Notes from the bully pulpit: no one hears you when unemployment is at 10%

As Obama gears up for the fiscal cliff end game, David Corn is out with a timely reminder that the deal Obama struck in December 2010, trading extension of the Bush tax cuts for the wealthy for a payroll tax cut, unemployment benefit extension and other stimulus, was far from the cave-in that liberal allies portrayed it as. Rather, it was a successful a bid to win "something bigger and better: more stimulus to aid the ailing economy."

This was actually obvious at the time, for those with eyes to see. According to Mark Zandi, the Democratic proposals that became part of the deal yielded $336 billion worth of stimulus from 2010-2012.  Even Paul Krugman admitted at the time that the provisions Obama fought for were likely to provide significant help to the economy. In concert with the payroll tax cut and and unemployment benefits extension Obama bludgeoned the GOP into accepting in early 2012, those stimulative measures probably secured his reelection.

While debunking the tax-deal-as-cave-in myth, Corn does subscribe to another narrative that does have some truth to it over the long haul but in my view is also exaggerated:  that Obama was ineffective at communicating his policy.  Here's Corn's read:

Can Obama raise the cost of GOP stonewalling?

Whatever alchemy goes into Moody's economist Mark Zandi's calculations, his simple declarative forecasts do have a way of framing political stakes. Here's the top line as served up in Mike Allen's Playbook:

MARK ZANDI for Moody's Analytics, "An Analysis of the Obama Jobs Plan": "President Obama's jobs proposal would help stabilize confidence and keep the U.S. from sliding back into recession. The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point. The plan would cost about $450 billion, about $250 billion in tax cuts and $200 billion in spending increases. Many of the president's proposals are unlikely to pass Congress, but the most important have a chance of winning bipartisan support. ...

One two three: what are we fighting for?

Not to deny that the House Republicans' cuts in discretionary spending will have negligible impact on the U.S.'s structural deficit, or that the near-$40 billion in cuts that it seems Democrats will inexplicably agree to won't cause unnecessary suffering and slow economic growth (Mark Zandi estimated that $61 billion in cuts would reduce employment by 700,000 through the end of 2012).  All that said, a brief zoom-out:

The Federal government spent $3.46 trillion in 2010.  Democratic proposals that became part of the late 2010 tax cut deal  (mainly the 13-month unemployment benefit extension, the payroll tax cut, and the stepped-up writeoff for business investment) were worth $336 billion, according to Zandi.  Last-minute Democratic concessions on the 2011 bill will probably take the spending cuts past the $34 billion that would make this comparison satisfyingly neat to someone with my sixth-grade math skills, but you get the idea.

2010 tax cuts vs. 2011 budget cuts

As it looks all but certain that Republicans will extract at least a $30 billion pound of flesh from the 2011 budget, endangering the recovery and thus likely boosting their own political fortunes, I thought I would re-pose a question I asked earlier this month: Which is likely to be stronger, the stimulative effect of the tax cut deal Obama cut with the GOP at the end of last year, or the destimulative drag of reduced short-term government spending?

Who won the lame duck?

The late great lame duck session of Congress in Nov-Dec 2011 was widely perceived to have been a season of accomplishment for the Democrats and President Obama. The rush of activity included repeat of Don't Ask Don't Tell, ratification of the New Start treaty -- and, on the economic front, a tax deal that, for the blood price of extending the Bush tax cuts for the wealthiest, bought Obama hundreds of billions in more efficiently stimulative tax cuts.

It was a busy time, and one thing the Democrats failed to do was pass a budget for FY 2011. That gave the incoming GOP House the opportunity to commence its budget-cutting orgy for discretionary domestic spending a year early.  That includes a head start on the drive to defund implementation and enforcement of the health care and financial reform laws.  And in its opening gambit, the Tea Party delivered.  Its proposed $61 billion in cuts would kill 700,000 jobs by the end of 2012 according to Moody's economist  Mark Zandi,, and shave 1.5-2% off GDP growth in the 2nd and 3rd quarters of this year by Goldman Sachs' estimates.  The Goldman analyst, Alec Phillips, also forecasts that actual cuts in FY 2011 will come in at about $25 billion and, once enacted, will slow growth by 1% of GDP, but that the effect of that sudden hit will fade quickly later in the year.

Question: would the U.S. economy -- and Democrats -- have been better off without the global tax deal but with a Democratic FY 2011 budget passed during the lame duck session?  Does the short-term destimulative effect of the 2011 budget we're likely to get (leaving aside any long-term damage to economic viability) fully offset, or more than offset, the stimulative effect of the tax cut package?

Who won the lame duck?

The late great lame duck session of Congress in Nov-Dec 2011 was widely perceived to have been a season of accomplishment for the Democrats and President Obama. The rush of activity included repeat of Don't Ask Don't Tell, ratification of the New Start treaty -- and, on the economic front, a tax deal that, for the blood price of extending the Bush tax cuts for the wealthiest, bought Obama hundreds of billions in more efficiently stimulative tax cuts.

It was a busy time, and one thing the Democrats failed to do was pass a budget for FY 2011. That gave the incoming GOP House the opportunity to commence its budget-cutting orgy for discretionary domestic spending a year early.  That includes a head start on the drive to defund implementation and enforcement of the health care and financial reform laws.  And in its opening gambit, the Tea Party delivered.  Its proposed $61 billion in cuts would kill 700,000 jobs by the end of 2012 according to Moody's economist  Mark Zandi,, and shave 1.5-2% off GDP growth in the 2nd and 3rd quarters of this year by Goldman Sachs' estimates.  The Goldman analyst, Alec Phillips, also forecasts that actual cuts in FY 2011 will come in at about $25 billion and, once enacted, will slow growth by 1% of GDP, but that the effect of that sudden hit will fade quickly later in the year.

Question: would the U.S. economy -- and Democrats -- have been better off without the global tax deal but with a Democratic FY 2011 budget passed during the lame duck session?  Does the short-term destimulative effect of the 2011 budget we're likely to get (leaving aside any long-term damage to economic viability) fully offset, or more than offset, the stimulative effect of the tax cut package?

Freshman GOP delusions

A freshman GOP congressman's attempt to differentiate a government shutdown today from the shutdown in 1995 is a study in distinctions without a difference  -- and in differences that cut against his argument. From a Jennifer Steinhauer story in yesterday's NYT:

“I don’t believe now and 1995 are similar times,” said Representative Lou Barletta, a freshman from Pennsylvania. “Back then it was more about how to balance the budget. Now it is about how to keep the country from going broke. Unemployment was much lower than now. The debt was 5 trillion. Now it is 14 trillion. In 1995 the Congress wanted to get its house in order. Now it’s the American people that want that, and that’s the only reason why we are here.” 

Let's take these assertions one at a time: