What should be the priorities of the Obama administration in Economic policy for the second term?
The FIRST priority is very simple: invest in America. As noted here repeatedly, the foundation of long-term economic growth in the private sector is government investment in public goods and services: infrastructure, education, research, and public health.
But now we have conditions that promise huge short-term benefits for government investment. We have a very sluggish economy, high unemployment, and record low interest rates. This is a classic situation of a Keynesian 'liquidity trap' where government spending can bring us out of a downturn. The spending on public goods and services will directly hire both government workers and private contractors, and, through the multiplier or ripple effect this will gain still more jobs. Furthermore, we have a crying need for investment in infrastructure. Not only can we benefit from upgrading our transportation, power and communication infrastructure, but it is now in crying need due to deterioration from delayed maintenance.
The arguments for government spending on investment now are overwhelming. The only thing holding them back is the misguided belief that austerity—cutting back on government—and tax cutting are a better way to get the economy to grow. That these policies will help is contradicted by recent evidence all over the world. Austerity policies in England and the Euro zone have put both into recession, where we have stayed out of returning to it. And tax cuts during the Bush administration did not produce growth, whereas tax increases in the Clinton administration did. And therecent report by the Congressional Research Service, suppressed by the Republicans, confirms the failure of tax cutting as a stimulus to economic growth.
The other argument is that public debt is a short term economic crisis. As Paul Krugman and others have argued, it is not, and long term we can grow out of debt, as we did after WWII. That is providing we have growth, which public investment together with private initiative and investment will create.
Because of the dominance of these "zombie ideas"—refuted but still quoted as God's truth—a SECOND priority is critical. The President must publicly and openly discredit the zombie ideas of Reaganism: the the unholy trinity of cuts—cutting taxes, government and regulation cuts. President Obama has not used the "bully pulpit" to rebut these arguments, and they are the foundation of the opposition.
To let opposition arguments go unanswered is bad politics, and disastrous politics when dealing with Reaganism. The TV press will not go into policy issues, as a rule, and only the President making an issue of them publicly will force public discussion. Here Obama can turn his professorial background to good use. He should have a series of press conferences which he introduces by advocating his own policies, such as the American Jobs Act, and then refute the Reaganist zombie ideas with charts of recent economic facts. When Ross Perot used charts in his debates with Cllinton and Bush I, he changed the national conversation, It is time for Obama to do the same. BRING ON THE CHARTS!