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Wednesday, September 02, 2009

Government Stinks vs. "I Agree Government Stinks But We Can Do Better"

by dday

Conservatives very smartly conflated the bailout and the stimulus in people's minds, and traded off public anger with one to demonize the other. They're still doing it, too, with Eric Cantor today suggesting to cancel the rest of the stimulus and "pay off the debt." Most of the continuing debt comes from Bush-era policies, so this is nonsense. It's also wrong to state that the stimulus should be cancelled because it's not working. In fact, Rupert Murdoch's Wall Street Journal tells us the opposite today:

The U.S. economy is beginning to show signs of improvement, with many economists asserting the worst is past and data pointing to stronger-than-expected growth. On Tuesday, data showed manufacturing grew in August for the first time in more than a year. "There's a method to the madness. We're getting out of this," said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Much of the stimulus spending is just beginning to trickle through the economy, with spending expected to peak sometime later this year or in early 2010. The government has funneled about $60 billion of the $288 billion in promised tax cuts to U.S. households, while about $84 billion of the $499 billion in spending has been paid. About $200 billion has been promised to certain projects, such as infrastructure and energy projects.

Economists say the money out the door -- combined with the expectation of additional funds flowing soon -- is fueling growth above where it would have been without any government action.

Many forecasters say stimulus spending is adding two to three percentage points to economic growth in the second and third quarters, when measured at an annual rate. The impact in the second quarter, calculated by analyzing how the extra funds flowing into the economy boost consumption, investment and spending, helped slow the rate of decline and will lay the groundwork for positive growth in the third quarter -- something that seemed almost implausible just a few months ago. Some economists say the 1% contraction in the second quarter would have been far worse, possibly as much as 3.2%, if not for the stimulus.

The recovery is still jobless thus far, which means it's not a real recovery yet. And the White House made two mistakes - one, they soft-pedaled the recession, claiming that unemployment would not go above 9% or so, leaving them susceptible to the charge that the stimulus isn't working; and two, they put far too much of the stimulus into tax cuts instead of the public investment that would have made it even more successful, particularly on the jobs front.

But without the public investment the stimulus has thus far provided and will continue to provide, we'd be mired in more negative growth and a near-depression.

The President has actually tried to talk up the benefits of the stimulus, but not in a forceful way. As a result, the conservative conflation has led to a souring on government, directly attributable to a lack of leadership and messaging.

Paul Krugman argued recently that Obama hadn't effectively used the bully pulpit to slay "government-is-bad fundamentalism." This is only one poll, but it's fair to ask whether these numbers bear that out.

Obama's poll slide has prompted some to ask whether his presidency might fall short of the transformative moment many expected. I think it's too early to reach a conclusion on this. If Obama pulls out a health care victory, everything will shift again.

But for a time it seemed like shattering the government-is-bad paradigm was distinctly within Obama's reach. General confidence in the government's ability to secure the public's well being seems like pretty good number to keep an eye on when gaming out the potential for transformation of this moment, and of this presidency.

This has mostly resonated in the health care debate, with insurance companies inexplicably getting somewhat higher marks now than government as a health care provider, despite the fact that the groups with the highest satisfaction with their health care are seniors (government-provided single-payer system), and veterans (government-run NHS-style system).

Politics is about storytelling. Obama during his campaign actually started to tell a pretty decent story about government as a guarantor of basic rights, which can equalize opportunity and give everyone a shot. He told a story of community, where we take care of each other and use government as a means to do so. Then he stopped. He thought it was much better to tell everyone that "95% of you will see a tax cut".

And as a result, the public investment program that averted a depression is considered a failure.

Very dangerous.