We Need More of Barack's Economics

8/31/2011 12:32 PM ET

By Anthony Mirhaydari, MSN Money

Political chest-thumping aside, economic fundamentals and the lesson of the Great Depression's 'double-dip' of '37 support the case for more government stimulus. Obama's jobs plan might work -- if we let it.

Anthony Mirhaydari

I'll be blunt: Without more federal stimulus, like the spending in the jobs bill President Barack Obama is set to unveil next week, we face the prospect of reliving the economic nightmare that was the 1937 "double-dip."

The mistakes of '37 didn't just extend the Great Depression, they also created a nasty downturn all their own.

It was one of the sharpest contractions in history. Stocks lost almost half their value. Economic output contracted by 9%. Industrial production dropped 32%. Wholesale prices dropped 11% as the value of several important commodities--- such as corn, cattle and cotton -- collapsed, pressuring desperate, indebted farmers and ranchers. And the unemployment rate, which, like now, had stabilized near 9%, surged to 12.5%.

What should be in Obama's jobs bill?

Then, like now, the problem was entirely avoidable. We needed the president and Congress to spend more, either directly or through the tax code. They didn't listen then, and I doubt they will now. Here's a look at why the economy needs this help, and how all of us will be affected if it isn't provided.

The first step to fixing the economy is having the foresight to focus on the true near-term economic threats (joblessness and stagnant growth) instead of the less-urgent malaise that currently dominates the discussion (the national debt and deficit).

Obama will try to refocus the debate after the Labor Day holiday by proposing a plan he hopes will boost economic growth by up to 1.5% and create a million new jobs. According to the latest reports, the plan could include a payroll tax cut for employers hiring new workers, new spending on building and rehabilitating schools, and clean-energy tax cuts. Also on the table could be an extension of payroll tax cuts for workers and the impact of the upcoming expiration of the Bush tax cuts. And long-term deficit-reduction steps could be included, too.

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Obama also selected Alan Krueger, a Princeton labor economist and one of the architects of the Cash for Clunkers auto rebate program, as the new head of the White House Council of Economic Advisers. An expert on the problem of long-term unemployment, Krueger may push worker training subsidies as a solution to the problem of long-term unemployment, something I discussed in a recent column.

Whatever the details, the bottom line is that we need more spending to offset the loss of consumer and business confidence over the last few months. And we need it now.

Failure to respond

Wall Street economists are worried about the issue, with the team at JPMorgan referring to the current soft patch in the economy and failure by politicians to respond appropriately as a "policy-induced slowdown." Citigroup puts the odds of a new recession below 20% -- but only in the absence of additional policy mistakes.

Aneta Markowska, senior U.S. economist at Société Générale, told me she's concerned that failure, at the very least, to extend the payroll tax cuts and unemployment benefits "could very well push us into a recession."

Global leaders, such as the new head of the International Monetary Fund, are calling for more stimulus. Federal Reserve Chairman Ben Bernanke last week used his speech at the Jackson Hole, Wyo., summit of central bankers to urge politicians to put America back on the path to a balanced budget, but not by disregarding the "fragility of the current economic recovery." He noted that the "two goals of achieving fiscal sustainability -- which is the result of responsible policies set in place for the longer term -- and avoiding the creation of fiscal head winds for the current recovery are not incompatible."

He ended by castigating the budget process in Congress and the political mud fights still going on there.

Old mistakes made new again

There is a way to get this all right, but we're going about it all wrong.

Yes, we need to address the debt. But the best way to do so is to get the economy growing again. That's how President Bill Clinton and a Republican Congress produced a balanced budget a little more than a decade ago, after years of deep deficits. They tackled the portion of the deficit that rises and falls with the business cycle.

But now, Washington seems able to focus only on whether to cut the deficit by cutting spending or by raising taxes -- a fool's errand, because either approach will slow the economy and make the cyclical deficit worse. That's the same failed strategy followed by President Franklin D. Roosevelt, Treasury Secretary Harry Morgenthau and Fed Chairman Marriner Eccles in 1937.

To make matters worse, we're hearing conservatives protest the Federal Reserve's efforts to prod the economy with policies like ultralow interest rates and Treasury purchases. This, too, was a feature of the 1937 decline. Those people are calling for a double whammy when the economy needs a helping hand.

According to Citigroup economists, based on current law and assuming the congressional supercommittee tasked with cutting $1.5 trillion from the deficit by November can't come to an agreement, we would see a contraction in deficit spending amounting to 3% of gross domestic product in 2013. That's the result of existing stimulus ending and the Bush tax cuts expiring on schedule. A 3% deficit cut is the same size as the one that created the '37 recession, according to a 1973 study.

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average joe american,

Would the guys that disagree with me please stand up and tell us a little bit about yourselves, like what you believe in,

 

Here it comes.

 

We need a JOBS PROGRAM.  If it has to be one like the WPA and other such programs during

the depression then so be it.  We cerainly need a great deal of work on the infrastructure

all over this country and thats is what the WPA did back in the 30's.

 

There would be money to support this jobs program.  It could come from the unemployment

compensation funds and the other welfare and supplement programs that deal with

the unemployed and poor in this coutry.  Put them to work, pay them, and in many cases

probably supply them with a place to live and food on the table.  There are places all over

the country to do this, many of which are sitting idle at this time.

 

In my lifetime I have worked both sides of the street.  For the government and in the private

sector.  Both have their strenghts and weaknesses and both have been showing many of

those weaknesses over the past 3 decades, and few of their strenths, mainly because

they have never learned to work together.

 

It is time for them to start working together or this country and the people are going to

suffer a social and economic catastrophe that wil make the depression look like a walk

in the part.

 

 

    0    0ReportSpamcragig14 minutes ago

It don't matter who the president is, the country is teetering on the edge of a depression and if the government don't start spending money like crazy and soon, to stimulate the economy, it is all over.

Yes there is a debt problem, but it won't matter none if we drop in to a depression. There really is no choice but to spend more money (that we haven't got). It is the worst of a worst case scenario.

    0    0ReportSpamAverage Joe American - Tampa FL20 minutes ago

Would the guys that disagree with me please stand up and tell us a little bit about yourselves, like what you believe in, what you do, and how you feel about Michael Vick landing a 6 year $100M contract. I'd appreciate it...thanks a bunch!  

 

BTW, I'm just kidding about the Vick thing.

    0    0ReportSpamgatorboy6129 minutes agoWho ever writes the internet news must be black and ilerate for they are always taking up for the blue gum .  He has proven himself to be a looser and it will only get worse as time goes on ,  We really need to put some one in the nasty house to clean it up fumagate the place ,and start a plan to put people back to work.  Blacks have done nothing for the country but bring it down and cause trouble. They need to be back in africa .  The only reason the blacks have advanced this far is so the politican can get the black vote.  What did the whites do th have to put up with this kind of people?  Whites built this country over time and one blue gum is trying to destroy everything in four years.  We cant stand another four yeare of stupidity. We need some one with just a little bit of brain ,for this do do has no idea of what to do but spend and spend We have to have a good level headed person in the white house to get us out of this mess.     2    2ReportSpamAverage Joe American - Tampa FL37 minutes ago

JT, while I agree with only about 50% of your comments, thanks for at least presenting them sensibly.

 

Your last comment about breaking the incestuous relationship between the greedy industrialists and on-the-take politicians can only happen with government intervention and yes, those pesky laws and regulations. Because any way you slice it,  you just can't expect  Bank of America and Goldman Sachs to police themselves and do the  right thing, can you? Really?  

 

I would trust John Deere or the Planters Peanut guys way before the financial institutions of our country.

 

Responsive and effective government is what's needed, not the growing monolith that can't get anything done. 

 

I spent most of my adult life in service to our country and learned firsthand how things are done in the Mid-East (since that's where we go to work these days), and to a l lesser extent Europe . And let me tell you, no matter how great our problems, there's no place like home.

 

The left and right in Congress and across the nation just needs to learn how to hate a little less, and respect each other just a little bit more to find the economic, political, and social common ground to revive our great nation.

    1    1ReportSpampizza eater--239 minutes agoOBAMA JUST NEEDS TO GO AWAY     GO BACK HOME !!!!!!!!      5    1ReportSpamJT  (GoofyLaws) 58 minutes agoYou're insane.  Federal spending is make-work for those who support politicians, and doesn't lead to either actual careers or sustainable growth.  We need to get the damned government in its place, adhering to the Constitution, and doing ONLY what it's supposed to do.  1)  Untie the hands of free enterprise and promote growth WITHIN the United States, 2)  Stop the invasion across our borders as sponsored by the cheap-labor lobby, 3) Reduce the role and the size of government, including drastic cuts in government spending, and 4) Stop the unconsitutional, unwinnable, and unsustainable "wars" and efforts to remake the other side of the planet.  Let the U. S. lead in industry, and force greedy people to stop trading favors with politicians.     12    3ReportSpamAverage Joe American - Tampa FL1 hour agoWOW, It's hard to believe how so many people comment on just how stupid everyone else is, but offer no realistically achievable solutions.  The game turns from weighing and debating various viewpoints in a respectful and dignified manner (like civilzed grown-ups) to to name calling and finger pointing. Brilliant!       4    4ReportSpamPhuckliberalidiots1 hour agoyet another idiotic master piece by moron liberal.     17    4ReportSpamDC Ivy  (catxx1) 2 hours ago

Bluetuen253,  I do agree that infrastructure needs to be rebuilt, across the nation, especially in the northern portions where snow, frost and ice has deteriorated it.  But 40% just isn't good enough, especially since many areas have been ignored for 40 years or more.  The real problem in the federal budget is the can of worms of entitlement programs.  It used to be that people were pretty much self-sufficient when it came to the basics of life.  Today to many are reliant on government to foot the bill.  Because costs have risen so drastically.  I do not think that this is due to the capitalistic system we have, it is due to the tremendous imbalance that the socialistic welfare systems which are competing directly with capital interests. 

 

I am an in the middle of the boom, boomer, I do remember gas at 0.20/per, a loaf of bread at a quarter, milk and butter much the same, parents smoked at 0.25 a pack a new Caddy 2800 bucks.  Can we get the old days back, no we can not.  But if this trend continues a gallon of gas will be 8.50/ per and milk at 7.75/per, earned income will lag behind inflation.  It can't all be the greed of the "fat cats", but also the greed of the "skinny cats" as well.  The American Pie just isn't that big anymore.  The ingredients..ie jobs have either been sent overseas due to over taxation or the jobs that are here appear to be beneath Americans and the legal and illegal immigrants are more than willing to do them.  Companies hire them because no one else seems to want them.

 

So the powers that be in the government do what government  should do, Provide for the common defense and build and maintain the highways and bridges.  It should be the last resort for citizens that need help to get back on their feet and then the largess can only go so far.  Welfare should not be a life style, only a band-aid.

    7    2ReportSpamcragig3 hours ago

The debt should have been addressed in the good times, not the bad times. But of course it don't work like that. The debt is finally being addressed, but at the worst possible time ever.

There is really no choice in the matter, as the government must spend more money, not less if the economy is ever going to get out of this slump.

A year from now, the debt crisis will be all but forgotten (again) and the frantic demand from the public for the government to do "something" will cause huge government spending on a mass scale to try to get the economy moving. 

You had better buy all the Gold and Silver you can afford right now because there is going to be inflation like you have never seen before to get the economy moving.

It is on the way, better get ready now, not later. 

 

    9    3ReportSpamkiril Chukanov  (chukanovenergy.com) 3 hours ago

You, all, don't understand one important thing: our human civilization evaluates forward in Time. USA too. America is not the same as it was when US Constitution was created. America needs new Constitution and new social/economical order (no socialism/comunism which are dead forever), if America wants to survive for the Future. We live now in Time of Great Social/Economical/Sc​ientific/Technologic​al Changes. Like in the Time of Civil War when the old exhausted system of semi-feudal/slavery system was replaced by Capitalism. Capitalism exhausted its possibilities for positive evolution. Capitalism makes regular Americans unhappy. Capitalism is dying! Like it or not, this happens now in America and everywhere in the world. And no Big Money, no stubborn conservatism, no Wall Street, no US government, can stop this process.

 

    3    25ReportSpamVoice of Reason 348903 hours agoWhere do they find these people to write these articles!?  The other day there was an article on this web page on how credit cards are a good thing and need to be used more often and now this!  I got a news flash for all the readers out there: The economy is jacked up because the government continues to step in and do it's best to manipulate it by stimulus, over regulation or to guarantee people things (like a mortgage) they are not in a position to have.  The government needs to STOP get involved.  How can you get out of debt by spending more than you have?      27    2ReportSpamAverage Joe American - Tampa FL3 hours ago

At the very real risk of being pounded by the peanut gallery over this, I’m throwing my chips on the author’s side of the table.  Many aspects of his article are based on documented historical records and published opinions. Most of the posts I read here labeling Mr. Mirhaydari as a lunatic or paid insider, offer little or no educated rebuttal. And make no mistake that the budget and economic systems of a country are nothing like the economics of a household.  

 

The only slight caveat I hold is that many of the assumptions and proposed solutions are based predominantly on past models of central governments’ fiscal and monetary interventions (or lack thereof). However, like the old saying goes, those that fail to learn the mistakes of the past are doomed to repeat them.  

 

The bottom line is that it makes all kinds of sense to “spend” your way out of a recession, downturn, doldrums, or whatever you want to call it. The trick is deciding where to put your money to get the most bang.  But at the same time you have to “balance” revenues with expenditures over the long term.  

    

The political stalemates are the biggest hindrance to achieving short term recovery and long term prosperity. So what it will take is for good people to educate themselves, take a stand, and kindly inform their congressional representatives what direction to take-since the folks in D.C. obviously can’t figure it out for themselves.  

    7    20ReportSpambluetune2534 hours ago

This guy  is right....I know ....flame on!

 

Obama's much maligned "stimulus' did work, at least the 40% that was devoted to our infrastructure maintenance, the rest was tax cuts and political earmarks, Democrat AND Republican. The opposite aisle was able to "eat their cake and have it to", they were able to provide hometown federal money and vote against the bill for dubious future political cow pies, such is the advantage of being the minority party

Here in Colorado $500M  is currently helping our state construct/maintain our highways, keeping plenty people working.

 

President Obama's mistake was not making it $1 Trillion devoted 100% to fixing our infrastructure......​. something that MUST be done before it's too late, no matter who is in office.

 

So flame on my rightwing, but myopic friends..........LOL​!  

    2    26ReportSpamDeli4 hours agoWhat a surprise MSN finds a economist that is all for more spending. lets ignore the 14 trillion elephant in the room called the deficit. Why not cut off the spigot of regulations this administration has unleash on every industry- but the green one (which is going bankrupt one company at the time). The economic mechanics of the 1930's are vastly different form the mechanics of 2011 and there will be no world wide conflict to energize the military-industrial complex to the degree it did then. Yes, England has tried to cut the social network of aid that it build over 50-60 years and what a surprise, has found incredible amount of resistance from those who benefit form it. The truth is there has to be a change in the dynamic that says goverment is the purveyor of economic security and well being, the individual is and not till we look at the monster in the eye will we be able to beat it.     19    3ReportSpambongleblue1764 hours agoThere is just one problem with this article....no mention how to get american corporations to bring jobs from Asia back to America.  You can talk about tax breaks, tax increases, tax incentives, etc.but if there are no jobs what does it matter?Intel who is one of the largest chip makers in the world has several plants in Asia....I spoke to a lady today in Taiwan who works for Intel making storage devices.  Its a win win situation for US corporations in Asia....low or virtually no corporate taxes, low wages, no environment regulations.Manufacturing jobs in China pay about 1 dollar per hour tops.....how can the US compete with that kind of labor?  Obama can mouth off all he wants but he can't do a f_cking thing to bring the jobs back to America.  The manufacturing jobs are lost forever....this is now a global economy and corporations will follow the cheap labor no matter what country it's in.     20    1ReportSpamLeonard Robinson  (oakee) 4 hours agoThe article is the type of thinking that got us where we are today.     27    3ReportSpamjohnQcitizen4 hours agoi don't know about you but I'm real unhappy about the way our government is working. So much so I'm thinking of running. Let me ask you. Would you be willing to vote for an independent congressman that posted briefs of up coming bills and let his registered voters log onto his congressional web site to vote. Then i would vote whatever way the majority of voters in my district told me to.i wouldn't make any decisions. The voters of my district would. There would be no point in bribing me as id only vote the way my constituents wanted me to.if enough members of the house of represenatives operated this way i believe our wars would end and so would free trade /job exporting.it would end the undo influence big money has on our government     15    1ReportSpamplumnow4 hours ago

This column must of been written by a product of the university of Obamanomics, there courses include recommended for beginners

"Borrow your way out of debt"

"Borrow and others pay"

"How to destroy a country"

"Printing money"

"Successful lying techniques" 

"Discouraging the discouraged"

"changing your promises"

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Obama also selected Alan Krueger, a Princeton labor economist and one of the architects of the Cash for Clunkers auto rebate program, as the new head of the White House Council of Economic Advisers. An expert on the problem of long-term unemployment, Krueger may push worker training subsidies as a solution to the problem of long-term unemployment, something I discussed in a recent column.

Whatever the details, the bottom line is that we need more spending to offset the loss of consumer and business confidence over the last few months. And we need it now.

Wall Street economists are worried about the issue, with the team at JPMorgan referring to the current soft patch in the economy and failure by politicians to respond appropriately as a "policy-induced slowdown." Citigroup puts the odds of a new recession below 20% -- but only in the absence of additional policy mistakes.

Aneta Markowska, senior U.S. economist at Société Générale, told me she's concerned that failure, at the very least, to extend the payroll tax cuts and unemployment benefits "could very well push us into a recession."

Global leaders, such as the new head of the International Monetary Fund, are calling for more stimulus. Federal Reserve Chairman Ben Bernanke last week used his speech at the Jackson Hole, Wyo., summit of central bankers to urge politicians to put America back on the path to a balanced budget, but not by disregarding the "fragility of the current economic recovery." He noted that the "two goals of achieving fiscal sustainability -- which is the result of responsible policies set in place for the longer term -- and avoiding the creation of fiscal head winds for the current recovery are not incompatible."

He ended by castigating the budget process in Congress and the political mud fights still going on there.

There is a way to get this all right, but we're going about it all wrong.

Yes, we need to address the debt. But the best way to do so is to get the economy growing again. That's how President Bill Clinton and a Republican Congress produced a balanced budget a little more than a decade ago, after years of deep deficits. They tackled the portion of the deficit that rises and falls with the business cycle.

But now, Washington seems able to focus only on whether to cut the deficit by cutting spending or by raising taxes -- a fool's errand, because either approach will slow the economy and make the cyclical deficit worse. That's the same failed strategy followed by President Franklin D. Roosevelt, Treasury Secretary Harry Morgenthau and Fed Chairman Marriner Eccles in 1937.

To make matters worse, we're hearing conservatives protest the Federal Reserve's efforts to prod the economy with policies like ultralow interest rates and Treasury purchases. This, too, was a feature of the 1937 decline. Those people are calling for a double whammy when the economy needs a helping hand.

According to Citigroup economists, based on current law and assuming the congressional supercommittee tasked with cutting $1.5 trillion from the deficit by November can't come to an agreement, we would see a contraction in deficit spending amounting to 3% of gross domestic product in 2013. That's the result of existing stimulus ending and the Bush tax cuts expiring on schedule. A 3% deficit cut is the same size as the one that created the '37 recession, according to a 1973 study.

average joe american,

Would the guys that disagree with me please stand up and tell us a little bit about yourselves, like what you believe in,

 

Here it comes.

 

We need a JOBS PROGRAM.  If it has to be one like the WPA and other such programs during

the depression then so be it.  We cerainly need a great deal of work on the infrastructure

all over this country and thats is what the WPA did back in the 30's.

 

There would be money to support this jobs program.  It could come from the unemployment

compensation funds and the other welfare and supplement programs that deal with

the unemployed and poor in this coutry.  Put them to work, pay them, and in many cases

probably supply them with a place to live and food on the table.  There are places all over

the country to do this, many of which are sitting idle at this time.

 

In my lifetime I have worked both sides of the street.  For the government and in the private

sector.  Both have their strenghts and weaknesses and both have been showing many of

those weaknesses over the past 3 decades, and few of their strenths, mainly because

they have never learned to work together.

 

It is time for them to start working together or this country and the people are going to

suffer a social and economic catastrophe that wil make the depression look like a walk

in the part.

 

 

It don't matter who the president is, the country is teetering on the edge of a depression and if the government don't start spending money like crazy and soon, to stimulate the economy, it is all over.

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