Dodging the boulder

by digby

Brad DeLong has been a very important resource in following this whole economic debacle. He has the intellectual integrity to change his mind in the face of new evidence and admit to instances of error in the past. (I thought this was supposed to be a requirement among economists, but evidently not.)

Today he has a very interesting post outlining conversations he had with administration officials before the 2010 State of the Union address. It’s fascinating as always to get a sharp insight into their thinking. But it’s usually depressing as well because it reflects some of the most stale political thinking we’ve seen in quite some time. I urge you to read the whole post.

But this is I think an extremely important observation:

The responses were along the lines of: “Come on, Brad! A non-security discretionary freeze is only a shift in spending of $20 billion/year. It’s lost in the rounding error either on the tax side or the entitlement side. All we have done is throw them some rhetorical bones. We actually haven’t changed our macroeconomic policy. It is still highly stimulative.”

This seemed to me to miss the important point that all that a President ever does is throw rhetorical bones (and veto laws, and deploy troops). Congress passes laws and in response agencies spend and the Treasury taxes. The Federal Reserve conducts monetary policy. The Treasury conducts banking policy. If the President talks about how we need the government to spend less and tax more, Congress is unlikely on its own account to pass laws that spend more and tax less even in the short term of dealing with the Lesser Depression. If the President talks about how the time for stimulative policies have passed, the Federal Reserve is less likely to put the pedal to the metal. If the President is talking about the importance of debt reduction, the Treasury is unlikely to focus on expanding the set of potential future government liabilities by intervening in financial markets to encourage investment by taking tail risk onto the government’s books. The Presidency is a bully pulpit, but to a remarkable extent that is all that it is. And for Senior Administration Officials to dismiss what the President does is to mistakenly think that you are playing eleven-dimensional chess when your actual job is to roll Sisyphus’s boulder up the hill.

And now here we are.

Yes yes yes.