There was a saying last year: "Flat is the new up."
This year's saying: "Less bad than feared" is the new "good."
It was reported on Thursday that the U.S. lost 565,000 jobs in the week ending July 4. That would normally be a dreadful statistic. It happened however to be the least dreadful weekly loss since January. Could things be bottoming? The S&P Index rose on the news.
The good news could be an illusion. The July 4 holiday shortened the week, so it contained only four laying-off days, instead of five. And even if the job situation now gets worse more slowly, it is still getting worse.
Over the horizon gather other worries. Will housing prices decline further? If so, more homeowners may discover that they owe more than their homes are worth--and default. Will credit card debts follow mortgages into collapse?
As the bad economic news accumulates, the Obama administration has come under political pressure. The President's approval rating has dipped, especially among independents and in key states like Ohio. For the first time in 50 years, Americans now tell pollsters they trust Republicans more than Democrats on the economy.
In February, Obama offered voters a promise: If they would accept a massive increase in government spending and debt, he would hold unemployment below 8%. It's now 9.5% and still rising.
The grim economic and political outlook has prompted some Democrats and some liberal economists to whisper about the need for a "second stimulus." Administration economists reply that the first stimulus has only just begun to take effect. The money only really begins to flow in July, August and September 2009. The effects on employment will arrive in 2010. Give us time, they urge.
But House Democrats face elections in November 2010. Two Democratic Senate seats--Chris Dodd's in Connecticut and the Illinois seat once held by President Obama himself--suddenly look vulnerable. At the same time, polls are measuring increasing public anxiety about Obama's debts.
The obvious play for Republicans and conservatives is to continue on present course: identifying dubious spending in the stimulus plan and slamming Obama's borrowing. Yet this obvious play is also an unwise play.
Right now, the Republicans are identified as the party of "just say no." But if this recession drags on, voters may want an alternative that has something positive to say about job losses, foreclosures and state budget crises. If the Republicans could unite around an alternative plan, they'd gain the right to say "I told you so," if things still look bleak 18 months from now.
Back in February, Republicans could have rallied around proposals for a "payroll tax holiday"--a temporary suspension of the 12.6% Social Security tax assessed on wage income up to $106,800. Such a holiday would cost the Treasury approximately $40-billion per month, rather less than the Obama stimulus plan. It could have gone into effect instantly, unlike Obama's plan, and would have allowed Americans to direct the money to their own most pressing needs. Obama's spending, by contrast, will flow through state bureaucracies and public sector trade unions.
The payroll tax was always the better idea. And it's still not too late. Only about 10% of Obama's stimulus funds have been expended (as I stated above: his plan is slow to gear up). And, ironically, some form of payroll tax is at the centre of most concepts for a second stimulus.
Why not cancel the wasteful and seemingly useless first stimulus and go directly to the faster-acting and better-designed second stimulus? And why not do it now, rather than wait for unemployment to scrape 11%?
David Frum is a resident fellow at AEI.