This week the White House hosted a “jobs summit” to brainstorm about the best ways to create more jobs in the U.S. economy. In opening the summit, President Obama touted the job-creating success of the “Recovery Act” passed earlier this year (citing this CBO report (.pdf) just released), but also cautioned that it doesn’t mean we can afford to keep repeating it. From the transcript (emphasis added):

PRESIDENT OBAMA: Now, let me be clear. I am open to every demonstrably good idea, and I want to take every responsible step to accelerate job creation. We also, though, have to face the fact that our resources are limited. When we walked in, there was an enormous fiscal gap between the money that is going out and the money coming in. The recession has made that worse because of fewer tax receipts and more demands made on government for things like unemployment insurance.

I like Ed Andrews’ New York Times article on how we’re running out of ways to cheaply finance our federal debt. Ed explains:

The Washington Post’s Alec MacGillis asks a rather provocative question in Sunday’s Outlook section: “Why won’t Obama give you a job?” The article challenges the Administration’s claim that “the stimulus is working” and argues that the Administration could have done or be doing better for the American public in terms of job creation:

Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers’ private-sector employment or by creating new government-paid jobs…

The news from Thursday’s Washington Post:

The Senate voted Wednesday to renew the government’s $8,000 tax credit for first-time home buyers through the first six months of next year as part of a broader bill designed to extend unemployment benefits.

It took me awhile to catch onto this (I guess real life got in the way of reading the legislation or even the revenue estimate carefully), but the House health care reform bill (.pdf) not only fails to provide a revenue source that will keep up with rising health costs (and thus is less likely to stay deficit-neutral beyond the first ten years), but it relies on a revenue source that’s likely to fall short of even that tax’s own standards. Why? Because it’s a surtax on the highest-income households (of 5.4% on income over $500K for singles and $1 million for couples)…and is NOT indexed for inflation. Sound familiar?

It should, because this is how the current-law “alternative minimum tax” (AMT) is supposed to work as well: a tax on rich people that over time digs deeper down into the income distribution as inflation reduces the real value of the unindexed exemption level. Now, in the case of the AMT there’s been this interaction with the ordinary income tax that also pushes more people onto the AMT whenever there’s a big cut in the ordinary income tax (for rich people) that doesn’t coincide with a matching adjustment to the AMT’s specification.

The Bureau of Economic Analysis announced Thursday that our economy might be growing again–for the first time since the second quarter of 2008 – and hence that we might be out of this recession. “Might” because it’s just their first (”advance”) estimate (the next update will come out late November), and “might” because the NBER business cycle dating committee won’t officially declare an end to the recession until well after it’s ended. Nevertheless, I must give kudos to Mark Zandi of Economy.com for having predicted back in the spring that the recession would end sometime in October; here’s an interview he gave on NPR’s Marketplace today.

Of course, even if the NBER eventually verifies that, yes, the recession is now over, it’s too early to “celebrate.” The economy recovering “in aggregate” doesn’t at all imply that the typical American family’s economic picture has brightened–particularly because the labor market is always the slowest to recover. And I’m still not sure the good news on the auto industry is really good news, because the Cash for Clunkers effect could be mostly temporary–see this by Dean Baker. (Although as a sister to a Ford (F) engineer, I’m really happy about the really positive news on the reliability of Ford vehicles that came out this week. Is it coincidence that they were the only company of Detroit’s Big Three that didn’t take a government bailout? I think not…)

First we heard that estate tax legislation would be considered by the House as early as next week, but Tuesday night Majority Leader Hoyer suggested it could be put off until the very last minute -- up to six weeks from now. That's just before the estate tax is scheduled, under current law, to -- well, to put it in really technical terms -- “go poof!”

Friday’s headline in the Washington Post: “Record-High Deficit May Dash Big Plans”–refers primarily to President Obama’s “big plans” for further deficit-financed stimulus spending. But realistically, the large (though still smaller-than-expected) $1.4 trillion deficit is a threat to all of the Administration’s fiscal policy agenda, including their health care reform initiative which they believe will eventually reduce and not just not increase the deficit. Revenues (whether newly proposed or already in place) that the government chooses to use to fund new programs are revenues that are unavailable for deficit reduction. And revenues given away through deficit-financed tax cuts are revenues that are no longer available for, well, either new initiatives or deficit reduction.

The first definition of “plausible” on dictionary.com is:

plausible

[plaw-zuh-buhl]

Well, the “Cash for Clunkers” program ended Monday evening. It started as a $1 billion program that was expected to go on for four months (the original rule was from July 1st through Nov. 1st, or when the money ran out). It ended up a program triple the size (after $2 billion in additional funds were added) that managed to run out of funds in less than half the time.

First, no, I wasn’t “talking it” there–I wasn’t invited. But at least a few “fiscal hawkish” people were there (the photo is courtesy of one of them), and it seems that the fiscal policy discussions might have been the most interesting part of the mostly-monetary-policy Federal Reserve conference (sponsored by the Federal Reserve Bank of Kansas City).

Bloomberg and AP reported Thursday morning that the Obama Administration’s latest budget outlook, scheduled for release next Tuesday (same day as the CBO’s summer update–watching the PR and press that day will be interesting), will show that they expect the fiscal year 2009 budget deficit to come in $262 billion lower than they predicted in May (.pdf)–at “only” $1.58 trillion, or 11.2 percent of GDP. Cause for celebration? Well, only if you don’t mind “premature celebration.”

Both articles point out that a $1.6 trillion deficit is not really qualitatively different from a $1.8 trillion deficit (both are “humongous”). From the Bloomberg article (by Brian Faler and Roger Runningen):

Another psychology lesson for health care reform:

When people get really worked up over far-fetched ideas, often the worst thing one can do is to point out that what they’re upset or angry about isn’t real. It just pisses them off more…

Back a few months ago when the American Recovery and Reinvestment Act of 2009 was signed into law, I tried to explain that the package was trying to do a lot of things–not just “stimulate” the short-term economy–and that in evaluating how well the package would “work,” we’d have to consider how it’s done on all those different fronts.

Friday Bruce Bartlett summarized some of the empirical evidence that’s come in thus far, pointing out that the “stimulus” hasn’t been very stimulating, but that we shouldn’t be surprised. To start, most of the package was intended to assist, not create new economic activity (new pieces of GDP):

OK, maybe I’m exaggerating a bit (maybe the pie chart above doesn’t really do it for you), but sexy is a relative concept, and at least compared with a few months, a year, or even several years ago, the federal budget deficit is getting a lot more attention from the American public lately. A few questions in an NBC/Wall Street Journal Survey and a CBS/New York Times poll (both released Thursday) highlight the issue.

Just like the bad T-word, “Taxes” (i.e., raising them), I’ve been caught using another dirty word when I give talks on the fiscal outlook and what it will take to get back on a sustainable path: “Rationing.” In yesterday’s New York Times, David Leonhardt explains why it has to be said, but also why it’s not as nasty as it sounds:

The r-word has become a rejoinder to anyone who says that this country must reduce its runaway health spending, especially anyone who favors cutting back on treatments that don’t have scientific evidence behind them. You can expect to hear a lot more about rationing as health care becomes the dominant issue in Washington this summer.