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It's the Policies, Stupid

Economic uncertainty hurts.

12:00 AM, Sep 25, 2010 • By IRWIN M. STELZER
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The Fed is not the only player with a policy that matters. The Obama administration is engaged in a combination of re-think and persistence. The former is reflected in the upcoming departure of Larry Summers, the director of the National Economic Council. Summers, variously praised for policies that prevented the Great Recession from becoming another Great Depression, or derided as unable to face down the president’s inner circle of politicians when important decisions were being made, is to return to Harvard, some say as always planned, others not so sure that he is voluntarily parting with his White House pass. No matter: he will be gone. That clears the way for Obama to appoint a businessperson to the post, which his advisers are urging him to do. Some of the president’s staff—Summers was one such—believe that words matter, that the president’s strident anti-business rhetoric is deterring businessmen from investing. They feel the business community would find the appointment of one of their own reassuring, and perhaps unlock the $2 trillion in cash held by major corporations. Whether such a symbolic move would cause businessmen to forget the abuse that the president has heaped upon them can’t be predicted.

Neither can we know whether the president’s persistence will pay off for him. He wants some tax breaks for small businesses, $50 billion more to spend on infrastructure to “create jobs for American workers,” and exclusion of the rich (the 2 percent of families earning more than $250,000 per year) from a renewal of the Bush tax cuts. In the best case, that exclusion would produce enough revenue to cover only nine days worth of the deficit, according to The Economist.

Some of Obama’s Democratic colleagues and all of the Republicans in Congress say they won’t go along with excluding high earners from the tax-cut renewal lest it discourage spending and investment by the small businesses that would have to cough up under the Obama plan. Republicans are demanding spending cuts, now, while Fed chairman Ben Bernanke favors a combination of some new spending now, combined with promises of deficit reduction when the recovery is more robust. If all of these conflicting proposals produce a deadlock in Congress, allowing all the tax cuts to expire, Bernanke will have to push the start button and keep the presses running overtime to avoid the dreaded double dip. Right now, it looks as if Congress would prefer to have the whole problem go away, and deal with it after the November elections.

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