{"id":7069,"date":"2013-02-13T14:56:21","date_gmt":"2013-02-13T19:56:21","guid":{"rendered":"http:\/\/www.multiplier-effect.org\/?p=7069"},"modified":"2013-02-13T15:15:49","modified_gmt":"2013-02-13T20:15:49","slug":"reverse-pivot","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/reverse-pivot\/","title":{"rendered":"Reverse Pivot?"},"content":{"rendered":"

Is the era of the “grand bargain” over?\u00a0 That was the implication of a number of news stories that pre-framed last night’s speech.\u00a0 “When President Obama delivers his State of the Union address Tuesday evening,” wrote<\/a>\u00a0the Washington Post<\/em>‘s Lori Montgomery, “here\u2019s one thing you won\u2019t hear: an ambitious new plan to rein in the national debt. In recent weeks, the White House has pressed the message that, if policymakers can agree on a strategy for replacing across-the-board spending cuts set to hit next month, Obama will pretty much have achieved what he has called ‘our ultimate goal’ of halting the rapid rise in government borrowing.”<\/p>\n

There was indeed a small change in emphasis in this year’s SOTU.\u00a0 The president began by highlighting how much deficit reduction had already been achieved ($2.5 trillion, not including the ACA) and downplayed how much remains to be done to stabilize the debt.\u00a0 He then spent the bulk of his address on job creation and other national priorities that have been languishing for years, including proposals to raise the minimum wage, invest in infrastructure repairs, create wider access to quality pre-kindergarten, reduce carbon emissions, and so on.\u00a0 The key line, rhetorically, was this one:\u00a0 “deficit reduction alone is not an economic plan.”<\/p>\n

The deficit-reduction industry isn’t going to close up shop after this speech.\u00a0 You’ll still get to hear from Alan Simpson and Erskine Bowles about how Washington’s budget cuts have been insufficiently “hard” or “painful.”\u00a0 Morning cable news hosts, and everyone they know, will still be so convinced that spending is “out of control” that they will find the very idea of checking the data to be laughable<\/a>.\u00a0 But ever since the Obama administration announced their “pivot” to deficit reduction in 2010, they have been doing little to dissuade the public from believing that we are on the verge of a government debt crisis that demands our immediate attention, and the SOTU suggests that, going forward, the administration may be providing a little less aid and comfort to the deficit hawks.<\/p>\n

Unfortunately, the substance of the president’s speech, the economic policy, was still hemmed in by a prioritization of the federal budget balance.\u00a0 Obama pledged, for instance, that none of his proposals would add to the deficit (“nothing I\u2019m proposing tonight should increase our deficit by a single dime”).\u00a0 That’s an unfortunate (and arbitrary) limitation.\u00a0 For policies such as investment in infrastructure repair that are meant to stimulate the economy and create jobs, deficit neutrality is going to be a significant hindrance.<\/p>\n

In the Levy Institute’s last strategic analysis<\/a>, Dimitri Papadimitriou, Greg Hannsgen, and Gennaro Zezza showed how you can do “deficit neutral” economic stimulus:\u00a0 this is mainly due to the different “multipliers” associated with various budgetary changes.\u00a0 However, their simulation of a deficit-neutral stimulus demonstrated that while such policies can boost economic activity (a $150 billion increase in government investment that is “paid for” could reduce the unemployment rate by almost 0.5 percentage points), a deficit-financed stimulus would be more effective.\u00a0 (Their newest strategic analysis and projections for the US economy will be coming out in late February\/early March.)<\/p>\n

It remains to be seen how these SOTU proposals get fleshed out, but a true pivot away from prioritizing the deficit would mean, instead of promising not to add a dime to the deficit, pledging not pass a budget that removes even one-tenth of a percentage point from growth until the unemployment rate dips below some target level.<\/p>\n","protected":false},"excerpt":{"rendered":"

Is the era of the “grand bargain” over?\u00a0 That was the implication of a number of news stories that pre-framed last night’s speech.\u00a0 “When President Obama delivers his State of the Union address Tuesday evening,” wrote\u00a0the Washington Post‘s Lori Montgomery, “here\u2019s one thing you won\u2019t hear: an ambitious new plan to rein in the national […]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,49],"tags":[528,458,155,529,526,12,291],"class_list":["post-7069","post","type-post","status-publish","format-standard","hentry","category-economic-policy","category-fiscal-policy","tag-deficit-reduction","tag-grand-bargain","tag-infrastructure","tag-revenue-neutral-stimulus","tag-state-of-the-union","tag-stimulus","tag-strategic-analysis"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/7069","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=7069"}],"version-history":[{"count":41,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/7069\/revisions"}],"predecessor-version":[{"id":7110,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/7069\/revisions\/7110"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=7069"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=7069"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=7069"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}