The argument that the budget-cutters and confidence fairy believers usually make in pushing for spending cuts and addressing the national debt immediately is that if we don't do this, the "bond vigilantes" will unleash their wrath upon us.
Well lo and behold, uber bond vigilante Bill Gross, who manages PIMCO (Pacific Investment Management Co.), the world's biggest bond fund, has apparently gone all commie on us. TPM reports that to deal with the jobs crisis, Gross "recommends a swift, deficit-financed investment in infrastructure," and specifically that "[G]overnment must take a leading role in job creation."
Gross is further quoted as saying,
"Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed.... In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they're sitting pretty as it is. Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original "shovel-ready" stimulus program in 2009."
Obviously something along the lines of what Gross is talking about has zero chance of passing Congress given Republican control of the House and the overall debt hysteria that has swept over Washington. President Obama has recently proposed an employer-based payroll tax cut as something that can realistically be accomplished, but as Gross says above we should not rely on that alone as the key to solving our economic woes.
Now I am well aware of President Obama's distaste for fighting losing battles, and I understand his reasons – fighting losing battles waste time and energy that can be better used on pursuing things that can actually pass. Plus there's the possibility that the President will look ineffectual and delusional pushing for legislation that Congress won't pass and which everyone knows won't pass.
Well I have a "both/and" proposal that President Obama might find acceptable. Why not push a jobs package that includes additional infrastructure investment, state aid, and a payroll tax holiday? Push hard as hell for everything, but when the Republicans inevitably vote down the infrastructure and state aid, there's a good chance the President will at least end up with the payroll tax holiday. That would give the President the best of both worlds – he can blame the Republicans for blocking infrastructure spending that would've generated a bonanza of jobs, but with the payroll tax holiday he'll also have something to show for his efforts.
Plus it will position him better politically if the economy continues to limp along – he can argue that the economy would've been doing better if Republicans hadn't blocked the additional infrastructure spending and state aid. Frankly this is what the President should've done with the stimulus, namely he should've asked for as much as possible, so when he inevitably got less than he asked for and the economy continued to sputter, he could've come back later and said, "I told you we needed more spending." Well now the President has a chance to demonstrate that he can learn from his mistakes.
Of course, that would require the President to also discard the arguments of Treasury Secretary Geithner, who of late has apparently been winning over the President with his confidence fairy tales and horror stories about bond vigilantes coming to get us. Given that the top bond vigilante himself is calling for more deficit spending, and specifically on infrastructure, the President should strongly reconsider his faith in Geithner's arguments.