Say you're a high government official with some responsibility for advising the president on what he should be doing and saying about the economy. You know the economy is still in a deep hole, the deepest since the Great Depression. The jobs report for May was dismal -- a mere 41,000 new private sector jobs, when the economy needs at least 100,000 to keep up with population growth. The Fed projects gross domestic product, the broadest measure of economic activity, to rise about 3.5 percent this year -- a pace barely above that needed to keep pace with the growth in the labor force.
You also know that consumers don't have the buying power to get it out of the hole because they can no longer use their homes as collateral for loans, as they could before the crash of 2008, and they also have to get out from under huge debts. The housing market is still awful. You know businesses are reluctant to create new jobs if there are few customers for their goods or services. And you know export markets are drying up because of a high dollar that’s made our exports more expensive, and Europe has embarked on austerity measures to shrink its deficits. You also know state revenues are way down because of the deep economic hole, and they're forced to raise taxes, cut services, and lay off large numbers of state workers, including teachers.
Oh, and one more thing: You know that all the boosters keeping the economy barely going now are coming to an end. The Fed can't keep interest rates near zero for long because it's starting to worry about inflation. It’s already stopped buying Treasury securities and mortgage bonds, and its own deficit hawks are squawking. The federal stimulus is 75 percent spent, and the money will be gone in a few months. Census workers will also be gone by the end of the summer.
So what do you do?
A) Tell the president the economy will either go into a "double-dip" recession or, at best, suffer anemic growth over the next five years -- creating enormous pain and suffering for millions of Americans, and imperiling his reelection -- unless he immediately champions a $300 billion jobs bill, including zero-interest loans to states and locales to prevent them from having to raise taxes and cut services, public-service jobs (cleaning up the Gulf), and a one-year payroll tax holiday on the first $100,000 of income. To sell this, he'll need to explain to the American people why larger short-term deficits are necessary now, in order to get jobs back and the economy growing again so that long-term structural deficits (read healthcare and Medicare, mostly) can be tackled.
B) Tell the president you understand the political pressures for deficit reduction are growing, and Republicans are making headway fooling the public into believing that this terrible recovery is due to to excessive government deficits. So it's perfectly fine for the president to bend to those political pressures. Cut the budgets of most federal agencies by 5 percent, enforce "pay-go" rules that don’t allow bigger deficits, build up expectations for the report of his "deficit commission" in December, and tell the American public that we now have to move toward fiscal austerity.
If you choose B, you shouldn't be advising the president.