As a former member of President Obama's economic team, I have a soft spot for the fiscal stimulus legislation he signed just a month after his inauguration.
If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone - perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers' bottom lines.
If you think about it, candidate Obama, Sen. Obama, was running on sort of long-run economic issues, like restoring prosperity to the middle class, dealing with the perennial problem of health care in the United States. He talked a lot about the budget deficit, about the need to transition to clean energy.
In the four decades after World War II, manufacturing jobs paid more than other jobs for given skills. But that is much less true today. Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.
The basic idea that if you increase government spending or you cut people's taxes that stimulates the economy and lowers the unemployment rate, is a very widely accepted idea. It's in every economics textbook, that's what we teach our undergraduates, and I certainly try to teach them the truth.
The stimulus legislation, technically known as the American Recovery and Reinvestment Act of 2009, was a mixture of tax cuts for families and businesses; increased transfer payments, like unemployment insurance; and increased direct government spending, like infrastructure investment.
If you look at the studies coming out of the Congressional Budget Office, the number one thing that's going to blow a hole in the deficit as we go forward 20, 30 years is government spending on healthcare.
A natural way that an economist approaches a problem is to say, here's where I think the economy is going; this is what we need to deal with the problem.
I think where I differ a little bit, we absolutely have to think about the deficit looking down the road. And certainly that's something the president has said that we need to, as the economy recovers, have a plan in place for getting it down.
Climate change and dependence on foreign oil are problems that won't go away on their own. Tabling plans to deal with them doesn't make it easier for companies to plan and invest; it makes it harder.
Honest talk about the deficit is risky. Voters are more enthusiastic about the abstract notion of deficit reduction than about the painful details of accomplishing it.
President Obama has repeatedly urged Congress to let the Bush tax cuts expire for those earning more than $250,000 a year. Increasing rates on top earners is an obvious way to raise revenue from those who can afford it most.
Thanks to former President George W. Bush - remember the compassionate conservative? - I have a good name for the fundamental principle that should guide the Democratic alternative: compassionate deficit reduction.
The right way to deal with a budget problem that was years in the making is by formulating a credible plan to reduce the deficit over time and as the economy is able to withstand the necessary fiscal belt-tightening. That is what President Obama is doing.
We're committed to working with Congress to doing what the president said he was always going to do, which is cut the deficit in half over the - over his first term.
Where we're coming down is we currently have $787 billion of stimulus that's been passed. We're certainly focusing on spending that money as quickly and as efficiently and as transparently as we can. We think that's absolutely the right strategy.
You know, I think the, the crucial thing, you know, we have put in place what is, is just simply the biggest, boldest recovery package in history, right; the stimulus package, biggest ever; the financial rescue, absolutely comprehensive; a housing plan - that is incredible medicine for the economy. And we fully expect it to work.
