Make sure that this article doesn't get swallowed up in the Independence Day news-hole -- it is critical to understanding the ongoing debate over whether U.S. economic policy should favor fiscal expansion or consolidation. One worthwhile observation is that the former Clinton economic advisers who frequently face progressive skepticism are the same officials making the case for more stimulus and job-creation measures, even in the face of objections from White House political advisers.
As Matt Yglesias notes, the critical thing to keep in mind is that President Barack Obama should listen to his economic advisers and not his political advisers. I was speaking to an administration official the other day for a forthcoming magazine piece on international economic issues, and the official stressed that a policy that is politically unpopular in the short term can often have major long-term payoffs. For example, the Clinton administration's decision to rescue Mexico during the 1994 Peso crisis angered Congress and attracted negative press thanks to then-Secretary of the Treasury Bob Rubin's connections to his former firm, Goldman Sachs. However, the U.S. would go on to make a $500 million profit on the intervention, and a strong Mexican economy boosted the U.S. through 1996 and Clinton's re-election.
The current problem is that the Democrats missed their chance to weather short-term unpopularity for long-term gains, since the on-rushing midterm elections are now so close that almost any economic policy made by Congress today won't be in effect until well after the election; the time for this debate was when fiscal expansion was first enacted through the Recovery Act.
An argument frequently made on this topic, often by me, is that the lack of adequate stimulus isn't the president's fault; the real blame is within the Senate and with those senators who obstruct the bill until it is pared down as much as possible with very little policy justification. That's true, as far as it goes, and the president has been out front about asking for more stimulus, even if he hasn't necessarily found the levers to convince senators to vote for it. That said, one area where Obama is to blame does come up:
The president and his advisers “want economic stimulus but they fear the politics, especially in the Senate, are working against them,” said Roger Hickey, co-director of the liberal group Campaign for America’s Future. “But I think they’ve contributed to that climate of fear about deficits.”
The president, starting in February, pivoted to try and put a fiscally austere face on a progressive budget, stoking the concerns that Republicans are trying to leverage in order to reclaim congressional majorities. Leaving these arguments for harmful austerity unanswered isn't just bad politics for the White House, but it also leads to bad policy outcomes if just a few senators are so worried about these issues that they lose the courage to vote for sound measures.
-- Tim Fernholz
