The Agenda

The Pundit-in-Chief

I’m struggling to find something interesting or worthwhile to say about President Obama’s address at the Brookings Institution. My main impression is that it was not nearly as bad as it could have been.

Those who believed that the president would shift to a strong emphasis on deficit reduction will be disappointed. The White House is doubling down on temporary spending as the solution to what many of us consider a structural crisis. To be sure, this temporary spending is being framed as a means of addressing the structural crisis, though that doesn’t take into account a near-catastrophic revenue shortfall that the president blames on the previous president, as though that’s terribly constructive.

That said, one way of thinking about stimulus spending is this: if there are projects that the federal government should undertake, e.g., building a particular road, a recession means that said projects are “on sale.” Of course, this begs the question of which projects are actually worthwhile. Sustaining bloated bureaucracies without demanding restructuring doesn’t seem like a good idea. But renewing our infrastructure could be a good idea.

Some of the ideas are reasonable in theory, including further infrastructure investments and more money for home weatherization. Conservatives have raised hackles about home weatherization, but there is, as Kevin Hassett argued at the start of this year, a solid case for it.

More than a decade ago, Gilbert Metcalf of Tufts University and I set out to study the rate of return that homeowners receive on energy conservation investments. The study was published in the Harvard University- edited Review of Economics and Statistics.

We obtained data that provided intricate details about thousands of houses that allowed us to identify which ones had made home-improvement investments, such as putting so-called Pink Panther insulation in the attic. We also tracked weather conditions and utility bills to estimate the reduction in heating costs associated with the improvements.

Our findings suggested that the positive rate of return of these investments wasn’t much different from the returns available on other assets. That is, investing in energy savings provides a solid, though not extraordinary, net profit.

But will congressional Democrats back a plan that works well? It’s far from clear. The British Conservatives have, as we’ve discussed, advanced a promising idea on this front. My worry is that a poorly designed weatherization program could easily become a boondoggle. As far as I can tell, we don’t have any publicly-available data regarding the weatherization funds disbursed under the stimulus package. Is the money being used wisely or has it vanished into thin air? 

The president’s biggest announcement is that he wants to introduce a tax credit for small businesses to encourage hiring.

Building on the tax cuts in the Recovery Act, we’re proposing a complete elimination of capital gains taxes on small business investment along with an extension of write-offs to encourage small businesses to expand in the coming year. And I believe it’s worthwhile to create a tax incentive to encourage small businesses to add and keep employees and I’m going to work with Congress to pass one.

The good news here is that the president did not announce a “new jobs tax credit.” If he’s proposing a proposal designed to encourage small firms to “add and keep employees,” this could be a broader low-wage employment subsidy, which could be a good thing. The Obama administration reached out to skeptical economists on the question of a new jobs tax credit, and they received a withering response. My assumption had been that this effort to take soundings was pro forma — that is, that they intended to get a “preview” of the most effective criticisms in order to counter them, rather than to actually listen to and absorb criticism. It seems that I might have been wrong, which is good news. Alas, the contours of the program are now in the hands of the Democratic Congress and not Larry Summers.

Naturally, I found the president’s efforts to mimic a television pundit unpleasant. As Michael Tomasky observes, the president was pugnacious.

He dinged the Bush administration for assembling the TARP program in a way that was “understandably” hasty but not well thought out and noted (cough cough) that his administration had fixed those implementation problems. He took other little jibes at conservative critics.

I actually think that President Obama would make an excellent left-of-center writer and thinker, and it may be the role for which he is best suited.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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