Skip to main content

The hostage crisis continues: Why Obama can’t pivot to jobs and growth

Robert Reich, professor of public policy | August 3, 2011

With the hostage crisis behind him, the President is now ready to talk about the nation’s real problem.

Nine paragraphs into his remarks today announcing the nation has paid most of the ransom the radical right demanded as a condition for maintaining the full faith and credit of the United States (he didn’t use these exact words), the President pivoted to the agenda he should have been talking about all along:

“And in the coming months I’ll continue also to fight for what the American people care most about: new jobs, higher wages, and faster economic growth.”

But what precisely will he fight for now that the debt deal has tied his hands?

He says he wants to extend tax cuts for middle class families and make sure the jobless get unemployment benefits.

Fine, but the new deal won’t let him. He’ll have to go back to Congress after the recess (five weeks from now) and round up enough votes to override the budget caps that now restrict spending. What are the odds? Maybe a little higher than zero.

He says he wants an “infrastructure bank” that would borrow money from private capital markets to pay private contractors to rebuild our nations roads, bridges, airports, and everything else that’s falling apart.

Fine, but the new deal he just signed may not let him do this either — if the infrastructure bank relies on federal funds or even federal loan guarantees to attract private money. The only way he could create an infrastructure bank without sweetening the pot would be by privatizing all the new infrastructure. That means toll roads and toll bridges, user-fee airports, and entry fees everywhere else.

Apart from its potential unfairness to lower-income people, such a privatized infrastructure would have the same effect as a tax increase. After paying more for roads and bridges and all other infrastructure, Americans would have less cash for to spend on goods and services. That means no boost to the economy.

The President also wants to complete trade deals and reform the patent process. These may make the economy slightly more efficient, but they’re not going to have any perceptible positive impact on the lives of the 26 million Americans who are now either looking for work, working in part-time jobs but needing full-time ones, or have given up looking.

More importantly, the deal he just signed makes it impossible for the President and Democrats to launch any major jobs program — no WPA or Civilian Conservation Corps, no major lending program to cash-starved states and locales, no new help for distressed homeowners, and so on. Nada.

“We’ve got to do everything in our power to grow this economy and put America back to work,” the President says, now that the hostage crisis is over.

But the sad truth is he and the nation remain hostage to the ideology of right-wing Republicans who won’t let the government spend more money. Yet if the government can’t spend more — at least this year and next, until the pump is primed and the economy is growing again — we won’t see job growth. And without job growth, the economy will remain anemic.

That’s why even the stock market is reacting badly to the end of the hostage crisis.

If you hadn’t noticed, the number of people unemployed or underemployed keeps growing. (We’ll know Friday how many it added in July, but remember it needs to add 125,000 a month just to keep up with the growth of the labor force. Anything below 125,000 means we continue to slide backward.)

The reason: Consumers, who are 70 percent of the economy, haven’t been able to pick up the slack. That’s because they’re still deep in debt. Their homes have plummeted in value. They can’t borrow. Their jobs are on the line and their wages are dropping.

So where will the demand come from if not government? The radical right points to the alleged “failure” of the stimulus program as evidence that government spending doesn’t work. The fact is it did work — it saved at least 3 million jobs, and would have saved far more if the stimulus was on the scale needed and directed to job creation.

To be sure, pump-priming is more difficult when the well is almost dry, as it is now. And widening inequality — the rich taking home an increasing share of the nation’s total income and wealth — has left the vast middle class with even less purchasing power.

But the pump still needs to be primed.

And the well has to be filled: The nation must also push for real tax reform that reverses the surge toward inequality — raising taxes on the wealthy, cutting them for the middle, and expanding the Earned Income Tax Credit for the poor.

To do this, though, requires that Americans understand the truth. But where will they learn it?

The radical right has not only captured the federal budget. In convincing so many Americans the problem is the size of government rather than their shrinking paychecks and growing economic insecurity, the radical right has also captured the American mind.

Cross-posted from Robert Reich’s blog.

Comments to “The hostage crisis continues: Why Obama can’t pivot to jobs and growth

  1. I have recently come to the conclusion (after fighting off the reality for a long time) that there truly is no difference anymore between the Democrats and The Republicans. The President knew exactly what he was signing and what it all meant but still tries to pay lip service to the middle and lower classes mostly affected by this agreement. There will be no jobs. There will be no infrastructure. Soon there will be no middle class at all in this country.

  2. We are italian and we have fear for usa crisis.
    Italian needs Usa AAA and Obama must work too hard for better.
    — fondotinta

  3. “With the hostage crisis behind him”?

    Delusional is a sickness when someone makes a terrible mistake. There was no hostage crisis. What people were taken hostage? I believe UCB and the leftist media painted Obama as having an IQ almost like Einstein. He will get reelected because he has dark skin, no other reason. The worlds knows him as a privileged dunce. He is a low-level lawyer, does not know business or economics. Even Christine Romer laughed when the triple A rating was downgraded, first time since 1917. GM made record profits in the billions, but Obama waived their taxes last year. You sure know how to elected a loser.

    Triplette Crau

  4. @ Tea Party Rocks…

    Do you really believe any of that gibberish you are typing? ROTFLMFAOHAHAHAHAHAAHA WHAT A JOKE. Obama is going to wipe the floor with the G.O.P. come 2012. Hell they can’t even fundraise.

    • Before you post you might want to consider how your remarks look to people who are actually sane.

  5. These comments are great! Thank you all for not blindly accepting what elite Democrats say will fix the economy from their golden perch. Here’s a story for you all.

    I know a man who is a retired police officer and receives a 6-figure pension. On top of that, after retiring from law enforcement, he went into working as a head security officer at one of the biggest companies in the world right now making another 6 figures in salary. His wife works and together they net almost $300,000. Unfortunately, his son is autistic and understandably he needs treatment. Well, he sees a therapist 4 times a week, for 5 hours a day (20 hrs a week for those of you who do not like math). The government pays for all of it, although he nets 300K. Every month he laughs as he opens his medical statement for his son and reads that the company charges the government $26,000 a month. That is $312,000 a year. With a little bit of capitalism and free markets, this company who has the audacity to charge our government these unfathomable fees would actually not be able to commit this retched act. Sadly, I dont blame the company as much as I do our stupid government. If you could sell lemonade for $100 a cup and someone in your neighborhood who wanted cups for all their friends and family was willing to pay that. We should know a little about supply and demand. Would you not sell it? This is the organism who wants more of your money to do with as they please and get us out of debt by spending. I understand we need growth, better wages, job creation, and a stronger middle class. But please government, get out of the way. Accountability please.

  6. To be honest, after reading the comments here, I cannot blame the Congress for the unproductivity. You keep blaming “Obama” “democrats” “radical right” and “socialist ideas.” Well, aren’t you actually pointing fingers instead of finding the solutions just like many of the politicians? Lets stick to the actual topic and avoid names-calling.
    I do not think cutting the budget will make the matter better. If anything, it will make it worse. About 8% of U.S population is directly employed by the government—not to mention contractors and others. State and local governments employ about 8.3 millions people in 2008 and that number is excluding hospitals and education. U.S already has over 9.1% unemployment rate…I do not want that to increase anymore due to more unemployment from the governments.
    Now taxes…seriously, who wants to pay taxes? But we have to because we need to support a system here. Last time I checked, the Founding Fathers fought for taxing WITHOUT representation, NOT no taxes or more tax cuts. If you say we cannot afford any more spending, then how come we should afford the expensive tax cuts, especially for the upper-income earners?
    What about regulations? Regulations are absolutely neccessary because our system does NOT follow a list of perfect economic assumptions. Some regulations may be hinder to the job growth, but be more specific which ones you are referring. Do I want my government to ensure the cars are safely built, the restaurants follow the health codes, and the Wall-Street to be accountable to the investors? Heck yes, otherwise, I will NOT spend my money there.
    Finally, we need to realize the economic downturn started LONG before Obama took the office. So simply blame it all on him is absotutely unfair. He may not be the best president, but may I ask who else does this nation offer as a better candidate in 2012?

  7. Robert, thank you for saying what I was thinking (only, you said it better). I am simply amazed that the right wing has been able to capture so many American minds. The speaker of the house, more than once mentioned in the news that we need to keep taxes low for big business so American corporations can afford to stimulate the economy and provide more jobs. Let’s be honest, American corporations are perfectly capable of creating more jobs now. Unfortunately, they are too consumed with greed to do it. Let’s not forget those big auto executives riding around in expensive corporate jets while insisting that the Federal government use our tax dollars to bail them out of the financial holes they dug for themselves. Their greed is horrific. Instead of providing much needed jobs to stimulate the economy, big business continues to hoard wealth for their investers and corporate heads. Wake up people! The right wing is draining the financial well and tying the hands of those individuals in our government who would stimulate the economy if only you and I would empower them to do to so. Don’t let the right wing get away with brow beating our President and those who would stand with him to do what is moral and right for everyday citizens like you and me!

  8. So how do you explain that we are already spending 42% more than we bring in? where is all the money going today? lets not talk about MORE taxing – any moron can do more with more!! what the hell can the useless twits in government do with less? that is where true genius/effort comes in. Let the private sector do it – at least they have an incentive to do it right, rather than the idiot public unions whose only goal is to do it slowly and poorly so they can do it again!

    Go back to Econ 101 and you might learn how poor the government multiplier effect is – yes, it will take time to turn around the socialist state built over the last 40 years, but it can be done if the socialists don’t put us under before then.

    Isn’t it refreshing to see that in 5 short weeks, the discussion in Washington has finally shifted from how much more revenue can we borrow and burn to how do we finally own up to our debts and starting getting back to a realistic budget!!! Gain is pain – suck it up!

  9. Why have their homes plummeted in value? Because the government pursued a policy of encouraging banks to makes loans to people who could not afford them. That is the exact cause of the problem. Everything else that happened was a result of this bad public policy. I was studying political science at Berkeley when these ideas were being tossed around in the 70’s and my reaction was that if banks could be forced by politicians to make loans to people who could not afford them we would all be in trouble. Interestingly enough President Bush foresaw this and Democrats, especially Barney Frank opposed his efforts to reform the system. If anyone belongs in jail it is Barney Frank. Of course, Robert Reich does not want to discuss the bad public policy and the role Democrats played in the collapse, that would be like asking Al Capone to testify against himself. We are all suffering because the Democrat’s attempts to help a certain class of people for the so called public good was actually a thinly disguised attempt to bribe them to vote for Democrats. Reich is a part of this system and as long as he remains a part of it he will never offer any real solution to our economic problems. The fact that we are $14 trillion in debt and not living in some economic paradise shows how extremely faulty the thinking is that more of the same will produce any different result.

  10. Robert, you bring up a great question –


    Attack the American Way of Life

    Attack our Democracy

    Attack our Rights

    Attack the Rule of Law

    Attack our Education System

    Attack our Economy

    Attack our Jobs

    Attack Opportunities for a better life for all Americans today

    Attack our Quality of Life

    Attack the Future for our newest and all future generations

    And then they run away from Washington before they even begin to fix these and so many other threats that they have caused against all Americans?


      They must immediately repeat and renew the pledge made by our Founding Fathers in the Declaration of Independence when they risked their lives to create the United States of America:

      “And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.”

    • I call them Democrats. According to Wikopedia Robert Reich endorsed Obama. Obama created this huge mess. If these conditions existed under a Republican president the lefties and the news media would be 24 x 7 hounding him out of office. 14 trillion dollars in deficit spending proves the point Conservatives have been making for 40 years, you can’t spend your way into prosperity. Also, I studied Keynesian economics at Berkeley and I clearly remember that Keynes felt you had to balance the balance or even run a surplus at times so that when the government stepped in it had the ability to make an impact. What we have right now is sheer lunacy and the only people I can see who are offering any real solution is the Tea Party. That’s why Reich attacks us – we are a threat to the thinly disguised Ponzi scheme politicians run of using taxpayer money to extend goodies that are basically bribes to get votes. Another of their favorite tricks is to try and force people to join unions so that their union dues are converted to contributions to the democrat party. They love to quote Thomas Jefferson regarding church and state but his feelings against forcing people to make contributions like that are totally ignored. The Tea Party is against this type of coercive behavior so Reich slams them. Anything that goes against the current corrupt system run by Reich, Obama and their pals gets demonized. But my point is that Reich endorsed Obama, the country is going to Hell in hand basket with Obama as president, and if Reich endorsed Obama and Obama turned out to be a huge failure why should welisten to the person who picked him out in the first place? He reminds of the story I heard about the doctors who treated George Washington actually bled him to the death. That’s extremely symbolic of what is going on right now.

      Anyway, nothing Reich says is scholarly or grounded in fact, it is merely left wind propaganda. You won’t find anything useful at all because he represents more of the exact same thinking that causes manufacturing to leave this country, punishes people who can actually create jobs and establishes a huge class of people who are dependent on transfer payments from the federal government. These payments are basically bribes to support the Democratic Party. This is their game and they play it exceedingly well.

      • Tea Party Rocks, the fact you must focus on is that this week The Tea Party dragged the entire Washington political establishment into a state of political, economic, social and environmental chaos.

        The Tea Party has successfully attacked and continues to threaten our U.S. Constitution and Rights, Rule of Law, Education System, Economy, Jobs, Opportunities, Health and Quality of Life for all future generations.

        In just an incredible few years The Tea Party has overthrown the Republican Party and there is no stopping them because the entire, former GOP leadership has surrendered to The Tea Party.

        But we should have foreseen this eventuality because the last truly great American President was Dwight D. Eisenhower who left office in 1961 after giving his most famous Farewell Address that warned America that our political system was in grave jeopardy due to the power of money that also controls our intellectual establishment to this day. We The People have most obviously marginalized what Ike said at our increasing peril.

        In spite of the advances the human race has achieved, we are still susceptible to acts of self destruction that have continuously occurred throughout the history of the human race, and The Tea Party is proving once again that our brain has not evolved far enough beyond chimpanzees when it comes to protecting our future.

        • The fact you must focus on is that we are $14 trillion in debt headed to $50 trillion or more, we have a wrecked economy, the welfare state is a failure and government intervention has been nothing but a dismal failure. Your political philosophy is bankrupt, the leaders you support are wrecking the economy and the Tea Party are the only people I see who are offering real solutions to the problems we face. All you do is recite leftist talking points, hurl insults and make wildly unfounded statements. You’re mad because democracy allowed someone other than your narrow minded, ignorant, immature and reckless beliefs to have a chance to govern. I cherish the attacks on the Tea Party here, it proves we are getting somewhere.

  11. Here’s a thought: Let people do stuff!

    Let people build pipelines, drill for oil and gas, build cars that people want to buy, and perhaps even open the occasional new restaurant in Berkeley.

    The vast majority of governmental actions hinder economic activity, they don’t cause it. Get those out of the way and watch more people get employed.

    • People what people are you referring to, what if they’re people you don’t like doing stuff you don’t love? With no regulations of any kind, it would be the wild west all over again. I would bet my last dollar, you would be singing a different tune, if people didn’t follow any health codes when they cooked your food or when you buy your next electronic device, they charged you twice as much as advertised, and it fell apart on the way home.
      Rules and regulations have a purpose they aren’t there to obstruct your economic activity, they keep civilization civil, accountable and affordable.

      • Wildwest?- CalGrad has an excellent point. What you said is the typical gobbleydegook you liberals come up with when you can’t find anything relevant to say. Please try to come up with something original in the future and restrict your comments to something that is actually meaningful. Pretending somebody said something they did not say and then attacking them for it is getting pretty old now. It’s not very challenging for me to respond to you when you resort to those tactics and frankly makes for a very boring discussion. Please try harder in the future to actually understand what someone says before attacking their position. If you need any other help I’m here for you.

    • Good points. Nice to know I’m not only the sane person here. But the Left does not want to do that because it would provide competition for their economic interests. They like the current system because it concentrates wealth in the hands of people who have the resources to manipulate the political system.

  12. I disagree with your final statement: “the radical right has also captured the American mind”. I believe the majority of Americans are aware and do not believe the lies and distortions, the Radical WRONG-side is selling. This is not the time to doubt the intelligence of the American majority, they are same people who voted for Obama. We are law abiding but not pushovers, and we are ready, willing and able to stand up and support our President.

    • Referring to the Tea Party as the radical right is just so much propaganda and hate mongering from the idiot left. We basically stand up for the same principles our founding fathers adhered to, don’t want government to be our mama and papa and nanny all rolled into one and want to get back to a society that affords intelligent people with real drive and ambition to be in a position to capitalizes on their economic efforts. We are extremely tired of Reid “the war is lost”, Pelosi ” you have to pass the bill before we tell you what’s in it, whiner in chief Debbie Blabbermouth Schulz and Obama the great apologizer and demonizer of those who oppose his reckless spending and class warfare rhetoric. The man has got to be the most intellectually dishonest politician I’ve ever seen. If you want to see some real improvement in the economy cut government spending to the bone, cut taxes, increase profitability and make it economically viable to manufacture goods here again. I think virtually everything Wal Mart sells was made in China. Makes me ill.

Comments are closed.