As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Wednesday, July 15, 2009

Stimulus As Self-Preservation

I've seen enough polls showing a small but demonstrable downtick in President Obama's approval rating that I think it can be pegged as a trend. Polling expert Mark Blumenthal attributes this fall to the concurrent fall in economic indicators:

While the significance of the shift among independents may vary, depending on what poll you look at, the decline in Obama's numbers during June and July has a clear culprit: A spate of bad economic news over the last 10 weeks.

Read more from Mark Blumenthal on the economy's effect on President Obama at
Obama's ratings fell in June and July after remaining mostly flat during the spring. Our trend estimate, a composite of all public polls, had shown Obama's job approval rating at a fairly consistent 59 to 60 percent during March, April and May. His approval percentage fell roughly 5 percentage points during June and the first week of July, however, and as of this writing, stands at 55 percent [...]

We can see the effect clearly thanks to a new question tracked since December by the Pew Research Center's News Interest Index surveys. Once a month, they ask Americans if they are "hearing mostly good news about the economy these days, mostly bad news about the economy or a mix of both good and bad news." Back in December, four out of five respondents said they were hearing mostly bad news. Early this year, that number steadily declined, bottoming out at 31 percent in mid-May. As Pew reported last week, however, perceived bad news has once again increased, to 37 percent in mid-June and 41 percent in the first week of July.

The chart below compares the trend in perceived bad news to trend estimates for both the Obama job rating and a question asked in many national polls about whether the country seems to be "headed in the right direction" or "off on the wrong track."

Not surprisingly, the "right direction" and "heard mostly bad news lately" trend lines are mirror images of each other. And while Obama's approval number held mostly steady from March through May, the chart strongly implies that the recent bad economic news has taken its toll.

The President is starting, as expected, to own the economy, as his decisions take prominence over those of his predecessor. And with the jobless rate, by Obama's own admission, likely to tick up over the next several months, in addition to the crisis of the underemployed (as much as 1 in 4 workers in some states), this is likely to continue and further drag on both the economy and the President's approval rating. Therefore he has a responsibility for his own self-preservation to turn the economy around for working people, and that means at least preparing for the eventuality of another round of stimulus, even if it's not needed. Even Mark Zandi, one of John McCain's economists during the campaign, admits that:

It is premature to conclude one way or another if the economy needs another dose of fiscal stimulus. The current stimulus has not had a sufficient opportunity to work, and while it has already provided some benefit to the economy -- the downturn would be even worse without it -- its benefit won't be fully felt until later this year. A reasonable judgment regarding the need for more stimulus should wait until year's end.

Planning now for another round of stimulus is prudent, though, given that the economy remains in an extraordinarily severe downturn and the risks are decidedly to the downside. If additional stimulus is needed, then it probably should include more aid to hard-pressed state governments, whose budget woes are intensifying, more aid to stressed households hammered by what will be double-digit unemployment, an expansion of the housing tax credit to stem the ongoing slide in house prices, a delay in legislated increases in marginal personal tax rates in 2011, and perhaps even a payroll tax holiday.

I'd tend not to include additional tax cuts, which have been revealed not to work as stimulus. Because of the lag time with getting infrastructure projects and other federal monies into the hands of communities, most of the stimulus money currently in the economy comes in the form of tax cuts. And it has had little stimulative effect.

Oberstar defended the $27 billion in the stimulus for highway and bridge projects as the right amount to help the economy during the next year. However, he said that more transit money in the stimulus would have been helpful to an economic recovery over the next three years, rather than the nearly $300 billion in tax cuts.

“Not many people realize they got a tax cut,” Oberstar said. “I have not received a single e-mail, phone call, snail mail, personal comment from anybody since we enacted this bill, since the end of February, saying, ‘I got my tax’ or ‘Thanks for the tax cut’ or ‘I hardly noticed it’ or anything.

“But I have had people saying, ‘I’m back at work because of the funding in the surface transportation program.’”

I know the fiscal scolds don't want to hear about another stimulus and additional federal debt. But Robert Reischauer has a decent compromise proposal to "time-release" deficit reduction measures in tandem with stimulus funding:

[A]ny "Son of Fiscal Stimulus 2009" should include a significant "time released" package of deficit-reduction measures. While these tax increases and spending cuts shouldn't begin phasing in until 2013 or 2014, when the economy has recovered, we need to send a strong signal to our creditors that, notwithstanding our addiction to another shot of fiscal stimulus, we will soon be on the recovery road to fiscal responsibility. If we don't, the nation could face a more serious economic collapse in the not-too-distant future -- without an ability to borrow to finance needed fiscal stimulus.

That would certainly achieve the goal of ensuring the most stimulative actions stay in the bill, while allaying concerns about debt (which aren't entirely off-base).

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