The President, wisely, opened his speech with an admonition to the media to focus less on politics and more on substance so I’m going to try to set my cynicism about the impossibility of any of this happening aside and simply note that the ideas in the speech today are good ones. Not every single one is my favorite stimulative idea (the employer-side payroll tax stuff, in particular, wouldn’t have been in my bill) and the President’s exposition of the concepts aren’t totally up to state of the art New Keynesian theories, but these ideas will help. The stuff on the infrastructure side and the stuff on the education side will both directly target problem areas in the labor market. The tax cut stuff will maintain consumer spending. What’s more, the traditional concern that tax-side stimulus isn’t fully spent doesn’t matter that much under the present circumstances. Even if people use that money to pay down debts, it speeds the debt-overhand problem and helps us out.
I do wish the President had spent a bit more time focusing on the slightly wonky subject of bond yield rates, but I’ll do it for him instead. The real yield on the 10-year bond is back to zero percent. At the five-year and seven-year horizons, the real yields are zero. That’s because the marketplace doesn’t want to fund current consumption and it doesn’t want to fund residential investment either. It wants to give the money to the government. It’s time to seize that opportunity.
All that said, in practical terms I think Ben Bernanke’s speech is a bigger deal. If the Fed gets serious about jobs, we’ll get some jobs.
Meanwhile, I can’t help but think that the American economy has performed sluggishly ever since George W Bush gave a speech to Congress successfully calling for a ban on human-animal hybrids. Clearly we need to deregulate this vital sector and win the future with chimera stimulus.