The Sisyphean Stimulus Sell: Why Obama’s Big Job Speech Will Likely Prove Unpersuasive

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Jason Reed / Reuters

Governor Rick “Galileo” Perry declared at the Reagan Library last night that President Obama and his 2009 stimulus have “proven once and for all that government spending will not create one job.” Actually, in the last quarter, even though the stimulus was winding down, it created 555,029 jobs directly, and according to the nonpartisan Congressional Budget Office, as many as 2.9 million jobs in all. But in the bizarro world of campaign coverage, that’s just a matter of opinion, like global warming or evolution. Apparently, all those basics I learned about aggregate demand (C+I+G+exports, right?) from my introductory economics professor—who happened to be Reagan’s top economic adviser —was just pointy-headed nonsense, like the junk all those know-it-all climate scientists are peddling. According to Perry, “Keynesian policy and Keynesian theory is now done.”

Politically, he might be right. President Obama is going to call for more stimulus tonight, although he probably won’t dare call it “stimulus.” And Republicans are overwhelmingly likely to say no.  In February 2008, Republicans and Democrats supported President Bush’s stimulus package. In February 2009, Republicans still said they wanted stimulus, just a different stimulus from the one Obama and the Democrats put together. But by 2010, stimulus was a dirty word.

Progressives often complain that Obama has failed to make an aggressive case for Keynesian economics. At times he has even echoed GOP arguments for Hoover-style austerity, suggesting that the government ought to tighten its belt just like families and businesses are. In fact, Keynes showed that when demand stalls and creates a vicious cycle—consumers (the “C” in that aggregate demand formula) stop spending, so businesses stop investing (the “I”) and reduce their workforces, so consumers spend even less, and so on down the drain—government (the “G,” which only equals zero in Perry’s imagination) must be the spender of last resort. When a government contractor hires people to fix a bridge, those workers get real paychecks that they can use to buy real groceries. And when state and local government workers lose their jobs—as they have been doing in large numbers in recent years—their pain is real pain, and the spending they don’t do affects the private sector as well.

But this kind of nuance is hard to explain, and after awhile, Obama stopped trying. The Republican case against stimulus is easy: Unemployment is 9%. Democratic explanations of our plight—financial cataclysms always lead to brutal recessions, the cataclysm of 2008 was much worse than anyone realized at the time, we’d be in a depression if not for the stimulus, government borrowing has never been cheaper—are true, but unconvincing.

We’ll see if Obama gives it another shot tonight. He’s going to propose hundreds of billions of dollars in stimulus spending that Republicans have traditionally supported: payroll tax cuts, business tax cuts, unemployment insurance, roads and bridges. Perhaps this will help position him as a reasonable man. Perhaps this will make his opponents look unreasonable when they say no. Perhaps he’ll even make a persuasive case for deficit spending during a slump.

But it’s hard to imagine that he’ll persuade any Republicans in Congress. It doesn’t matter that they used to support stimulus; they used to support individual mandates for health insurance and cap-and-trade for greenhouse-gas emissions, too. And now that Obama is running for reelection, they definitely don’t want to boost the economy with fiscal stimulus, just as they don’t want to boost the economy with monetary stimulus. (The supposedly reasonable Republican, Mitt Romney, complained last night that Fed has overinflated the currency. I hate to keep injecting facts, but inflation is way lower than it ever was in the Reagan era. And a stronger dollar would reduce exports–the final variable in that aggregate demand formula–and kill more jobs.) As one former Obama adviser recently told me, Republicans will support stimulus again when there’s a Republican in the White House again.

Maybe there’s a case for Galileonomics after all.