover and blames each other for our problems.

I do disagree with him about the potential of the infrastructure bank to pull us out of the death spiral we are in.

By coupling “repatriation” of the corporate dollars that are parked offshore to investing in the infrastructure bank, Congress can fund it without further deficit spending, bring jobs to the very industry that is the largest drag on the economy, construction, provide sorely needed jobs and infrastructure improvements to our cities and towns and increase revenues to the state and fed coffers through normal channels of collection of payroll and sales taxes .

This has the added benefit of realistically bringing both parties together to produce meaningful national legislation that changes the economic course of our country.


avatar Allen Lewis August 11, 2011 at 4:28 pm

I must say that it isn’t a matter of how much $ that’s generated, with out of control spending our government will just spend more. we need more than two real parties and a flat tax for all. Our government is a big collage sorority, they went to the same schools and play by the same play book, the piss ants, dirty rats and the fat cats. This is going to stay the same intel we the people kick the hole lot of them out. This government is unfixable.


avatar Allen Lewis August 12, 2011 at 12:13 pm

Thomas Jefferson said in 1802:
“I believe that banking institutions are more dangerous to our liberties than standing armies.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered.”


avatar cahlo August 13, 2011 at 8:07 am

obama has no clue…….


avatar momentum858 August 13, 2011 at 10:23 am

Adding to Allens comment: “the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered.”

Check out how much inventory ie REOs the banks are holding- a lot of prime properties they will not release and once a confirmed price support ie bottom in terms of real estate housing prices is in they will unload on the way up ie the subprime/real estate meltdown was orchestrated years in advance ie the Money Players knew what would happen and it happened exactly as they planned. Small-medium banks that are not connected with top money entities of this country have collapsed. When dust settles the remaining banks with prime inventory will be in a very strong capital position as will those individuals/companies/entities aligned with them. Many lost their home and equity and a few have gained and will gain much more in the coming years.


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