What Exactly Is Obama's Economic Strategy?

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Includes: DIA, QQQ, SPY
by: Brad DeLong

Janet Adamy writes (Obama to Address Job Creation During State of the Union):

President Barack Obama plans to talk about additional steps the White House will take to create jobs during his State of the Union address Wednesday, a top White House aide said. The economy has lost seven million jobs since the recession began in 2007, White House adviser David Axelrod told CNN’s “State of the Union” program on Sunday. He estimated that the American Recovery and Reinvestment Act that the president signed last year saved two million jobs. “It is cold comfort to those who still are looking,” Axelrod said. Axelrod suggested Obama would enumerate in his Wednesday address specific measures that his administration planned to take to create more jobs, but didn’t provide details.

The White House had hoped to tout a health-care victory during the speech. But a Republican victory in last week’s Massachusetts Senate election to replace the late Edward Kennedy has deprived Democrats of their filibuster-proof majority in the Senate, stalling Congress’ effort to pass that health-care bill. The Republican win also underscored the public’s concern that Democrats aren’t doing enough to fix the economy...

If the Senate won't let us run bigger deficits, and if the Federal Reserve is not expanding but rather cutting back on its degree of monetary easing, then there are only three paths open to try to increase employment:

  • Shifting government spending from things that create the most in the way of useful goods and services (and that also boost employment) to things that create the most employment (and maybe also create some useful goods and services): i.e., large government employment programs.

  • Shifting private production from things that create the most in the way of useful goods and services (and that also boost employment) to things that create the most employment (and maybe also create some useful goods and services): i.e., large (but incremental and temporary) new employment tax credits.

  • Using the U.S. Treasury as the world's biggest hedge fund to take huge amounts of private-sector risk onto the government's books, and thus create an appetite on the part of investors to finance additional risky investment even given their limited and depressed risk tolerance.

It's unclear to me which of any of these are on the table...