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 Monday 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.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
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So GM starts building cars in Mexico instead to avoid fed taxes (not to mention high union wages) and we lose those jobs.
Obama is utterly clueless!
He'll stumble towards being what Krugman termed the second coming of Herbert Hoover -- going in mostly the wrong direction, based on really bad economic advice, but more based on constraints, and based on being way too political --
compulsive, obsessive, repeated compromise belies a real, consistent, underlying position of a kind of politics that tries to always be in the middle, and friends with everybody, including those that hate your guts ... (it inherently fails to see, and refuses to see, the impossibility of that approach having any hope whatsoever of actually working!)
he may well continue to stumble, right out of office in 2012 if he keeps this up!
I don't know why that isn't a more appealing agenda to politicians. They get to prop up phony prosperity a couple more years while they are in office, and they are comfortably retired when the seeds they planted have grown into a Great Hyperinflationary Depression.
So, the dollar weakens, then the dollar strengthens, then it weakens and so on...
Yes, we have got to rub these people's noses in reality and get the back to work ... at which point they will hire other people to work and we can start back up again.
I love the comments by those who are quick to blame Bush for creating such a "mess" but refuse to apply equal judgment on Obama who took that "mess" and made it much, much worse.
If it happened under Bush, it's Bush's fault (even when it was a global financial meltdown, decades in the making and brought on by both parties).
If it happens under Obama, then it's the fault of someone or something else, including more of Bush's fault.
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How is positive GDP growth (1.3 now) compared with negative GDP growth (-2.6 Jan/2009) much, much worse.
Decades in the making? Do you mean going back to Reagan and his voodo economics? I agree with that.
I remember Bush and the Republicans claiming it was all Clintons fault in the middle of the melt down in 2008. So Obama had a model to follow.
Hillary's tough as nails style is needed with any future tea party shenanigans.
Also, this would be a great for Hilary if she wants to run as President when Obama retires.
It's probably just easier to skate and do nothing.
I totally disagree with more stimulus. That was a total failure. Created temporary jobs at over 200 grand a pop. Not exactly efficient. The answer is get off small businesses back, give them some assurance you are their friend not foe, lift up taxes and regulations and then they will feel better about taking chances in hiring. That is the answer.
I cant believe I'm reading this.. Too Small? how about saying it was pathetically distributed and used for BS and maybe, barely, added or kept some jobs around.
The problem is consumer confidence and future outlooks. Businesses don't invest too much when these things are low - maybe the president needs to do something to encourage these things rather than just throw money at it. Inflation is rising enough please.
If progressives want a progressive agenda we need MORE progressives in Congress. Nader thought he could change things by running for president and all he did was get Bush elected. Nader could have been a major voice in the Senate or House if he ran and won there.
Congress passes legislation. If we want it to be progressive legislation in 2012 we need to put progressives into Congress, or at least get rid of the real regressives.
By the way, it might help if you clarified the difference between the deficit and the debt. They are not interchangeable terms.
The billion dollar question: How can a good candidate emerge in this rigged game?
Is an anti-Manchurian president all we can hope for? [A president who is elected with the blessings of BoA and Exxon, but round about mid-term somebody flips a switch and s/he starts fighting for the People.] Too bad a majority in both houses would also have to be switched for the democracy to be semi-functional.... and then there's the Supreme Court.
The only good so far to come out of this... the blip on BoA's stock price the past few days. I hope somebody over there is having a coronary. More likely, they are calling up all of their representatives, D and R, to make sure that more of our tax money or borrowed money is sent their way... or else they all shorted on themselves... or both. I'm confident that their quarterly report will be amazing and that their credit card division will use the Standard and Poors downgrade as an excuse to raise rates. Trickle up, tinkle down. [Going to MT to grow me some dentil floss.....]
The change Obama is heading towards is going to look like London soon enough, but the vigilante mobs in America will have automatic weapons.
One thing though I completely agree about the automatic weapons if we ever do rise up, but strangely enough it's just not happening. Day after day the news comes out worse and worse, and still nothing. I've come to some conclusions about why this is... The people with guns are happy about the way things are going (Fox News viewers) so they are to ignorant to rise up. People who are rising up now (Progressive activists) aren't getting any news coverage (Rebuild the Dream, Poverty Tour) unlike the Tea Party since Fox News covered their every move. So most people don't even know there are movements taking place. The point is the 4th estate has failed us, and are in bed with the corporations and politicians and unless and until the people wake up and realize that there will be no uprising.
What is needed is a grand compromise, not an Obama compromise that gave compromise a bad name - everyone should have the right to live, but in return, we all have to donate some service at different levels, including working to overthrow non-democratic nations.
We should do this by getting people to buy in, not by murdering and threats. If we cannot get people to support us, then we are not doing it right or trying hard enough.