As the Economy Sputters, D.C. Loses Its Will to Act

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REUTERS/Jim Young

The grim news last week was not new: The American economy is stuck in a rut, with the manufacturing sector sputtering, housing prices falling and job growth too small to keep up with the growing population. We have been reading headlines like this, off and on, since 2007. What has changed, however, is the political will for the government to try to do anything to address the present problems.

If you listened closely last week, a new bipartisan consensus seemed to be emerging from all the flaming partisan rhetoric that greeted the grim economic numbers: No new talks of quick tax cuts or stimulus. No calls for new investments to help the American workers. Nothing to signal that anyone in Washington was going to adjust their policies to counteract the prospect of a slowing economy. This time, those struggling are on their own. Instead of the present pain, the political talk is now about the past and the distant future, when America is set to face a fiscal crises. President Obama traveled to Ohio Friday to celebrate success of his bailout of the American auto industry in 2009, which is now winding down. “There are always going to be bumps on the road to recovery,” he said, seeming to minimize the recent data.

At the White House, no new prescriptions to deal with the economic stasis were offered in response to the disappointing numbers. “We have shifted in the economy from a rescue phase, which is government-directed, to a phase in which we’ve got to rely on government policies that are trying to leverage the private sector and give incentives to the private sector to be doing the growth,” explained Austan Goolsbee, the head of White House Council of Economic Advisors, in reference to a series of proposals, like an infrastructure bank, which is stalled in Congress, and administrative regulatory reform, which is ongoing, and unlikely to have any significant, immediate effect on economic growth.

Likewise, on the Republican side, the response was to litigate the past and return to old policy proposals. Presidential candidates like Mitt Romney and Tim Pawlenty released statements blaming the Obama’s policies for the disappointments, without offering any policy proposals that would directly address the problems. “President Obama’s policies made the recession worse and as a result more people are out of work,” Romney announced last week, a statement that is difficult to prove, since it compares Obama’s record to the effects of an alternative set of policies Romney has not yet described.

In the House, Speaker John Boehner said the jobs numbers underscored the need to pass a jobs plan he had released weeks earlier. But that plan—a heavily illustrated, large font, 11-page document—is made up of mainly of long-term improvements, not short-term stimulus. Increased domestic oil drilling, new trade agreements or regulatory reforms are unlikely to provide an immediate jolt to the sputtering economy. “The lesson of the stimulus era is that short-term government intervention is no substitute for long-term economic investment, private initiative, and freedom,” Boehner said in May, in an address to the Economic Club of New York. “I believe it’s time to leave that era behind.”

The one part of the Republican plan that could send a jolt of new money into the economy is a cut in the corporate tax rate to 25% from 35%, though Republicans have declined to give specifics of how this would be done, including any accounting of how much would be offset by closing other tax loopholes or cutting spending elsewhere. Obama has said he would support a reduction of the corporate tax rate in the context of a larger tax reform effort that reduced loopholes. Other proposals that could have an immediate stimulating effect, like an immediate cut in the payroll tax for employers, or more aid to states, have yet to be embraced publicly by Democratic or Republican leaders.  Some economists, like Columbia University’s R. Glenn Hubbard, who worked for President George W. Bush, hold out hope that some measures, like a corporate tax cut, could be enacted this year. “You could make it better,” Hubbard said of the economy. “But each side would have to give a little.”

Most economists and market watchers now say that the nation no longer faces a significant risk of a second great depression. But there is a real danger of an economic funk, with insufficient growth for years, like the one that marred Japan through much of the 1990s. “Gosh, we’re looking awfully Japanese right now,” quipped Paul Krugman, a liberal economist and columnist on ABC’s This Week Sunday.

Meanwhile, most of the legislative maneuvering these days has less to do with the current economy than dealing with the long term fiscal state of the country, as Republicans and Democrats negotiate an agreement to extend the debt ceiling later this summer. That agreement will focus on government spending that goes beyond the current year, when millions of Americans will continue to suffer without employment or job prospects.

A recent polling analysis by Democracy Corps, a Democratic firm, concluded that “voters do not think anyone knows how to or has the will to solve America’s profound and persistent economic problems.” While this has been true for a while, politicians in Washington have always pretended otherwise. Now after years of frustration, on all sides, even that official will seems to be waning.

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