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Michael Barone
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Obama's Economic Strategy

Comment

How will Barack Obama govern as president? One clue, I think, is the site where he chose to make his first post-election policy speech, laying out his economic stimulus plan last week.

Presumably he had many invitations and could have made it anywhere in Washington. But he chose to trek out to Northern Virginia, to George Mason University, a school known for its free market economics department. And the plan he unveiled there is not exactly what you might have expected from a politician who in 2007 had the most liberal voting record in the Senate, according to National Journal.

To be sure, he called for massive infrastructure spending, for alternative energy investment, for more health care spending — all items from the Democratic wish list. But he also called for tax cuts for individuals and businesses — the sort of thing Republicans usually press for. Three weeks ago, I put forward the guess that Obama would hold himself aloof from and above his party, much as Dwight Eisenhower did in the 1950s. It seems that, for the moment anyway, I guessed right.

All of which strikes me as good politics. Congressional Democrats are complaining about the tax cuts and calling for more public works spending — even though, for all their talk of shovel-ready projects, pretty much everyone knows that such spending won't provide much in the way of an immediate stimulus to the economy. And that's especially true if their environmental group allies gin up lawsuits to protect this or that supposedly endangered species from imperilment from this or that highway or bridge.

Republicans, pleasantly surprised by the presence of tax cuts, are scurrying away from the demands for all-out opposition from the likes of Rush Limbaugh and movement conservatives. They're pleased that Democrats like Speaker Nancy Pelosi are displeased by Obama's unwillingness to raise taxes on high earners immediately.

Obama seems to have drawn this lesson from recent and comparatively ancient legislative history: that both parties need to be drawn into the legislative negotiations, even though Democrats have sufficient majorities to pass a bill all by themselves.

Ancient history: Bill Clinton's decision to pass his 1993 economic package only with Democratic votes cost him and his party critical support.

Recent history: The failure to draw the ordinarily powerless House Republican minority into discussions resulted in the (temporary) defeat of the $700 billion financial rescue package last September.

After 1994, Clinton pursued policies by way of "triangulation," standing above and separate from both parties and negotiating with each. Last October, Democrats and the Bush Treasury made concessions to the House Republicans. Obama is doing the same sort of thing ahead of time.

The likelihood then is that the final stimulus package will be supported by many in both parties. And that both parties will be held responsible for the results. Moreover, Obama was careful to note that good results may be long in coming. Just as he eliminated the possibility of a primary challenge by Hillary Clinton in 2012, so Obama seems to be trying to remove an issue that Republicans might run on in 2010.

Good politics, then. But is it good policy? That's harder to say. We are in the midst of a financial crisis unlike any we've seen in many years and are facing the threat of deflation, of the sort that choked off economic growth in America in the 1930s and Japan in the 1990s. Federal Reserve Chairman Ben Bernanke probably knows more about the economics of the 1930s than anyone else on earth. Outgoing Treasury Secretary Henry Paulson and incoming Treasury Secretary Timothy Geithner know as much about financial markets as just about any two experts you could find. Obama's lead adviser Lawrence Summers, in the opinion of others as well as himself, is one of the world's most knowledgeable economists.

But it is not apparent that any of them knows how to produce the optimal economic conditions that Americans have become used to over the past quarter-century at the speedy pace that American voters are inclined to demand. In a time of deflation, prices tend to fall — and so it makes sense to hold onto your money and buy things next year. In a time when households are overburdened with debt, it makes sense to pay your credit cards and your mortgage down and not take on more.

Obama's decision to include tax cuts as well as stimulative spending in his George Mason speech indicates that he's not willing to bet on any one policy to succeed anytime soon — and that he's interested in spreading any resulting political blame.

To read more political analysis by Michael Barone, visit www.usnews.com/baroneblog. To find out more about Michael Barone, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2009 CREATORS SYNDICATE INC.

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Comments

3 Comments | Post Comment
Many of the tax cuts aren't tax cuts, they are welfare payments to individuals who don't pay taxes.
The tax reductions for companies hiring workers won't stimulate hiring or expansion of businesses. In a time when hundreds of thousands of jobs per month will be lost, for several months, these tax breaks won't stimulate hiring. In fact, they are unlikely to be used at all, so this won't stimulate anything.
The Bush tax cuts will be allowed to expire, so that is a tax increase that won't be counted.
I don't understand how Republicans can possibly support the corruption of language represented by this proposal, and soften their opposition. I wish that columnists and Republicans would not go along with calling welfare payments tax cuts.
Plus, the added spending won't stimulate short, medium or long term growth. It will merely add to the debt and add uncertainty, which reduces business and consumer investment. Who will make those points, and fight for real solutions?
Comment: #1
Posted by: twculver
Sat Jan 10, 2009 7:02 AM
Tax cut? There aren't any tax CUTS. There's Tax CREDITS. There's a difference. I can tell you where this is gonna go, right now. "I tried harder than I ever tried before, in my life. But I CAN'T do any TAX CUTS. In fact, get ready for the biggest Tax Increase you've ever seen."
Gee, THAT'S never happened before.
Comment: #2
Posted by: Timothy L. Pennell
Sat Jan 10, 2009 8:08 AM
Sir;...Not to abuse Mr. Pennell, or Mr. Culver; but you are correct...It is smart politics to bring the republicans along..Tax cuts for the working people has always covered tax lobotomies for the rich; and they do not need the money and they do not spend the money unless it is used to corral even larger portions of the national wealth, in realestate, or investments in t bills, or dividend paying stock... Does it strike you as strange that the rich cannot pay taxes, but can afford treasury bills??? They do everything within their power to deny taxation to the government for legitimate expenses but instead of taking the loss of taxes they make a gain on the future debt of the nation... We need a tax cut... The little people need a tax cut, and a fair wage...To hell with the middle class subsidizing short income for the poor... Raise the minimum wage until it will pay taxes... Clearly, some people should be paid to stay out of the way, to stay off the roads at rush hour, and to stay out of the work place...It is an inevitble fact of life that some people have more gum than grease in them, and cannot move or think with any haste... But if working people can manage their jobs they should get a living wage.... In fact, while income should pay taxes, it is wealth that should support the country...Great wealth is a vice... Great wealth is impossible without great poverty... And part of great poverty, as demoralizing as that is -rests upon a powerless government.. ..And that is what denying revenue to government does...When you take from government the ability to demand justice, and leave it only the power to defend wealth; you no longer have a democracy...Property, which is to say, Wealth, once supported this country....When the income tax was first accepted it only affected13% of the country.... Now some people cry that it only affect 50% of the people because the rest are too poor, even with working, to qualify... Does that mean they do not make a profit with their labor??? No one hires anyone for charity... But short wages do not pay taxes, and across the board, while profits have soared, wages have sunk... Labor carries the whole country, and with income taxes, it carries it twice, and makes every worker work twice for the same money, and make money itself that much more expensive to have for housing, or capital... Now, it is only good politics to sell the republicans on tax cuts...It should only affect the poor, and the middle... But the national debt equals what the rich refuse to pay, because the poor cannot afford to pay more, and the country must still support itself...It cannot live on promises, on debt, or on theft...Look at the rich...They can afford to sway every election, and to bribe every official over the cost of election; but their bribes mean that not one of them will pay his share of the nation... They do not pay taxes, but invest in government... But we cannot afford to let them off the hook... There is no free ride, even for the rich...And the republicans are smart to not listen to the junk dealers like Limbaugh... People like that are as essential to this country as a scab is to a healthy man...Thanks...Sweeney
Comment: #3
Posted by: James A, Sweeney
Sun Jan 11, 2009 7:37 AM
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