It’s 12:35 Mountain Time when President Obama steps onto the Denver podium on February 17th, reaches up with his right hand to silence the audience, and begins. “It’s great to be in Denver,” Mr Obama says. “I was here last summer to accept the nomination of my party and to make a promise to people of all parties—that I would do all I could to give every American the chance to make of their lives what they will and see their children climb higher than they did.”
Mr Obama pauses, and Vice President Biden smirks behind him. Today, Mr Obama has returned to the birthplace of his general election campaign to fulfill a less explicit, more fundamental agreement: that if America elected him, he would lift America from the depths of recession.
Not two hours from now, Mr Obama will have signed into law the American Recovery and Reinvestment Act (ARRA), a Congressional bill that he describes as “the beginning of what we need to do to create jobs for Americans, …to provide relief for families worried they won’t be able to pay next month’s bills, and to set our economy on a firmer foundation, paving the way to long-term growth and prosperity.”
That was more than six weeks ago.
Since then Mr Obama’s spending bill has failed, and it failed before it even got started—that is to say, it failed because it never got started. In the forty-eight days following the ARRA’s passage, not one of the so-called “shovel-ready” projects, designed to overhaul American infrastructure and increase national employment, has begun.
Instead the Act has left proposed highways, bridges, water treatment plants, and new rail lines in the planning stages while the economy suffers—gross domestic product (GDP) falling 3.8% in the fourth quarter of last year and over 1.3 million jobs lost in February and March of 2009. Although negative growth was likely even with a more coherent stimulus plan, this one’s lack of specific economic goals has surely made things worth.
If Mr Obama is to resurrect the nation’s economy, not to mention the global one, he needs to decide whether to chiefly pursue a policy of full employment—which could increase the velocity of money thereby loosening credit and stimulating demand—or GDP growth—which would provide more money to corporations and those who are employed.
As the Congressional Budget Office has already pointed out, the most certain path to the highest long term GDP growth would have involved not signing the ARRA—the agency forecasts such growth to be 0.1-0.3% lower by 2019 than if no stimulus had been passed. Since inaction during recession is a hazardous, if not suicidal, political strategy Mr Obama’s best alternative wouldn’t have been the unfocused legislation he selected, but rather a policy focused on employment.
Had Mr Obama increased the marginal tax rate—the tax rate levied on the last dollar of income—which he could have done by raising income taxes in the upper three brackets and cutting taxes in the bottom two, he would have deterred American’s from working multiple jobs. Despite having short-term negative effects on GDP, higher marginal tax rates would leave more jobs open to the unemployed, thus better distributing America’s annual income. Moreover, a falling unemployment rate would help alleviate the nation’s savings streak that has resulted from perceived job insecurity and stifled aggregate demand, and the boost in government revenue from the taxes could have been used to finance more infrastructure projects further diminishing unemployment.
That wasn’t the path that the president chose on the afternoon of February 17th, one of only a handful of times that his background in Constitutional law, not economics, revealed itself. Even if Mr Obama doesn’t realize it now, he did make a campaign promise to Americans that the ARRA made harder to keep. Luckily for him, the impeachment process is generally more rigorous than that of the lay-offs he has triggered.
-David Lamb
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“Had Mr Obama increased the marginal tax rate—the tax rate levied on the last dollar of income—which he could have done by raising income taxes in the upper three brackets and cutting taxes in the bottom two, he would have deterred American’s from working multiple jobs. Despite having short-term negative effects on GDP, higher marginal tax rates would leave more jobs open to the unemployed, thus better distributing America’s annual income. Moreover, a falling unemployment rate would help alleviate the nation’s savings streak that has resulted from perceived job insecurity and stifled aggregate demand, and the boost in government revenue from the taxes could have been used to finance more infrastructure projects further diminishing unemployment.”
Brilliant advice.
[...] Lamb presents How the ARRA Should Have Looked posted at Killer [...]
[...] "How the ARRA Should Have Looked" Originally published: 6 April 2009 Submitted by: U.S. Common Sense Summary: Tracking the impact of the American Recovery and Reinvestment Act so far, and how the plan could have been revised to be more effective. [...]