Editore"s Note
Tilting at Windmills

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December 8, 2010

THE EFFICACY OF A 'BACK-DOOR STIMULUS'.... For quite a while, a whole lot of political observers have hoped desperately that Congress would agree to some additional stimulus. As investments from the Recovery Act effectively run out, now is the ideal time to inject some additional capital into the economy,

With that in mind, the New York Times' David Leonhardt notes today the tax policy agreement between the White House and congressional Republicans amounts to a "back-door stimulus plan."

A year ago, President Obama and the Democrats made the mistake of assuming that an economic recovery was under way. This week's deal to extend the Bush tax cuts shows that the White House's top priority is avoiding the same mistake again -- even if it has to upset many fellow Democrats in the process.

Mr. Obama effectively traded tax cuts for the affluent, which Republicans were demanding, for a second stimulus bill that seemed improbable a few weeks ago. [...]

Tellingly, economists and Democratic policy experts were largely pleased with the deal. Forecasting firms on Tuesday upgraded their estimates for growth and job gains over the next two years. Economists at Goldman Sachs, who have been more negative and more accurate than most Wall Street forecasters lately, called the deal "significantly more positive" than they had anticipated.

And left-leaning policy experts said the package did more to create jobs than they had thought possible after the Republicans' midterm election victories.

What kind of results are economists expecting? Moody's Mark Zandi, an economist Democrats have turned to many times over the last couple of years, predicted the agreement would accelerate economic growth and create more than 1.6 million jobs next year. "It will ensure the economic recovery evolves into a self-sustaining economic expansion," Zandi said. "Prior to this, I was less sure of that."

In light of the deal, both Zandi and economists as JPMorgan Chase raised their forecasts for economic growth next year.

All of that's the good news, but critics of the deal on the left point to the flipside. And to be sure, their arguments have merit.

For one thing, the tax deal may have some positive, stimulative effects, but given the hole we're in, the improvements will be marginal. It's not like this one package will immediately get us back to where we were pre-recession. For that, we'd need an even bigger, more ambitious stimulus.

For another, if the goal is to craft a package intended to boost the economy, this agreement includes Republican ideas that offer little, if any, help. Given the price tag of the agreement, this could have been tailored in a far more effective way, were it not for GOP demands.

But then the political realities kick in. A better stimulus almost certainly can't pass, and the very idea of a stimulus wasn't even on the table as a possibility as recently as two weeks ago. And while we could better tailor the package, there's still the matter of the Republican hostage strategy and the broken legislative process in the Senate to deal with.

For some opponents of the plan, I suspect the principles at stake are paramount, and I can certainly appreciate why. But if the question comes down to an either/or scenario -- will the economy be better off if the agreement is approved? -- there appear to be quite a few credible economists arguing that passage is preferable to defeat.

Steve Benen 8:40 AM Permalink | Trackbacks | Comments (34)

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This is like a football coach, after at 77-7 loss, boasting that his team scored a touchdown.

Posted by: JEA on December 8, 2010 at 8:46 AM | PERMALINK

Leonhardt was on this from the beginning. Is it bad that the GOP gets its cuts for the wealthy? Likely, but who in their right mind ever thought ANYONE could get the GOP leadership to agree to another round of stimulus after November 2nd?

I hope the left realizes that compromise is often ugly, but its better than getting nothing at all.

Posted by: tonyroma on December 8, 2010 at 8:47 AM | PERMALINK

Yes, it's in no way the optimal plan,it is however the only plan with a shot a passage. Too bad R's are ideological, partisan jackasses but that is the reality of today's political environment. Sad, very sad as infrastructure spending is an investment in our future growth, tax cuts an investment in China's present growth (simplified). Better then nothing by a long shot.

Posted by: KK on December 8, 2010 at 8:49 AM | PERMALINK

. . . there appear to be quite a few credible economists arguing that passage is preferable to defeat.

Just how "credible" are they?

What did they say about the 2009 stimulus package? How early did they start warning about the impending mortgage crisis and Wall Street meltdown?

There are an awful lot of economists that "Democrats have turned to" whose predictions have missed by a mile. They repeat "conventional wisdom" because it gets them on the teevee alot, and nobody is rude enough to point out how consistently wrong they've been.

Posted by: SteveT on December 8, 2010 at 8:53 AM | PERMALINK

If the deal passes, the Republicans take ownership of the economy and the deficit. They got what they have promising will be the solution to all our problems. Now they have to figure out how to explain why it doesn't work.


Be careful what you wish for.

Posted by: Stephen on December 8, 2010 at 8:53 AM | PERMALINK

It is complete bullshit because the deficit financing aspect of it will empower the deficit hawks to seek offsetting budget cuts over the course the next two years thereby canceling most if not all of the stimulative aspect of the deal. There is a sucker born every minute.

Posted by: SW on December 8, 2010 at 8:53 AM | PERMALINK

>>But if the question comes down to an either/or scenario>>

But the question is broader than that. We can't just look at the plan in isolation. We have to look at the next two years, and beyond. If by agreeing to this plan, we've effectively let the Republicans do whatever they want, then the harm they can do may well outweigh any benefits from this plan.

Posted by: foosion on December 8, 2010 at 8:55 AM | PERMALINK

Since this bill impacts the deficit, why couldn't a bill which extended tax breaks ONLY for those earning $200,000-$250,000 PLUS extending unemployment insurance PLUS the additional tax breaks for the middle class and below, as well as raising the tax rates on dividends and capital gains and letting the estate tax rates return to normal....and leaving the payroll tax alone...which only endangers Social Security more... be passed using Reconciliation? After all, that's how both the Bush tax cuts were passed originally.

Posted by: winddancer on December 8, 2010 at 8:55 AM | PERMALINK

I have been thinking a lot about the deal. I think I finally come down thinking that we have to pass the damn deal. At the same time we have to make sure the Obama team understand that we on the left expect a little respect.

He needs to understand that we don't always have his back. He needs to court us just as much as he does Mitch McConnell.

Posted by: Ron Byers on December 8, 2010 at 8:59 AM | PERMALINK

"At the same time we have to make sure the Obama team understand that we on the left expect a little respect."

Tou're not going to get it. The sooner you understand that, the better.

Posted by: Ted on December 8, 2010 at 9:01 AM | PERMALINK

Oh, I still think congressional Democrats are among the real culprits in this mess. We still need to take over our local Democratic parties and push those clowns from the ground up.

Posted by: Ron Byers on December 8, 2010 at 9:02 AM | PERMALINK

How can the dems put any kind of dem label on what is essentially a Republican form of stimulus by tax cut? The Republicans would have gone for this deal with earnest in January of 2009. The dems, in grudgingly bipartisan manner, offered them about a third of the stimulus at that time in tax cuts which added little to job recovery. Now, the dem supporters of this deal, boxed into the Republican trap, are claiming victory for "their" stimulus measure. The Patty Hearst syndrome. The hostage takers won the hearts of the hostages.

Posted by: lou on December 8, 2010 at 9:13 AM | PERMALINK

Ron Byers said:
At the same time we have to make sure the Obama team understand that we on the left expect a little respect.

I believe that Obama spent years watching the Democratic "leadership" ignore the African-American community's interests while saying to themselves, "What are they going to do, vote for the Republicans?"

Obama and his administration seem to have decided that the left "learned its lesson" after supporting Nader in 2000 and don't need to be respected to fall in line.

Posted by: SteveT on December 8, 2010 at 9:13 AM | PERMALINK

They could call this the shotgun stimulus because it sprays money mostly in the wrong direction and the hope is a little will land on the people that need it. Sorry, this kool aid just doesn't taste right.

Posted by: tko on December 8, 2010 at 9:14 AM | PERMALINK

re: credible economists - Dean Baker has been remarkably accurate in his forecasts and supports the plan

Posted by: foosion on December 8, 2010 at 9:15 AM | PERMALINK

This is a classic clusterfuck, with blame to be apportioned equally between Obama on the one hand and the Democratic caucus on the other. With that said, Obama was -- finally! -- in leadership mode yesterday; he was passionate, focused, out front, and even angry. He wants this deal. And as mediocre as it is, it is ... well, ok. Dems ought to support it.

Posted by: sjw on December 8, 2010 at 9:16 AM | PERMALINK

Amazing that the WH, House, and Senate in Democratic hands still leads to capitulation to conservative demands. Why, it's almost as if there is no way that liberal demands will ever be realized; if not now, when?

As posted by Echidne, this new definition of a "compromise" is interesting. Conservatives got concessions on inheritance tax so that someone being left 5,000,001 dollars gets to pay a federal inheritance tax totaling 35 cents. That was exchanged for what part of the package? And when did we discuss this in the open? It may have slipped past me, what with all the other compromises I've tried to understand.

Posted by: terraformer on December 8, 2010 at 9:18 AM | PERMALINK

SteveT you've touched on a very salient point without even knowing it. Had the ardent leftwingers who are just as dogmatic as the ardent rigtwingers not voted for Nader we wouldn't be in this situation. Just sayin.

Posted by: Gandalf on December 8, 2010 at 9:19 AM | PERMALINK

So I watching Lawrence O'Donnell last night, as he kept asserting that this was the best deal Obama could get, that because the GOP is irresponsible, the Democrats have to be responsible, ...

I swear, he sounded like an enabler in a dysfunctional family. The short-term economic benefits notwithstanding, this deal increases the deficit, weakens Social Security, and kicks the mess down the road so we can do this again in two years. I don't want taxes increased on the middle class in the midst of a stagnant economy, but if Dems can't face the GOP down now, when will they be able to?

Obama says that we on the left should realize that he's playing a long game. He should realize that he's not. The GOP has been playing the long game for about 40 years, and that game is to move money and political power from the many to the few. Obama, to score a "victory" or avoid a fight on a given day, keeps playing into their hands.

Posted by: scott_m on December 8, 2010 at 9:22 AM | PERMALINK
It is complete bullshit because the deficit financing aspect of it will empower the deficit hawks to seek offsetting budget cuts over the course the next two years thereby canceling most if not all of the stimulative aspect of the deal. There is a sucker born every minute.

Another thing I have to repost because so many people don't get it.

Posted by: Steve LaBonne on December 8, 2010 at 9:22 AM | PERMALINK

With that said, Obama was -- finally! -- in leadership mode yesterday; he was passionate, focused, out front, and even angry. He wants this deal.

Gee, I'm so touched that he can get so passionate- about defending Republican policies. But that's, er, not what I fucking voted for.

Posted by: Steve LaBonne on December 8, 2010 at 9:24 AM | PERMALINK

This looks like Obama is indeed, "giving the keys back to the same people who drove us into a ditch".

And he is chiding the people in the back seat to STFU and put their seat belts on.

It's going to be a bumpy ride, after all.

Posted by: jcricket on December 8, 2010 at 9:24 AM | PERMALINK

Ezra and others are saying that the Dems get more than the Reps. But this is a strange use of the word "get".

The wealthy all get tons of money each. But Democrats like me don't "get" alot individually - mostly I "get" to do the right thing on behalf of others in need - child credits, tuition tax breaks, unemployment benefit extensions.

And of course whatever stimlulus happens as a result to the overall improvement of the economy has been, and will continue, to flow to the few at the top, and people in the middle like me will continue to either slide backwards, or at best, stand still.

The thing that irked me most about O's scolding is that the Reps would never, never, never say anything disparaging to their base, no matter how mindless, hateful, bigoted they behave.

Noam Chompsky (correctly, I think) describes the right/left dichotomy as money, power, privledge on the right, v. truth and justice on the left.

I really resent being taken to task for being among the few who actually care about the future of this country and the demise of the middle class.

Posted by: esaud on December 8, 2010 at 9:26 AM | PERMALINK

SteveT

Interesting observation and probably true. Here is the practical reason why the Obama team needs to show those of us on the left respect, and they need to do it now. In 2008 Obama raised more money than anybody in history. He raised much of that money from the "professional left" mostly because we are the folks in his base with money. I would bet more people commenting on this board and boards like it make more than $250,000 than any of us would care to admit. Given Citizens United the price tag of the next election is going to make 2008 look like a race for student government secretary. Obama has zero chance of attracting money from billionares aside from Soros and maybe a couple of others. Corporate money will flow to the Republican candidate. Obama is going to need us to have any chance of winning re-election.

Posted by: Ron Byers on December 8, 2010 at 9:27 AM | PERMALINK

Noam Chompsky (correctly, I think) describes the right/left dichotomy as money, power, privledge on the right, v. truth and justice on the left.
---
Might as well make it Chumpsky. Then again, the guy has made some nice financial decisions...

Posted by: Reality on December 8, 2010 at 9:55 AM | PERMALINK

"Back door stimulus" means something else entirely. It's a shame that one cannot even enjoy geting screwed in the ass any more. Two wars, a deregulated system in shambles, is it really so difficult to believe that the country should suffer even some modest inconvenience, if not far worse? Really?!

Please god, let somebody have the balls to kill the tax cuts forever!

Posted by: Trollop on December 8, 2010 at 10:03 AM | PERMALINK

well if it pisses the liberal/Dems off this much, the GOP will surely back it. That is usually one of their most important goals.

Posted by: Jamie on December 8, 2010 at 10:12 AM | PERMALINK

Ugh. Obama needs to lose big on this to realize he needs to include those who elected him into the process...

Posted by: stevio on December 8, 2010 at 11:02 AM | PERMALINK

I hope the next episode of "hostage-takers" is at least more surprising, I can't tell who the hell the protagonsists are! Is this supposed to ne funny? There are at least two more seasons starting next year..

Posted by: Trollop on December 8, 2010 at 11:16 AM | PERMALINK

In any case, read this about the danger to Social Security:
http://www.huffingtonpost.com/rj-eskow/obamas-tax-holiday-a-pois_b_793526.html

Posted by: Neil B on December 8, 2010 at 11:32 AM | PERMALINK

Of course it was scolding, how far do you think any talk to the rethuglicans would get?What he said about health care was correct, he got all he could despite extreme backstabbingly intense rethuglican opposition.And then gets beat down by the left.Outrage all you want, pragmatism would help a few on the left, there ARE realities to deal with , also.

Posted by: Michael on December 8, 2010 at 12:16 PM | PERMALINK

This sounds like familiar compromise to me - the Dems bend to get bipartisanship on something that might include a few elements which may be good for the economy, and the Republicans reap the benefit.

Posted by: Mark on December 8, 2010 at 1:34 PM | PERMALINK

How can the dems put any kind of dem label on what is essentially a Republican form of stimulus by tax cut?

Why would the Dems want to take any credit for this?

Let the Repubs take there victory lap and when the deficit doesn't shrink and unemployment doesn't go down remind everyone that this was the Republicnas idea.

Posted by: Stephen on December 8, 2010 at 1:58 PM | PERMALINK

The problem is, it Will, go down, because of Obama's deal,and the republicans will try to take credit for it by trickle down tax cuts, which will be hard to stick since it hadn't worked the previous 10 years(not that logic will work in alll so many fox-altered US minds anymore . . ).

Posted by: Michael on December 8, 2010 at 2:06 PM | PERMALINK




 

 

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