After months of actively signaling weakness on extending the Bush tax cuts for the rich, President Obama is about to reach a “compromise.” According to reports, it sounds like the compromise with be a temporary extension of the Bush tax cuts for all, a year-long extension of unemployment insurance, and an extension of some of the tax cuts in the stimulus bill.
Despite how bad the politics were played way, making the president look weak and/or dishonest, I can at least see the Keynesian logic to this deal in this bad economy. While the tax cuts for the wealthy are extremely ineffective stimulus, they do have some effect. Extending unemployment benefits will help a lot of people. That along with the Make Work Pay tax credit are both cost effective stimulus.
The problem is that Obama has completely given up in trying to tell Americans why this imperfect Keynesian action is justifiable. He seems to lack any coherent economic vision at all for which to argue.
This week, the president is likely going to agree to a massive deficit spending deal to inject money into the economy, yet, last week, he called for an anti-stimulative pay freeze on federal employees as part of a need for “shared sacrifice” to deal with the deficit. We truly live in a bizzaro world when a call for immediate “shared sacrifice” from middle class federal employees is soon after followed by a massively costly extension of tax cuts for millionaires.
Obama’s deficit commission calls for cutting Social Security, yet Obama makes zero attempt to even pretend he will find a way to pay for his decision to commit to another four years of war in Afghanistan.
If Obama had not called for a pay freeze on federal employees, and honestly told supporters he broke his promise on the tax cuts for millionaires because it was the only way to get Republicans to spend the money the fragile economy needed, it would at least be some kind of coherent narrative about the role of government in the economy. It would be the position that getting the economy going comes above everything else, and putting money in the economy while government interest rates are low is the way to spark growth.
Instead, we get a schizophrenic message from the White House. One day, it is calls for instant austerity, and the next, massive deficit spending. The president is trying to stimulate the economy with one hand while reducing demand with the other.