America’s New Shrink

Charles Ommanney / Getty Images for Newsweek

Therapist-in-Chief: The President explains the details of his $778 billion stimulus package to a crowd in Mesa, Arizona

If Ralph Waldo emerson had a 19th-century Facebook page, his “Favorite Quotation” (or maybe I should say my favorite Emerson quote) would likely be: “Events are in the saddle and tend to ride mankind.”

For the last six months, events have been in the saddle of the world economy and they might ride us for quite a while. Every day seems to bring bad news, with more on the way. Will commercial real estate crash next? Is General Motors toast? Dow 5,000, anyone?

When President Obama was sworn in, the stock market dropped. When he signed the largest economic recovery package in American history last week, the Dow plunged nearly 300 points. His widely panned bank rescue plan and even his better-received housing rescue plan both laid eggs on the Street.

Obama says he doesn’t worry too much about short-term market swoons, and he’s right not to. Who elected greedy gamblers to represent us? But the market is now based less on assessments of specific companies than on reaction to the federal government. And that reaction, cascading down to Main Street, is a fair reflection of the nation’s pessimistic mood. The new president is popular and refreshing, but still well short of transformative. For all of the legislative achievements of his first month in office, Americans have not yet had their faith in the future restored.

What’s a president to do? If he starts in with the happy talk, he sounds like John McCain saying “the fundamentals of the economy are strong,” which is what sealed the election for Obama in the first place. But if he gets too gloomy, he’ll scare the bejesus out of the entire world. The balance Obama strikes is to say that things will get worse before they get better, but that they will get better. Now he must convince us that’s true.

Conservatives smell blood. The Republican National Committee issued a press release saying Obama’s first month was all about “wasteful spending, failed bipartisanship and questionable ethics.” Columnist Charles Krauthammer called the $787 billion stimulus package “a legislative abomination,” and Karl Rove wrote that “the more Americans learn about the bill, the less they like it.”

Polls say otherwise. The public likes the signs of action, respects that the new president is willing to admit error and appreciates his constant reminders that there are no easy cures to what ails us.

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Alter: Barack Obama, Bringer of Confidence | Newsweek Politics | Newsweek.com.

Cutting the Unemployment Line

Even in this economic chaos, some jobs remain recession resistant

There are three options government can pursue when the economy goes south. First, the Fed can cut interest rates, buy up assets, and extend credit, all of which the central bank has already done. Second, Congress can cut taxes on businesses and consumers in the hope they will spend more. The first effort—last year’s tax rebates—didn’t have the intended effect since consumers used much of the windfall to pay down debt or save. The substantial tax cuts that will be part of the Obama stimulus package would likely have a similarly muted effect. Businesses and consumers, facing a tough credit environment and needing to repair their balance sheets, will likely use proceeds from the tax cuts to tide themselves over. The third option is for the government to directly purchase goods and services, to substitute the demand that consumers and businesses aren’t providing.

The Washington remnant of the Republican Party—40 senators and 178 representatives—is all for Options 1 and 2, cheap money and tax cuts. But they’re having great difficulty with Option 3. They have forgotten Richard Nixon’s famous line that “we’re all Keynesians now.” To them, spending government funds to goose the economy is unacceptable, not just because of the possibility of poor execution —i.e., pork. No, many are rejecting it as a matter of principle. Even though several Republican governors are pleading for assistance in the form of federal spending, Washington Republicans are saying no.

Newly elected Republican National Committee Chairman Michael Steele laid down the party line on CNN: “Let’s get this notion out of our heads that the government create jobs. Not in the history of mankind has the government ever created a job.” Sen. Jim DeMint of South Carolina succinctly summed up his opposition: “We can’t keep spending and borrowing to get us out of a recession.” Sen. Kit Bond of Missouri concedes that some government spending—such as spending on highways—can create jobs but thinks that spending on mass transit or alternative-transit infrastructure isn’t stimulative.  Read More…

Will the Stimulus Plan Create Jobs? | Newsweek Voices – Daniel Gross | Newsweek.com.