What do we do now?

Obama continues to get beaten up from the right and left because of his failure to right the economic ship. November's jobs numbers guarantee that he will continue to be a punching bag for awhile longer. As for me, I think that Obama has done about half of what should have been done. That's better than the 0 percent that the Republicans are offering, so I continue to give Obama my increasingly tepid support. Today's employment numbers were indeed disappointing, but it is after all one month's data, subject to a lot of error (really, the difference between a good jobs report and a bad jobs report is whether the total number of jobs out there is 130,539,000 versus 130,639,000), and bound to be revised numerous times before we really get a concrete idea of what's going on.

Suffice it to say that just under three years since the recession began, the economy has still not achieved escape velocity. Most economists would say that the ideal policy in the current situation is to combine more government spending and tax cuts today with a credible deficit reduction program to begin after a few years. Few economists really believe that the Republican program - cuts in spending now plus tax cuts for the rich - would be of much help, and because the extension of the Bush tax cuts puts such a hole in the long-term deficit it might be damaging to the economy on net. Democrats aren't offering the complete package, but if you put Obama, liberal Democrats, conservative Democrats, and the ten most reasonable Republican Senators into a room you would come up with something approaching the ideal.

For me, that ideal is:

- permanent extension of tax cuts for income under 250,000

- let tax cuts for income over 250,000 expire on schedule and bring back the estate tax

- use the money generated by the expiring tax cuts to (partially) fund an extension of unemployment benefits, an infrastructure bank, and a payroll tax holiday.

- pass a carbon tax that would kick in around 2013 or 2014, the proceeds of which would go toward financing the expenditures above plus deficit reduction

- make large cuts to defense spending over the next ten years, with some cuts beginning in 2012 or so

- control growth in health costs using the tools in the health reform law

But of course our magical realist friends on the right side of the political spectrum have another ideal in mind: if government stops regulating businesses, cuts spending now, and cuts taxes to the bone for the rich - that is, if we essentially set the clock back to December 2008 - businesses will become so confident about the future that they will immediately start investing and hiring. If the economy continues to show signs of improvement over the next couple of months (other recent economic news has been much more upbeat than this employment report) I fully expect to read in the Wall Street Journal the argument that even the prospect of Congressional Republicans doing these things has already bolstered business confidence and put the economy on the road to recovery. It's a really nice story, but it's one that has very little support among actual economists.