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Tuesday, March 10, 2009

The Bizarro World of George Stephanopolous

George Stephanopoulous reports that some Democrats are already laying the groundwork for a second stimulus. It is, however, how he framed this report that is stunning.

With murmurs becoming louder this week for the possible need for a second stimulus package, House Democrats were presented today with a report that may give them the cover they need to start setting expectations for a second stimulus.

The report by a group of economists including Mark Zandi, chief economist of Moody's, says the recently enacted $787 billion stimulus package will fall far short of the Obama administration's goal of saving or creating 3.5-million jobs.

Zandi said only 2.5 million jobs will be saved or created over the next two years, and told House Democrats that a second stimulus is needed as well as more money for banking stabilization and housing.

So, let me see if I understand Mr. Stephanopoulos correctly, if the first stimulus fails to meet its goals, that is the cover those that pushed it to get another massive stimulus.

Now, I understand that Mr. Stephanopoulos makes his living in political strategy and analysis, however it appears that I will have to give Mr. Stephanopoulos a lesson. There is no second stimulus. The president will NOT under any circumstances have the political capital to get another one. Whether the first one is seen as working, or seen as failing, there is no second stimulus.

In fact, on this point, I am in the dubious position of agreeing with Paul Krugman.

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

Krugman is from the hyper Keynesian camp that said that we need to spend trillions to get us out. The President settled on nearly $800 billion. The president has made his stimulus bed and now he will sleep in it. If this stimulus doesn't stimulate, that's it, for stimuli and his presidency.

Krugman is absolutely correct (I shriek) that if this stimulus is seen as not working, whatever the reason economically, that will be an indictment of the overall philosophy. There is no second stimulus. If this one has failed, the Republicans and the public at large will demand an entirely new economic philosophy.

If we are still near or at double digit unemployment next year, you can expect a steady drumbeat from Republicans and the public of tax cuts and cuts in government spending. They will get it because President Obama put his entire presidency on this stimulus. This one has to work or he is through. It was, in his words, necessary and needed to be done immediately. Furthemore, it was, in his words, the exact right amount. Perceived failure is NOT cover for more of the same PERCEIVED FAILING policies. It belies someone with as much political experience as George Stephanopoulos to know such basic and trivial political matters.

So, Republicans, fiscal conservatives, and anyone else that opposes the first stimulus, let one thing be known. There are no more stimuli. The president has one shot and one shot only. After that, there is no political capital for more.


Anonymous said...

Mike, what makes you think the Republicans have any say on how much political capital Barak Obama has? The Republicans essentially campaigned during the 2008 election on the idea that Obama and his supporters aren't legitimate Americans. In the end, Obama won relatively easily, and almost won a fillibuster proof majority in the Senate and a blue-dog proof majority in the house.

If he wants to pass 5 more stimulus bills, do you really think he's going to ask permission? If anything, he'll be able to use this to campaign in 2010 for a full filibuster proof majority in the senate. And I don't think the voters are going to find a handful of tea party radicals much of an alternative.

And really, that's all you have. The Republican party is sorely lacking in elected leadership right now.

mike volpe said...

I don't know what any of what you said means, especially the "they campaigned on Obama and his supporters aren't legitimate Americans".

What I do know is that he barely got the first stimulus passed. That stimulus was passed with his approval at all time highs. If this stimulus is seen as not working, his approval will not be very high. Democrats will see much less political upside to blindly going along with another stimulus package.

The last so called tea party had 15000 people. So, that is a bit more than a handful.

Wolf said...

He may be able to get another stimulus bill passed, if say by a year from now we have at least reversed the extreme down-trend. And also keep in mind we are most likely going to get Al Franken seated at some point, and therefore 59 Democratic senators. Krugman is pointing out a "nightmare" scenario, not what he thinks will happen for sure. If Obama doesn't wait too long to do what Krugman keeps on suggesting, a proper temporary nationalization/receivership and re-privatization of big banks (and not this pseudo-nationalization/bailout strategy that has no chance of working), and is thereby able to heal the mortal wounds on our economy, then by a year from now the economy should have gone through the worst and survived it, though it will still be in the state of needing reconstruction (i.e., the economy would be like London after WWII). But the public would finally see the light at the end of the tunnel, and I think another stimulus could make it through. But you are right if we keep doing diddly to fix the bank problems-- in that case things will only keep getting massively worse, and the public opinion will sway vastly away from Obama.

mike volpe said...

First, a bank nationalization is not a stimulus. A bank restructuring is not a stimulus. Most importantly, a bank restructuring is not a bank nationalization.

That said, by your standards, here is what will happen. The Republicans will rightly point out that any furtherm massive stimulus will only create massive inflation. At that point, if the economy is moving forward, we will have to deal with the inflationary effects of massive borrowing. Any more massive borrowing will create even more inflation.

There will be no more stimuli.