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White House Divided On Economy, Just As The Rest Of US

The White House political and economic teams are split over adding more stimulus or cutting the deficit to salvage the sputtering economy.

That puts them in the same boat as the rest of the country. No one knows what the hell to do.

President Obama, as is his nature, is seeking a middle road of using the best options of both arguments.

The split in the White House was outlined in a boring analysis in the New York Times Saturday I’ll try to enliven. But, first the schism within 1600 Pennsylvania Ave.

Those pressing for more stimulus measures include Christina Romer, the chairwoman of the Council of Economic Advisers; Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr.; and the Treasury secretary, Timothy F. Geithner, who took that message internationally to the Group of 20 summit meeting of developed nations last weekend in Canada. Lawrence H. Summers, who as director of the National Economic Council tries to broker what he calls the “brakes-versus-accelerator” debates, nonetheless makes the economic arguments for an additional stimulus, officials say.

More focused on deficits — or at least on positioning Mr. Obama to show his concern — are his chief strategist, David Axelrod, other political advisers and Rahm Emanuel, the White House chief of staff, according to Democrats. Their lone supporter among the top economic aides is Peter R. Orszag, the budget director, who will leave the administration this month.

Axelrod, according to the Times, is a key player. “It’s my job to report what the public mood is,” he said.

The public mood is framed by naysayers who have managed to redefine “stimulus” and “bank bailouts” as dirty words.

I think it would be fair to say that the $787 billion stimulus and the bailout of major banks and two U.S. automakers got us to where we were by May 31 in that it slowed and turned around the 2007 recession slide — but at the expense of adding a couple of trillion dollars to the deficit and more to the national debt.

Pick your poison.

The problem with the stimulus was that it was top loaded with helping the states and local governments stay afloat and when that money ran out most were in the same budget crunch as they were in the beginning — only worse. Not that no belt tightening occurred. In California, most state employees were placed on a four-day week and thousands had their salaries cut to minimum wage. No matter what Draconian austerity efforts the states enacted, the bottom line was not the amount of federal stimulus as much as loss of tax revenue because of the tanked economy.

The few stimulus programs directed at helping drowning homeowners with their mortgage payments failed, home sales crashed when the $8,000 credit program ended and car sales shrank after money for the “cars for clunkers” ran out.

The stimulus tax credits to small businesses never created the jobs promised. While factory inventories gained and consumer confidence rose along with household savings accounts, these so-called “green sprouts” were forever battling drought conditions.

The big bank bailouts provided equity for the majors to return to health through the same risky schemes that nearly drove them off the cliff. At the same time the thriving community banks were denied cheap money to loan and earn as the Wall Street fat cats. The result of easy credit ancient history, consumers and small businesses, the wheels which turn the economy, remained dormant.

The problem with the bailouts is the street looks at Wall Street and asks “why not me?”

As for new stimulus, Obama in his State of the Union address in January, asked for $266 billion. He has since chopped it down to $100 billion hoping two or three Senate Republicans and all election paranoid Democrats will vote for it.

That’s Exhibit A of politics muzzling economics.

What irks me is one segment of the opposition that receives more attention than it deserves and I am including more than the Tea Party crowd.

It is those who blame the Obama administration for not doing enough to stop the Gulf of Mexico oil slick from reaching the Gulf state shorelines in one corner of their mouth and the next breath insist on limited government.

These are the same people who bitch about taxes yet they are the first to cry foul when their benefits from Medicare and Social Security are threatened, when potholes in their public roads are not repaired, when public school athletic and arts programs are axed while class sizes increase to 40, when their drinking water is contaminated, when their sewers overflow and when the police and fire departments take too long to respond when crime engulfs their neighborhoods and fire destroys their homes.

Is more federal stimulus the answer, I don’t know. But it seems to have bought us time for the economy to recover ever so slightly and spare us a third depression. For now.

Fighting a sinking economy is the same as providing enough sandbags to prevent a raging flood from destroying your property. You do the best you can and pay the piper when the flood recedes.

I remember when Ronald Reagan was California governor and took credit for changes he imposed that returned the state to fiscal credibility. I fear a nasty message from Nancy Reagan, but the fact is her husband did not have a damned thing to do with it. Market factors adjusted, the economy improved and tax revenues poured into the state treasury as never before, not only in California but across the country, of which, of course, he had no influence at that time.

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