Hell Freezes Over Department

Well, waddaya know, I agree with Mark Penn about something:

The third decision the administration will be faced with is whether to launch a new stimulus package. Unemployment continues to creep up and is likely to soon hit the 10 percent tripwire. And while companies have reduced their payrolls, they are not growing on the top line, and the result is worsening job outlook. This is the most devastating result of the economic crisis that started with subprime mortgages and Wall Street arbitrage — persistently high unemployment.

From a strategic standpoint, it is that unemployment and how it is handled that will most likely determine the political fate of the administration. Joblessness is where economics and politics converge; while banking regulation and deficit reduction are certainly significant issues, no statistic is more vital in human or political terms than unemployment. And no decision is more critical for the president’s political future than how he moves to bring it back down — even if the fault rightly lies with the past administration’s neglect of the brewing financial storm.

Having chosen to spend what it takes to get us out of the recession, the president should not diverge from that basic direction at this point unless he wants to jeopardize essentially all the economic capital he has built up. In the polls, he’s losing steam as the one to handle the economy, but if he reasserts his positions and his policies, he can regain momentum, even in the face of higher unemployment.

I also agree with Ryan Avent that the theory that unemployment is caused by a boom/bust asymmetry seem to bolster rather than undermine the case for economic stimulus.

The question of policy design for a new stimulus package ought to be how do we design something that more directly targets the labor market rather than merely supporting GDP growth?