Laura Tyson: We Need A Second Stimulus

This opinion is significant in that Laura Tyson is a member of President Obama’s Economic Recovery Advisory Board. Tyson writes:

OUR national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. By focusing on the wrong things, we are in serious danger of failing to do the right things to help the economy recover from its worst labor market crisis since the Great Depression.

There is some silliness in Tyson's piece, like this -- "By easing capital market concerns about the government’s future borrowing needs, such a plan would permit larger deficits and slower debt reduction while unemployment is still high." There are no discernible "capital market concerns" about the public debt, as Tyson herself implicitly acknowledges when she states that borrowing costs for the federal government are near all time lows. But for the most part, her message is compelling and necessary. Now if only the President and the rest of his economic team would get on board.

Speaking for me only

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    These have all played the required stimulus game (5.00 / 1) (#33)
    by BTAL on Sun Aug 29, 2010 at 01:03:47 PM EST
    Unemployment rates:

    Australia  5.2% 5/2010
    Argentina 7.0%  Q1/2010
    Brazil 7.3%  4/2010
    Canada 7.9%  6/2010
    France 10%  6/2010 *
    Germany 7.0% 6/2010
    UK 7.8%  5/2010

    Again, Geithner can pout and stomp his feet all he wants but the numbers are the numbers.  

    * France focused their initial stimulus similar to the US.

    I agree...lets be JUST LIKE GERMANY: (5.00 / 5) (#37)
    by steviez314 on Sun Aug 29, 2010 at 01:34:02 PM EST
    Ratio of CEO pay to worker pay:  20 times.  In the USA:  500 times.

    Marginal tax rate of 42% starting at about $130K for couples.  There's also a 45% rate and a surcharge.

    VAT: 19%

    Keep workers on short hours plan (Kurzarbeit) during recessions rather than firing them.  GOVT PAYS THEM.

    All  salaried employees MUST have a public health plan.  Premiums set by the Gov't.

    Military spending:  1.3% of GDP.  In the USA it's 4.3%.  So, let's cancel a few wars.

    Yes, let's be JUST LIKE GERMANY.


    Well said, stevie (none / 0) (#42)
    by jondee on Sun Aug 29, 2010 at 02:58:15 PM EST
    And lets not forget that they're "hardly tiny", practice "smart spending" and have the highest GDP in Europe..

    Yes, lets be just like Germany.


    Ratio of ceo pay to worker pay: (5.00 / 1) (#44)
    by jondee on Sun Aug 29, 2010 at 03:33:14 PM EST
    20 times. Because, in part, bizarre claptrap like Atlas Shrugged is considered to be, by most Europeans, as perversely adolescent and intellectually and morally credible as The Protocols of the Elders of Zion.

    Yet too many Americans virtually erotically fetishize that kind of nonsense. When they're not embracing literalistic, apocalyptic versions of The Book of Revelations..


    She had to address the prevailing myth (4.50 / 2) (#10)
    by ruffian on Sun Aug 29, 2010 at 10:06:46 AM EST
    Even though there really are no


    discernible "capital market concerns" about the public debt,

    Too bad the myths get so ingrained that normally intelligent people must address them.

    Problem is (5.00 / 1) (#11)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:08:44 AM EST
    she EMBRACED the myth.

    I read it more as a (none / 0) (#15)
    by ruffian on Sun Aug 29, 2010 at 10:24:12 AM EST
    'forth sake of argument' concession. If she tried to argue that point itself it would detract from the main point.

    that said, yes, she probably should not have mentioned it at all. It's going to inoculate against that argument.  


    Lord, I need an edit function or better eyes (none / 0) (#20)
    by ruffian on Sun Aug 29, 2010 at 10:46:40 AM EST
    this morning. Meant  'For the sake' ...and 'It's NOT going to inoculate....'

    She made a Catfood Commission (none / 0) (#21)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:55:38 AM EST

    The government's solution for (5.00 / 1) (#22)
    by MO Blue on Sun Aug 29, 2010 at 11:17:16 AM EST
    "easing capital market concerns about the government's future borrowing needs" is always reducing the costs (i.e.benefits) of "entitlement programs" such as SS, Medicare and Medicaid. Tying job creation and economy recovery into reducing the benefits of SS etc. is IMO the current strategy for selling the benefit reductions that will be enacted through the recommendations of the "Cat Food Commission."

    Yes, that fits with the NY Times editorial (5.00 / 0) (#25)
    by masslib on Sun Aug 29, 2010 at 11:40:36 AM EST
    about more stimulus, but also "widespread sacrafice" and "hard truths".



    Exactly what benefits are the politicians in D.C. (5.00 / 2) (#27)
    by MO Blue on Sun Aug 29, 2010 at 12:18:11 PM EST
    willing to sacrifice? Let them do away with their tax payer supplemented insurance, on site health care, generous tax payer provided retirement packages, and tax payer funded trips and then we can talk about "widespread sacrifice."

    Yes, questions have been raised as (none / 0) (#35)
    by KeysDan on Sun Aug 29, 2010 at 01:14:34 PM EST
    to why social security is even in the sights of the Catfood Commission since it does not contribute to the deficit. True, of course, but this overlooks politicians' keen eye for budget basics-- revenues and expenses. Social security can reduce the deficit by continuing to provide revenues while decreasing the expenses (through reducing benefits--reduce payouts and increasing age eligibility).

    Moreover, if they can somehow convince Americans that the social security trust fund is illusory (which would seem hard to do, when the Trustees' 2037 date is based on it) and/or that the trust fund surplus should be invested in the stock market, Wall Streeters would rest easier, never again to count milk cows to fall asleep. Stealing and taxing by stealth.


    They want our approval to (5.00 / 1) (#38)
    by MO Blue on Sun Aug 29, 2010 at 01:40:42 PM EST
    default on their financial obligation to the citizens of this country. Each dollar that they deny us in prepaid benefits, can be spent to maintain or expand tax cuts to the rich, loopholes for corporations and continuous wars.

    Yes, but I don't think (none / 0) (#43)
    by KeysDan on Sun Aug 29, 2010 at 03:25:26 PM EST
    they would get that approval without trickery and deceit.   That $2.5 trillion in the Trust Fund is not really owed to social security and we need to act now for budgetary responsibility not wait until 2038, beneficiaries are living so much longer (a real negative), and young workers will not get anything by the time they retire, so no need to support it, and as soon as I get out my mirrors and find some smoke, I will add a few more.

    Of course, all this budgetary responsibility from Congressional  and Executive branches that kept the Iraq war off budget for years; gave huge tax cuts, and still are wrangling over their overdue expiration; and put all our military adventuress on our Chinese credit card.  We will not hold our breath for a war tax as (a) part of a deficit reduction program or (b) to bring the wars and their costs home to all.


    I think you are right (none / 0) (#23)
    by Big Tent Democrat on Sun Aug 29, 2010 at 11:31:15 AM EST
    I didn't read it that way (none / 0) (#24)
    by ruffian on Sun Aug 29, 2010 at 11:33:34 AM EST
    But maybe that's what she means by gradually looking at the debt ratio while the economy recovers ( given the further stimulus she advocates).

    Trying to remember if I've heard her say anything about SS in the past....I'll have to look it up...


    I think most people (none / 0) (#1)
    by dead dancer on Sun Aug 29, 2010 at 09:38:42 AM EST
    agree a second stimulus could help the economy and bring unemployment down; possibly into the 7/8 percent region.
    At the same time, the second stimulus train has already left the station.

    Results, the counterfactual (none / 0) (#2)
    by BTAL on Sun Aug 29, 2010 at 09:47:26 AM EST
    Germany is reaping results of their smaller stimulus (1.5% of their GDP) and our stimulus largess.  

    Demand is demand regardless if it is internal or external.  Demand creates jobs.  

    Lessons from Germany's Economic Recovery

    Nonsense (none / 0) (#3)
    by Big Tent Democrat on Sun Aug 29, 2010 at 09:53:30 AM EST
    Germany is benefitting from the Eurozone and the fact that it is the last man standing.

    The reality is Germany offers no lessons on stimulus spending in this climate.

    It is sui generis.


    I take that back (none / 0) (#5)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:03:02 AM EST
    Apparently "German austerity" is actually a head fake. Paul Krugman:

    Via Mark Thoma, Dean Baker points out  that real government consumption of goods and services -- that's government buying things, as opposed to cutting taxes or handing out checks -- has risen more in "austerity" Germany than in the United States.

    Beat me by (none / 0) (#7)
    by Warren Terrer on Sun Aug 29, 2010 at 10:03:52 AM EST
    20 seconds.

    And what is the US govt buying with (none / 0) (#12)
    by BTAL on Sun Aug 29, 2010 at 10:08:58 AM EST
    stimulus dollars?  If the US was not spending stimulus money on goods and services then there would be a correlation.

    Tax cuts (5.00 / 1) (#14)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:10:34 AM EST
    are not government purchases.

    Nearly 40% of the "$787 billion stimulus" was tax cuts. A huge mistake by Obama.


    40% was the WH stated goal (none / 0) (#17)
    by BTAL on Sun Aug 29, 2010 at 10:33:31 AM EST
    The ultimate shake out was less.  Some say 30%, other accounts puts it at ~22%.

    NYT Breakdown shows ~200B as direct and indirect tax cuts/credits.

    The Stimulus Plan: How to Spend $787 Billion

    Things have been moved around some since the initial framework, but the 40% rate hasn't been met.


    From your link (none / 0) (#4)
    by Big Tent Democrat on Sun Aug 29, 2010 at 09:57:35 AM EST
    "[M]ost analysts anticipate that a major driver of the German economic expansion was an increase in net exports. Part of this is due to the decline in the value of the euro, which made German-produced goods less expensive, but some of it is directly attributable to stimulus spending in the U.S. and China.

    To the extent the Obama Administration comments on the strength of the German economy, it is likely to cast Germany as an obdurate free-rider that takes advantage of the U.S. stimulus and thwarts necessary "global rebalancing." As Treasury Secretary Geithner has emphasized, a major objective of U.S. economic policy is to end the trade patterns of the past decade so "one country, or group of countries, does not consume in excess while another set of countries produces in excess." Germany is likely to be viewed as undermining this effort by failing to boost its domestic demand through additional government stimulus."

    I suggest tariffs on Germany until it joins coordinated stimulus efforts.


    There's also (none / 0) (#6)
    by Warren Terrer on Sun Aug 29, 2010 at 10:03:22 AM EST
    Yep (none / 0) (#8)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:04:28 AM EST
    Just saw that.

    Germany is the big dog in (none / 0) (#9)
    by BTAL on Sun Aug 29, 2010 at 10:06:33 AM EST
    the Eurozone with significant control over the Euro's value.  

    The administration can call them names (free riders) until the cows come home but it doesn't change the hard facts of unemployment rates and growth.

    As the article also states, the current growth rate is unsustainable, but only because of its size.  However, they are clawed their way back to pre-crisis levels.  A heck of a better position and prospectus than we are facing.


    As pointed out in other comments (none / 0) (#13)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:09:36 AM EST
    Germany actually had a bigger REAL stimulus than the United States.

    Yes and they did it with LESS money (none / 0) (#29)
    by BTAL on Sun Aug 29, 2010 at 12:33:00 PM EST
    Smart spending.

    Germany is tiny (none / 0) (#34)
    by Dadler on Sun Aug 29, 2010 at 01:10:25 PM EST
    Incomparable in many ways in this conversation, as well as their societal paradigms about "socialism" being radically different than ours.

    Money is a trinket whose value we control entirely. If we want it to work for us and transform society for the better, it will. If we want to make people suffer and further erode the quality of our national life, as we are now, then that will be the result.

    We are stupid beyond all measure when it comes to the balance between money and decency. Wretched.


    Largest GDP in Europe (none / 0) (#36)
    by BTAL on Sun Aug 29, 2010 at 01:16:20 PM EST
    and 4th or 5th (depending on measurement used) largest in the world.

    Hardly tiny.


    Compared to us, in terms... (5.00 / 1) (#45)
    by Dadler on Sun Aug 29, 2010 at 05:08:06 PM EST
    ...of size and diversity of population and territory, it is a postage stamp. A first class one, to be sure, but it's like comparing Houston to NYC.

    But politically there is zero chance of any (none / 0) (#16)
    by steviez314 on Sun Aug 29, 2010 at 10:31:32 AM EST
    further major stimulus.  I know the Democrats could propose one, and have votes to maybe embarass Republicans, but that's not an economic solution, just a political maneuver.

    The best chance now is to reframe the Bush tax cut debate--extend the tax cuts for the middle class, but restore the higher rates on the wealthy and use that money to cut taxes further--specifically a employer payroll tax credit for new hires for the next year or two.

    Making the Republicans vote against tax cuts is better than making them vote against new spending.  I don't think they will.

    Jobs (none / 0) (#18)
    by Big Tent Democrat on Sun Aug 29, 2010 at 10:38:08 AM EST
    Important to look like you care about them.

    Not to mention (none / 0) (#19)
    by Warren Terrer on Sun Aug 29, 2010 at 10:41:33 AM EST
    Congressional and Presidential jobs. Stimulus will be politically viable if and when Democrats realize that their own jobs depend on it.

    I can't predict whether Dems will come to this realization on time, or ever, but it will be interesting to watch.


    We need a second stimulus (none / 0) (#26)
    by Slado on Sun Aug 29, 2010 at 12:17:26 PM EST
    Like I need a hole in the head.

    The Bush stimulus was a faillure.

    The Obama stimulus was a failure.

    By all means let's find out that a third stimulus would be just as big a waste of money.

    Even if I thought a stimulus could work.  History tells me that Washington is incapable of executing one.

    The federal government can't fix this.  It needs to stop muddling in the economy and delaying the inevitable which these stimuli have only put off.

    Production is the fuel that grows the economy, not spending.   The spending has only made things worse.

    How many times must stimulusnfail before you guys stop asking for another one?

    You don't get production without demand. (none / 0) (#28)
    by masslib on Sun Aug 29, 2010 at 12:24:00 PM EST
    You don't have demand when no is spending.  There is more than one way to skin a cat.  The government could try some direct stimulus, like simply hiring up people WPA-style to spark demand, or instituting a payroll tax holiday to spark spending.  But just doing nothing is not the solution particularly when government borrowing is at an all time low.  

    And you don't get demand without (none / 0) (#47)
    by Slado on Mon Aug 30, 2010 at 01:03:17 PM EST
    wealth and savings.

    Americans are tapped out.  Period.  That is what democrats don't seem to understand.  We encouraged the average citizen to over leverage themselves with credit card debt and home debt.

    If you looked at debt across the board and include personal, business and gov't debt the debt to GDP ratio was is almost 4 to one.

    Think about that. If you made $50 K a year and had $185 K in debt (GDP X 3.7) how would your demand look?


    Let that graph sink in for a minute and then look at the dates and see what happend the last time we got anywhere close to the levels we're at right now?  I'll tell you waht happened.  The Great Long Depression and The Great Depression.

    Against this back drop the idea of moving around more money by creating debt is to me insane and more importantly, futile.  We have no more money.  We're collectively broke and the economy despite the futile efforts of this and the last administration and the FED is simply not going to grow meaningfully again until this massive collective debt is worked off.

    Unless the demand you want is created by actual welath creation is worthless.  It just piles more wood on the fire of our massive debt load and results in us kicking the can further down the road.

    Our economy is above it's sustainable means.  Even now after the big let down our real economy can't support the promises we've made in gov't and lifestyle.   We will not really grow again until we drop below a sustainable level and unfortunately IMHO we haven't gotten there yet.

    But by all means.  Lets spend some more money we don't have.  It's worked so well so far.


    One more link (none / 0) (#48)
    by Slado on Mon Aug 30, 2010 at 01:13:29 PM EST
    Why Debt Matters

    What is so amazing about how we got here is how much we had to leverage to create a dollar of GDP growth

    As this article points out as we grew we also grew our debt more quickly.  For true growth it should be closer to 1 for 1 but instead we wound up near the end using $6 of debt to create $1 of GDP growth.  It doesn't take a macro economist to figure out this is unsustainable.

    Why don't the talking heads discuss this?  Why is it the pink elephant in the room?  IMHO it's because this isn't a new phenomenon.  This "crisis" was 6 decades int he making and for everyone to admit that they've been wrong or clueless all along is a hard thing to do.

    Doesn't make it any less real unfortunately and until people realize that we have a giant sink hole in the middle of our economy all this arguing over taxes and stimulus that only make a difference on the fringes is frankly a waste of time.


    I was wrong (none / 0) (#49)
    by Slado on Mon Aug 30, 2010 at 03:16:54 PM EST
    Its not a "sink" hole.

    Its a "pot hole"  - Robert Gibbs


    First, "Americans are tapped out." (none / 0) (#50)
    by masslib on Mon Aug 30, 2010 at 05:21:32 PM EST
    Not wealthy Americans.  Second, the government is a great position to borrow because borrowing is at an all time low.  What is it you expect middle class Americans to save or pay down their debt with when wages are flat and unemployment is high?

    Rich Americans are "tapped" out (none / 0) (#51)
    by Slado on Mon Aug 30, 2010 at 07:03:16 PM EST
    relative to their situation just a few years ago.

    It's all relative.  Even in the great depression there where rich people with lots of money.   Just not enough of them.

    Growth requires savings and then investment in something new that everyone wants.  A new service, a new product a new something.

    Simply spending money around and around in circles accomplishes nothing.  It's necessary to exchange goods and maintain our standard of living but it doesn't cause the creation of new jobs, etc.. etc...

    Until the massive debt burden is uncoiled a bit we can expect to just get by for a while.   Denying reality and making it worse by more borrowing will just make the inevitable uncoiling that much more painful.  

    If Obama had borrowed all that money to invent the internet or something of it's equivalency that would have worked.   But pet projects and typical government spending accomplished nothing.  It created a false sense of prosperity that is now quickly evaporating.

    As I said before even if I though a stimulus might work I have zero faith in the ability of Washington to execute it.   What makes you people think it can other then your unending trust in the power of federal spending to accomplish any goal?


    Contradiction In Terms (5.00 / 1) (#52)
    by squeaky on Mon Aug 30, 2010 at 07:22:24 PM EST
    If rich Americans are tapped out they are no longer rich.

    If a massive government works program is funded, many people who do not have work will have work.

    Rebuilding decaying infrastructure, teaching our children, funding community projects all are needed and will help the economy.

    Let the bankers eat cake.


    Reading this is making me curious (none / 0) (#30)
    by oculus on Sun Aug 29, 2010 at 12:42:16 PM EST
    about the very generous rebates on the new LG washer I bought yesterday.  Besides Sears and its salesperson, who made money off my purchase?  Where was this appliance manufactured.  Where were the parts made/assembled?  (Can't say I bought it because of the promise of rebates; old washer conked out.)

    I'll play straught man (none / 0) (#31)
    by jimakaPPJ on Sun Aug 29, 2010 at 12:51:03 PM EST
    Where was it manufactured?

    LG is South Korea company. But I (none / 0) (#32)
    by oculus on Sun Aug 29, 2010 at 12:53:04 PM EST
    don't know where the parts or made or assembled.

    I wonder if we could try... (none / 0) (#39)
    by EL seattle on Sun Aug 29, 2010 at 02:12:57 PM EST
    ...something like what the Japanese did with the fine print in their auto stimulus program in 2009, if the next stimulus plan has a consumer-purchase component?

    LINK: USA Today, December, 2009


    Thanks. Not free trade. (none / 0) (#40)
    by oculus on Sun Aug 29, 2010 at 02:20:33 PM EST
    I have seen some U.S. auto firm vehicles in Japan.

    At what point does the White House acknowledge (none / 0) (#41)
    by BobTinKY on Sun Aug 29, 2010 at 02:38:20 PM EST
    that it has no choice other than to do what Tyson suggests?

    I hope prior to November 2010 bu I doubt it.

    You misunderstand (none / 0) (#46)
    by Abdul Abulbul Amir on Mon Aug 30, 2010 at 08:49:22 AM EST
    There are no discernible "capital market concerns" about the public debt, as Tyson herself implicitly acknowledges when she states that borrowing costs for the federal government are near all time lows.

    The concerns have nothing to do with the government's cost of borrowing. Rather it is the policies put in place for repaying that mammoth debt that are going to raise the cost of capital.  The huge increase in the tax tare on dividends coming on January 1 is but one example.