As if Obama needed any further boosts tonight, those who hung around to see Gov. Bobby Jindal's rebuttal witnessed perhaps one of the worst speeches in recent memory. I struggle to recall a moment when there was such a yawning gap between the size of the opportunity and the quality of the performance. The writing, the tone, the delivery, the reading of the country's mood, the "back to the future" message that government is the problem -- all of it was wrong. And that is so depressing. Jindal seems like a whip smart, data-driven guy, with an inspiring story, who is perfectly at ease with big ideas and policy details alike, and who is willing to think creatively to solve the problems that are really affecting Americans now, in 2009. Not the problems of 1980. That guy never even suited up tonight. What a shame.
So the Obama theory – government spending is stimulus. If so, financial markets should feel the love. The U.S. budget is awash in red ink, and $800 billion more of it should easily move the needle on our economic prospects. Indeed it has – in the wrong direction. Financial markets don’t want more government debt or a scramble for “shovel-ready” spending projects. They want the skeletons in the banking sector’s closet exposed and expunged.
The only thing guaranteed by the spending stimulus is more national debt. One stroke of the presidential pen has now increased it by $800 billion. Democrats recently screamed about W-era profligacy. On July 28, 2008, Sen. Kent Conrad (D-ND), Chair of the Senate Budget Committee declared, "If they gave out Olympic medals for fiscal irresponsibility, President Bush would take the gold, silver and bronze. With his eight years in office, he will have had the five highest deficits ever recorded. And the highest of those deficits is now projected to come in 2009, as he leaves office."
Kent Conrad was right. The projected 2009 deficit then stood at $482 billion. In January it was forecast by the Congressional Budget Office at $1.2 trillion. Pres. Obama’s new plan now ups that to $1.7 trillion. If W got the gold, the new Administration has landed the Platinum in just its qualifying heat.
Keynesians claim that the Reagan boom was an outcome of just this deficit strategy; for sake of argument, let us assume the Keynesian position. Reagan’s budget deficit, half the size of Obama’s as a fraction of GDP, was able to pull the economy out of an unemployment trough deeper than the 7.6% hole we’re in today.
How do economists know that, while a deficit amounting to 6% of GDP budget was sufficient to spur the economy back to health in 1983, it will take more than twice that federal borrowing to do the same now? They don’t. Economic models are all over the place in their projections. Indeed, Prof. Barro’s cutting edge analysis of fiscal policy finds no historical stimulus from peacetime deficits. Of course, we’ve never seen so massive a deficit – one that would bar the U.S. from membership in the European Union, on grounds that our government finances are a mess -- and so we lack empirical evidence to inform the precise experiment we’re running today.
Democrats are confident it will create at least 3.5 million jobs within the next two years. "We will be accountable for this," House Speaker Nancy Pelosi, D-Calif., told reporters in a press conference Thursday afternoon.
