Mr. Cool's Centrist Gamble

[DeepModem Mom]

WP: Mr. Cool's Centrist Gamble
By David Ignatius
Sunday, January 11, 2009; Page B07

....(A)s the inauguration approaches, Obama is doing something quite remarkable: Rather than settling into the normal partisan governing stance, he is breaking with it -- moving toward the center in a way that upsets some of his liberal allies but offers the promise of broad national support....Since Election Day, he has taken a series of steps to co-opt his opponents and fashion a new governing majority. It's an admirable strategy but also a high-risk one, since the "center," however attractive it may be in principle, is often a nebulous political never-never land.

Obama's bet is that at a time of national economic crisis, the country truly wants unity....But it remains an open question whether the Republicans will do more than applaud politely when Obama asks for help.

Obama's first move to galvanize this new center was his appointment of Rahm Emanuel as chief of staff. The Illinois congressman cut his teeth in Bill Clinton's White House, campaigning for welfare reform and other "New Democrat" issues. As a member of the House leadership, he often worried that liberal Democrats might drive the party off a cliff. His job now, it appears, is partly to make sure the White House sets the policy agenda, rather than the party's base.

Obama continued this political reformation in recruiting his Cabinet, which is so centrist it almost resembles a government of national unity....

Obama has tried to reach across traditional red-blue divisions in ways that have genuinely upset some of his supporters. The most striking example was the choice of Rick Warren, a pastor who opposes same-sex marriage, to deliver the inaugural invocation. Gay rights activists who worked hard for Obama's election could reasonably ask: Hey! What about us?

Obama's yen for the middle has been clear as he crafted his economic stimulus package -- especially in his decision to include $300 billion in tax cuts to woo GOP support....

But political breadth may come at the cost of policy coherence. Are tax breaks really the best way to maintain aggregate demand in an economy that is slowing so sharply? Will frightened businesses and households actually spend the money the government puts in their hands, or will they save it? Won't infrastructure spending and other public investments have a greater stimulative effect than the politically attractive tax cuts? By throwing the GOP a tax-cut bone, Obama is signaling that getting the stimulus package passed quickly, with bipartisan support, is more important than the details....

As the days tick down toward inauguration, Obama remains Mr. Cool. His advisers say he makes decisions more confidently than anyone they've ever watched in politics. He's fashioning a new style of governing, as if by instinct. He's rebuilding a center that many analysts thought was impossible. He's heading into the loneliest, most difficult terrain on earth, and he's still making it look easy. But it won't be.

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902998.html?nav=most_emailed

[kristopher]

1. Re tax cut: It is more than "a bone" or "a signal"

There are legitimate arguments on both sides. This is from the blog of a prominent Harvard economist. The second entry is posted in its entirety, but the first is a bit longer and well worth going to the link to read.

Thursday, December 11, 2008

Spending and Tax Multipliers
A key issue facing the new Obama administration is to what extent the economic stimulus should take the form of spending increases versus tax reduction. One way to think about the issue is the size of the fiscal policy multipliers. The multipliers measure bang for the buck--the amount of short-run GDP expansion one gets from a dollar of spending hikes or tax cuts.

So what are these multipliers? In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: A dollar of government spending raises GDP by about a dollar. Similarly, the results in Valerie Ramey's research suggest a government spending multiplier of about 1.4. (Valerie does not present her results in multiplier form, but she emails me this translation: "The right column of figure 5A of my paper shows that for a log change of government spending of 1, log GDP rises by 0.28, implying an elasticity of 0.28. To back out the implied multiplier, we can use the fact that government spending averages around 20% of GDP. This implies a multiplier of 1.4.")

http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html


Saturday, January 10, 2009

Obama's Multipliers
Team Obama has released its analysis of fiscal stimulus, coauthored by CEA Chair-designate Christina Romer and Vice President-elect adviser Jared Bernstein. If you go to the penultimate page, you can find the fiscal policy mutlipliers they assume. For government purchases, their multiplier is 1.57; for taxes, 0.99.

These are reasonable figures in light of mainstream models. But, as I pointed out in an earlier post, these models might well have things backward. Apparently, Team Obama is not convinced by the recent research of Christina and David Romer, who conclude:

tax changes have very large effects on output. Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still well over two percent.

That is, Team Obama assumes that tax changes are less than half as potent in influencing the economy as the new CEA Chair estimated them to be in her own research.

Of course, it is prudent to take any research, including that of the very careful, very sensible Romers, with a grain or two of salt. The same can be said of the mainstream models on which Team Obama is relying.

http://gregmankiw.blogspot.com/

[Still Sensible]

5. I don't get it folks

Middle class tax cuts was a theme throughout the campaign. Now some people are acting like Obama has betrayed them because tax cuts are part of what he is putting together to stimulate the economy. If tax cuts for business is part of the deal, it is not surprising given the daily stories we see about all the businesses laying people off.

He said he was going to reach across the aisle when there was common ground to be had. I don't love every appointment he has announced, but taken as a whole the appointments are not inconsistent with the message he delivered on the campaign trail.

Warren was a mistake. The most politically tone deaf thing I have seen Obama do. It was insulting to a significant constituency. It was in my opinion wrong and unnecessary. He could have selected any number of clergy that would not be so insulting.

That said, it troubles me that so many seem to be bashing him about things that should not be a surprise based on his campaign.

[Hawkowl]

7. TEN Dollars a week?

That's the size and scope of the middle class tax cut. I personally know an acquaintance of mine who received a $400,000 per year tax cut under Bush. He didn't need it and it did nothing for the economy.

Obama's piss trickle tax cut will do NOTHING. NOTHING for the economy. $10 per week is easily eaten up by a tiny hike in the price of a gallon of gas or a loaf of bread.

Liberal economists are telling Obama to think big and avoid incrementalism, citing FDR and the Great Depression. Obama looks less like FDR, Harry Truman (a true champion of universal healthcare), or even LBJ and his war on poverty. Nope, Obama apparently is aiming to become the democrat version of Eisenhower! Moderate and everyone doesn't dislike him! He is still under the vapid idea that if he just kisses enough evangelical cracker ass, everyone will love him.

He's going to get one rude awakening when the "liberal" news media starts piling on like a pack of rabid weasels.

Bah! He wins by a landslide and acts like Bill Clinton and the third way.

[Skittles]

2. moving to the center = sucking up to repukes

[katandmoon]

3. Yup. Obama wasn't elected to be a centrist Repug but because he represented CHANGE from that crap.

He is disappointing me more every day.

[quickesst]

6. It's at least worth a chuckle....

....to hear anyone on the left suggest that the last eight years have been anywhere near "centrist". Poor Obama. Between the democrats in Washington, I won't mention any names(PELOSI/REID)oops,inadvertantly hit some random keys, and some of his "supporters" he's looking more and more like Bill Clinton every day.

<>

Accessories included. Thanks.
quickesst

[scubadude]

4. I agree, the rights mantra is we are a "center right" nation.

I sure hope Obama swings back to the left, instead of fixing into place the gains made by the Republican propaganda machine.

Does anyone think the Repulicans will climb on board for universal healthcare for instance?

Scuba