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Obama: 'We've got about as difficult an economic play as is possible'


This bit of the transcript from yesterday's jobs summit is about as clear a description as I've heard Obama give of the economic task he thinks his administration is facing:

We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health-care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.

You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.

No, I mean, we had -- we've got a 9-point-something trillion-dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated.

So that's not what's contributing to the deficit. We've got a long-term structural deficit that is primarily being driven by health-care costs, and our long-term entitlement programs. All right? So that's the baseline.

Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do.

We understand that in this administration. That's not always the dialogue that's going on out there in public and we're going to have to do a better job of educating the public on that.

The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.

Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive. So we've got about as difficult an economic play as is possible, which is to press the accelerator in terms of job growth, but then know when to apply the brakes in the out-years and do that credibly.

Photo credit: Nicholas Kamm/Getty

By Ezra Klein  |  December 4, 2009; 12:45 PM ET
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Obama's "play" is basically to do nothing. Pressing the accelerator and applying the brakes is Bernanke's job, not his. Obama's going to stand back and watch while Wall Street rolls in money and working families twist in the wind.

Posted by: bmull | December 4, 2009 1:12 PM | Report abuse

Yes, I listened to that portion of the speech and I was struck by how well President Obama understands and can explain what is going on with the US economy. Very impressive. He did a similar thing today in PA in the town hall meeting while talking about financial regulatory reform.

With the current job loss at its lowest in several years, I am becoming more hopeful not only with the economy but where this administration is trying to take this country.

I am glad that he is our 'nerdy' President in these tough times.

Posted by: ns3k | December 4, 2009 1:51 PM | Report abuse

The stimulus is not "nothing," and there's some evidence that they're going to move forward with some new job-creating incentives when the healthcare fight is finally over. Obama will also face a really interesting test with his next budget proposal.

There are also a slew of reauthorizations and stuff that's been pushed into next year. A lot of those must-pass bills have their own opportunities for job-creating elements to be thrown in.

Posted by: NS12345 | December 4, 2009 2:00 PM | Report abuse

The big contribution to the deficits that he neglected to mention is spelled W-A-R. specifically two of them, one of which he has chosen to enlarge and the other of which he isn't ending fast enough.

It'as high time we talked about war with the same terms we talk about health care. The wars aren't cost-effective and we can't afford them. That's the bottom line.

Posted by: Mimikatz | December 4, 2009 2:15 PM | Report abuse

He seems to understand what is needed, but is restrained by the demands of his political party to do it. We do need to spend and spend big on the types of non-recurring items that will make American society more competative in the future. Roads, bridges, broadband lines, and health information technology in hospitals are these types of non-recurring expenditures.

What needs to be cut are recurring federal expenditures like Medicaid, Unemployement insurance, education programs and other recurring federal programs on which people get dependent. This is where all the long-term structural deficit the president speaks about comes from.

Posted by: lancediverson | December 4, 2009 2:52 PM | Report abuse

Yes it is a lucid explanation by this President. But is he aware of another structural issue related to employment as pointed by these experts - Lakshman Achuthan and Anirvan Banerji as articulated in the below must read article?

I have no idea if these experts were called in President's Job Forum and whether Christina Romer and Larry Summers engage with these experts. But I know both of them are with fantastic pedigree. I know Banerji predicted 2000 recession and 2008 recession correctly and succinctly as well as 'formal ends' of those recessions.

Posted by: umesh409 | December 4, 2009 5:17 PM | Report abuse

Obama's comments are good. The one improvement I might make is in the his implication that all taxes are equal and taxing is harmful. Don't mistake this as an argument against deficit spending. We should do that.

However, I do believe that our tax structure is out of whack. If the government raises some taxes on high income earners [i.e. introduces a structure similar to that of 1980 or 1955] I don't think the economy would be hurt, especially if the government spent it all to employ people. Honestly, I don't expect to see a radical change in the tax brackets or treatment of capital gains as ordinary income which I also prefer. However, we really don't need anyone giving credence to the fallacy that all taxes will hurt the economy.

Does anyone really think that a 60% tax on income over $2 million would hurt the economy if the government spent it all on a modern WPA or CCC while also spending another $1.5 trillion of stimulus on infrastructure, energy saving residential equipment, high-speed rail, aid to states, and aid to post secondary students, etc.?

Posted by: bcbulger | December 4, 2009 6:40 PM | Report abuse

If he truly believes all this stuff, why isn't he raising holy hell about it all day every day? So far, he's been remarkably passive and has let the discussion be hijacked and directed by the most extreme elements in the country.

He seems to share the general congress person's impression that all problems are political problems, and only political problems, that do not interact in any way with objective reality. So we end up with a bunch of half measures that "demonstrate concern" and "send messages" but don't actually solve the problems they are putatively intended to solve.

It may be that said problems cannot be solved in the current America with the current Congress. But someone who truly believed the situation was as dire as he describes would at least start with a proposal that manifestly solves the targeted problem, and then campaign hard and continuously to build pressure on Congress to pass it. It might get watered down in the end, but if it comes out of the starting gate already watered down, the president does not campaign for it, he only (sometimes) reacts to campaigns against it, well, you can't really call that in touch with reality now, can you? It reflects a persuasion that the sole purpose of legislation is legislating and reality can take care of itself.

Posted by: pj_camp | December 5, 2009 2:46 PM | Report abuse

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