Obama's Theory of the Jobless Recovery: It's the Productivity, Stupid

Did the president shoot down his economic advisers over a second round of stimulus because he thought they were wrong about the origins of the jobless recovery? Here's a striking passage from Ron Suskind's controversial book on the White House, Confidence Men, via Berkley economist Brad DeLong, which finds the president at loggerheads with his economic team on the need for more stimulus:

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Fascinating stuff. And if true, damning stuff. There isn't a mainstream economist that I know arguing that the most important factor depressing short-term job growth is high productivity. I've argued that productivity gains in manufacturing and information (and productivity plateaus in health care, education, housing, and energy) form the dual buttresses of the middle class' long-term, 40-year decline. But this is compatible with believing, as I do, that what the economy suffers from most acutely today is demand. Basically, the middle class isn't making enough or spending enough to get businesses making enough or spending enough.

From what I gathered by talking to the Treasury department, they get this. There was never a broad belief that productivity gains were absorbing all of the demand for more work. Instead there was a fundamentally nihilistic belief in the ability of Congress to vote on more stimulus. "Nothing is possible," one high-ranking official told me, in one memorably laconic quip. And that was before the landslide election inaugurated an age of austerity-lite.

And yet, here we are, with an ultraright Congress and a nervous Democratic party, and the president has proposed $450 billion. That's less than $700 billion threshold discussed in the excerpt above. But it's still $450 billion more than the president agreed to in these conversations. Maybe the president changed his mind on the economics. Maybe he changed his mind on the politics. But if it's true that we languished without a stimulus push not because the president didn't know how to sell stimulus, but because he believed it wouldn't work, that calls into question the philosophy of the mind that guides our fiscal policy.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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