[Another option] for the FOMC would be to ease financial conditions through its communication, for example, by modifying its post-meeting statement. As I noted, the statement currently reflects the FOMC’s anticipation that exceptionally low rates will be warranted “for an extended period,” contingent on economic conditions. A step the Committee could consider, if conditions called for it, would be to modify the language in the statement to communicate to investors that it anticipates keeping the target for the federal funds rate low for a longer period than is currently priced in markets. Such a change would presumably lower longer-term rates by an amount related to the revision in policy expectations.

Central banks around the world have used a variety of methods to provide future guidance on rates. For example, in April 2009, the Bank of Canada committed to maintain a low policy rate until a specific time, namely, the end of the second quarter of 2010, conditional on the inflation outlook. Although this approach seemed to work well in Canada, committing to keep the policy rate fixed for a specific period carries the risk that market participants may not fully appreciate that any such commitment must ultimately be conditional on how the economy evolves (as the Bank of Canada was careful to state).

An alternative communication strategy is for the central bank to explicitly tie its future actions to specific developments in the economy. For example, in March 2001, the Bank of Japan committed to maintaining its policy rate at zero until Japanese consumer prices stabilized or exhibited a year-on-year increase. A potential drawback of using the FOMC’s post-meeting statement to influence market expectations is that, at least without a more comprehensive framework in place, it may be difficult to convey the Committee’s policy intentions with sufficient precision and conditionality. The Committee will continue to actively review its communication strategy, with the goal of communicating its outlook and policy intentions as clearly as possible.

I actually think that changing the Federal Reserve’s communications strategy would be an excellent place to start. But rather than broadcasting an economic message to market sophisticates, I think the Federal Reserve should, in layman’s terms, scare Congress into action.

I’ve written this before. But attempting to motivate Congress to continue stimulus spending seems a good path for the Fed, mandated to pursue full employment. Why? The policy maneuvers the Fed is considering would have indirect effects and come with opaque downsides. (Maybe they would erode confidence. Maybe they would increase inflation. Maybe they would have the opposite effect intended.)

Having the government spend more has downsides to be sure: It would increase the deficit, and ultimately the national debt. But those downsides are knowable, predictable and marginal. And the impact of stimulus could be immediate. The worst possible outcomes seem to be that Congress does nothing and the Fed is where it started, or that the debt increases a fractional amount. With the unemployment rate likely to tick up through the fall and a double-dip increasingly possible, it seems worth it.

Sen. Bob Bennett (R-Utah) lost in the primary after his opponent criticized his earmark spending. (Vivian Ronay/ZUMA Press)

During Utah’s bruising Republican Senate primary battle, challenger Mike Lee repeatedly attacked longtime incumbent Bob Bennett for his habit of requesting earmarks. But Lee also pledged to fight to keep NASA’s Constellation program — a big source of jobs in Utah — alive through congressional spending. Bennett tried in vain to point out the inconsistency of Lee’s statements, but to no avail. He lost his party’s nomination in June.

[Congress1] The cause for Bennett’s downfall was by no means limited to earmarks — his vote for the Troubled Asset Relief Program, which bailed out Wall Street banks, arguably played a much bigger role — but it highlights the increasingly thorny political calculus around the longstanding practice of requesting federal funds for specific projects in one’s state or district. Earmarks represent a minuscule portion of the federal budget. But they are acting as potent weapons in political contests this midterm election season, given the widespread concern about the national debt and the yawning budget deficit.

For challengers, the issue is easy: Pick an earmark, describe it as a waste of taxpayer dollars and paint your opponent as fiscally irresponsible. For incumbents, choosing a response is difficult: Swear off the practice and risk appearing hypocritical for accepting prior funds, argue for specific projects but advocate loudly for reform or double down and brag about the benefits of earmarks.

Once considered as natural in politics as kissing babies, earmarks took increased political significance in the run up to the 2006 midterm elections. When a number of scandals involving Republican lawmakers and the beneficiaries of their congressionally directed funds came to light, Democrats seized upon them as a sign that Republicans were hopelessly corrupt. As a result, Democrats rode a wave of anti-corruption, anti-earmark fervor into office and quickly instituted a number of reforms to make the process more transparent.

In a year where the electorate has acquired — or at least politicians believe the electorate has acquired — a maniacal fascination with spending and deficits, however, earmarks have taken on another sense of importance: tangible signs of at times reckless and wasteful spending that politicians can single out in a time of painful belt-tightening for the electorate.

“The population is feeling really antsy for the first time about the deficit and the debt,” notes Steve Ellis, vice president at Taxpayers for Common Sense. “It’s hard to get your head around big entitlement programs like Medicare and Social Security, but it’s easy to talk about a million dollar boondoggle.”

Further amplifying politicians’ fears are the surprising number of incumbents known for being “big providers” for their home states — typically considered the safest kind — who have lost their primary races. Along with Sen. Bennett, Sen. Arlen Specter (D-Pa.) was a longtime member on the Senate Appropriations committee and has since lost his primary election. In the House, Reps. Allan Mollohan (D-W.V) and Carolyn Kilpatrick (D-Mich.) also both sat on the Appropriations Committee — and lost their chance to represent their party this November as well.

All these politicians faced extenuating circumstances ranging from switching parties to the appearance of corruption, but together their fate is making candidates and pundits fear that bringing home the bacon isn’t the same proposition that is used to be.

“The point it that it isn’t a guarantee that it’ll help,” says Ellis. “It’s not as big a positive that people have often made it out to being. If earmarks equal votes, these people would be bulletproof at the ballot box.”

Both Republicans and Democrats in the House moved early to avoid the stigma, adopting measures among their caucus to voluntarily restrict or ban the use of earmarks for fiscal year 2011. Sen. Jim DeMint’s (R-S.C.) efforts to do something similar in the Senate have fallen flat, however, forcing candidates for the august body to chart out their own path on the issue.

One of the first Senate candidates to swear off earmarking was Rep. Paul Hodes (D-N.H), who recently pointed out the fact that he came out against the practice before his likely GOP challenger, former state attorney general Kelly Ayotte.

“The difficulty for Hodes is that he’s at a point where this whole question of who owns the fiscally conservative mantle [in New Hampshire] is really up for grabs right now,” notes Dante Scala, professor of political science at the University of New Hampshire. After the Bush tax cuts, and the Obama stimulus, voters truly aren’t sure, and “he’s trying to say I’m not the typical Democrat. I’m different from that.”

Hodes denies that he stopped requesting earmarks as a political move. Rather, he describes it as the logical conclusion of a reformist who encountered Washington. “I’ve been in Washington long enough to see what’s broken, but not long enough to be contaminated,” he told MSNBC. But Ayotte, naturally, isn’t buying it, and has seized in a press release on his previous earmarks record as a “glaring example of [his] hypocrisy.”

In Pennsylvania, too, candidates face a changed electoral landscape from the one that elected Specter to five consecutive terms, partly on the basis of the infrastructure and health funding he faithfully channeled to the state. “‘I have the experience, the seniority, I’ve delivered for the state.’ There are nine out of ten elections in which that works. There’s one election in which it wont,” says G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College, referring to the present midterm election cycle.

Independent voters living in the suburbs — many of whom voted for Obama but now fret about deficits — are the key demographic both Rep. Joe Sestak (D-Pa.) and former Rep. Pat Toomey (R-Pa.) are fighting over, notes Madonna, and the earmarks issue is “part of the larger mosaic in which Republicans will try to tie [Sestak] to debt and deficits.”

As a result, Sestak is attempting to walk a fine line, pushing legislation for all earmarks to be scrapped in favor of a system of competitive grants, but in the meantime still advocating for projects in his district.

“Joe is not going to take away the opportunity for projects to help people in his district when there really isn’t the mechanism for funding them otherwise,” says Jonathon Dworkin, his campaign spokesperson. “And as he’s working to change the system to remove political influence, he’ll work [within it] in as transparent a way as possible.”

It hasn’t stopped Toomey, however, from challenging Sestak to sign a pledge to not accept earmarks and arriving on Independence Mall in downtown Philadelphia with a small pig to make the announcement.

“I also want to welcome Porky,” he told the crowd. “Everyone can say hello to Porky, who symbolizes waste that we see in Washington all the time. If he were life size, in that sense, of course there wouldn’t be enough room in Philadelphia for him.”

The backlash against earmarks has at times burned Republicans, as well, however — like Rep. Roy Blunt in Missouri. Running for the open senate seat now held by Sen. Kit Bond (R-Mo.), he’s had to be accommodating to the legendary Missourian’s way of doing things.

“Earmarks have been a tried-and-true method of congressmen serving their constituents as long as the republic has been around and Bond has been really good about making sure central Missouri is getting its slice of the pie,” says L. Marvin Overby, professor of political at the University of Missouri-Columbia. “That makes it difficult for Republicans running in the state, because he is the icon among Republican politics here… so someone like Blunt trying to take his place has to tread carefully around that legacy.”

Indeed, Blunt has stuck largely to the same path regarding earmarks as Bond, refusing to repudiate his own record or Bond’s on the issue, and he’s drawn heat from Tea Party groups and Democrats alike as as result. Blunt edged out a number of tea party candidates who challenged him on the issue in the primary, but he now faces Democrat and Missouri Secretary of State Robin Carnahan, who made a pledge to ban earmarks a central part of her campaign.

“Congressman Blunt has long supported the wasteful earmarking process and, during his tenure in Washington, earmarks have increased seven-fold from just 1,596 earmarks in 1997 to nearly 12,000 in 2008 and costing taxpayers over $228 billion,” Carnahan charged recently. “It is time for Washington politicians like Congressman Blunt to put fiscal responsibility before their pet projects.”

But then there are states like Nevada, where Senate Majority Leader Harry Reid is too entrenched in Democratic leadership and the state’s political machinery to do anything but double down on the issue of earmarks — and brag about it.

“Reid made a comment in which he said something like, ‘It’s not because I’m special, but because of where I’m at, I can do things for Nevada that a new senator cannot. As a political scientist I’m like ‘Yeah, you’re right,’” says Eric Herzik, chair of the political science department at the University of Nevada-Reno.

Reid’s challenger, tea party favorite Sharron Angle, has vowed to not request earmarks for Nevada and pillories him for the practice, but she also often attacks Reid for not doing enough for Nevadans in the same breath.

By all accounts, it’s a bad year to be known for one’s appropriations, but that doesn’t mean the reputation can’t still hold sway among voters, especially in small states with a big chip on their shoulders.

“I think the Nevada electorate is far more accepting of the earmark process because we’re a small state that’s often ignored and here we have a guy who can deliver for us,” says Herzik. “Three states that are historically very accepting of the [earmark] process are West Virginia, Nevada, and Alaska. When you have a senior senator who delivers, often the anti-earmark rhetoric is less successful.”

President Obama at the G-20 Summit in Toronto on June 27 (Xinhua/ZUMApress.com)

BERLIN — President Obama’s push for additional economic stimulus is not just hitting a wall in Congress. The president has also been rebuffed by the largest European countries — with potentially profound consequences for the U.S. economy and Obama’s national agenda.

[Economy1] In the run-up to the G-20 summit in late June, the Obama administration went on a PR offensive, urging other wealthy nations to keep pumping stimulus into their economies. But with the Greek budget crisis heightening anxieties over public debt, conservative governments in Berlin, Paris, London and Rome are all on an austerity track. Instead of a pledge to inject more capital into their economies, all Obama got at the Toronto conference was a communique that emphasizes savings over stimulus.

Some economists fret that Europe’s fiscal retreat threatens to tip the U.S. deeper into recession. Meanwhile, leading analysts in Germany, the continent’s largest economy, say the trans-Atlantic spending spat underscores Obama’s limited maneuvering room in his effort to steer the fragile recovery back home.

“America is having enormous difficulties,” said economist Gustav Horn of the Macroeconomic Policy Institute, part of a labor-affiliated foundation in Düsseldorf, Germany. “At the moment, [the U.S.] is dependent on the rest of the world offering it a friendly economic environment.”

For Obama, the environment is less friendly than he would like. In an open letter to other G-20 heads of state before the summit, the president wrote that leaders should “learn from the consequential mistakes of the past when stimulus was too quickly withdrawn.” Treasury Secretary Tim Geithner, meanwhile, told the BBC, “Growth in the future around the world can’t depend on the United States as much as it did in the past.”

Some economists warn that austerity in the largest European economies, combined with severe budget cuts in countries such as Greece and Spain, could push the continent into a double-dip recession. If so, the consequences for the U.S. could be severe. A European downturn, Horn said, would hurt American exports, both by lowering demand and by strengthening the dollar. Perhaps more importantly, he added, a stumbling Europe could weaken crucial U.S. trading partners in Asia. Likewise, Nobel Prize-winning economist Paul Krugman recently warned that the resistance to more stimulus in Europe and the U.S. raises the specter of a depression.

But the dominant view in Germany is that such fears are misguided. Supporters of budget consolidation note the country is on an upswing, with GDP growth expected to reach as high as 2 percent this year as exports accelerate. Moreover, they argue that fiscal retrenchment will spur private-sector spending. A recent report by the Ifo Institute for Economic Research, a Munich-based think tank with government funding, says cuts would lead to an “expansive confidence effect on German consumers and investors.”

The fear that a European slowdown could hurt American trade underscores a more fundamental challenge that German economists say the U.S. must tackle: expanding exports as a source of economic growth.

“Before the crisis, we had a consumption boom in the U.S. that was not sustainable,” said Ifo economist Klaus Abberger. “And so we think there is a need for some redirection.”

That redirection, economists say, will be outward.

“The growth driver you’ve got left is ultimately net exports,” said economist Christian Dreger of the Berlin-based German Institute for Economic Research, another government-funded think tank.

The Obama administration has come to a similar conclusion. In his State of the Union speech in January, the president announced a new initiative to double American exports within five years, though many analysts called the goal unrealistic.

“For too long, America served as the consumer engine for the entire world,” the president said in follow-up remarks in March. “But we’re rebalancing. … Countries with external deficits need to save and export more.”

But the future of U.S. exports is not entirely under American control. The country can only reduce its trade deficit if the rest of the world has sufficient buying power, Horn said. The G-20 has been touting a new initiative to ease trade imbalances, which would require net exporters like Germany to buy more from net importers like the U.S. But it remains to be seen whether there will be any action to follow the talk.

Obama’s inability to induce Europe to boost its stimulus spending is rendered even more discouraging by the limited traction his spending proposals are getting in Congress. And it does not help that Obama is looking increasingly isolated among world leaders in pushing a more expansive fiscal policy.

“You don’t win something in Congress by saying, oh, Europe’s doing this,” said economist Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington. “[But] you don’t want the U.S. to look like an outlier.”

The president should not get his hopes up for a hand from Berlin, though. As the Berliner Zeitung newspaper declared of Germany’s chancellor in a recent headline: “Merkel won’t listen to Obama.” The country has a culture of thriftiness to rival even the fiscal-conservative wing of the Republican Party. The traumatic hyperinflation that racked the Weimar Republic during the 1920s has made Germany hyper-sensitive to price stability. The country last year amended its constitution to include limits on government debt. Deep concern that the aging of the population will soon make Germany’s welfare state unaffordable have made people here anxious to get back to budget cutting. Meanwhile, unemployment is lower than in the U.S., so the economic pain is less acute.

Deficit hawks here also argue the turmoil in Greece is a warning to profligate governments across the continent.

“We saw with the Greek crisis how vulnerable highly indebted countries are to [speculative] attack,” said Norbert Barthle, a member of the German parliament from the ruling center-right Christian Democratic Union party (CDU) who specializes in budgeting.

The American economy has managed impressive growth so far this year, but it has largely been driven by the effects of government stimulus, Horn said. And the looming dry-up of stimulus funds around the world amounts to a serious problem for the American president.

“He has to do more if other countries do less,” Horn said. “And in that sense, his worries are absolutely understandable.”

David Dagan is a freelance journalist living in Berlin.

1) Ronald Reagan (1981-1989): Inherited roughly $908 billion in debt, and took it up to $2.6 trillion. Change: +186%.

2) George H.W. Bush (1989-1993): Took Reagan’s $2.6 trillion up to $4.2 trillion. Change: +62%.

3) Bill Clinton (1993-2001): Took Bush’s $4.2 trillion up to $5.7 trillion. Change: +36%.

4) George W. Bush (2001-2009): Took Clinton’s $5.7 trillion up above $10.6 trillion. Change: +86%.

5) Barack Obama (2009-2010): So far, has taken Bush’s $10.6 trillion up to $13 trillion. Change: +23%.

This is no defense of the current levels of deficit spending, which are clearly unsustainable and need some serious trimming. But it’s a good reminder that all that talk about Republicans being more fiscally responsible than Democrats doesn’t quite hold up when confronted with the real numbers.

Note: This post has been updated so that the figures from 1993 onward reflect the debt on the day that the listed presidents were sworn in, as opposed to the month that they were elected. Because the Treasury Department doesn’t keep such daily debt figures before 1993, the numbers surrounding Reagan’s term ($908 billion and $2.6 trillion) reflect the debt several months before he was sworn in and several months before he left office, respectively.

Seven in ten respondents are cutting staff and delaying projects, and more than half say that service levels will decrease in 2011 if tax revenue does not go up. But tax revenue is not going up, the report notes:

Despite a broad range of sentiments about the future of the country, local officials agree that the state of America’s cities continues to worsen, threatening long term national economic recovery. City budget shortfalls will become more severe over the next two years as tax collections catch up with economic conditions. These will inevitably result in new rounds of layoffs, service cuts, and cancelled projects and contracts. With local and state sectors comprising about one-eighth of GDP, and cities making up a significant portion of this sector, the services and employment offered by local governments are critical to the health of local and regional economies that drive national economic performance.

Local governments directly employ more than 14 million people and indirectly many more than that — slight, but across-the-board, budget and staff cutting could mean hundreds of thousands of jobs lost.

Rep. George Miller’s (D-Calif.) Local Jobs for America Act, currently in committee, would provide $75 billion to local governments to keep employees on the payroll and is the measure the National League of Cities is pushing for. But any deficit-spending programs — even to keep people employed — will have a lot of trouble passing a very debt-conscious Congress.

Take, for instance, Sen. Tom Harkin’s (D-Iowa) proposal to grant $23 billion to keep public-school teachers in their classrooms, the Keep Our Educators Working Act, which is supported by Education Secretary Arne Duncan and the White House. Rep. John Boehner (R-Ohio), the House minority leader, responded:

“The American people recognize that Washington’s out-of-control spending is hurting our economy and stifling job creation, and they’re asking their elected leaders to make tough choices on fiscal responsibility. Unfortunately, the administration’s call for another $23 billion to pad the education bureaucracy will only make state governments more dependent on the federal government and more vulnerable when the federal funding explosion disappears. This latest state bailout proposal promotes the same flawed logic as the failed ‘stimulus’ bill that has contributed to a record $1.5 trillion deficit and left one in every 10 Americans from our workforce out of work.”

Kansas lawmakers are hoping the federal government will help. After the state’s April revenue missed estimates set just two weeks earlier, the legislature responded by changing the state budget to assume Congress will extend more federal support for Medicaid through the end of the year.

Increased federal spending on Medicaid…was a major component of last year’s stimulus package, and it has helped many states prop up their budgets. But it is uncertain that Congress will approve more such funding.

In some states, governors are responding to the April shortfalls on their own. Missouri’s April tax revenue decreased $13.2 million, or 3.6 percent, from the same month a year ago. State budget director Linda Luebbering ordered agencies to hold back $45 million in appropriated spending because tax collections were so far below projections.

Other states have already taken drastic measures to close budget shortfalls. For instance, in March, Arizona decided to end its state health insurance program for children, eliminating free coverage for 47,000 kids. California might end its welfare-to-work program as well as a number of child-care initiatives. And South Carolina has closed group homes for children and a program to help youths emerging from prison sentences to get jobs.

“President Reagan pursued pro-growth policies, including large reductions in marginal tax rates, deregulation and open trade,” Brady said, arguing that those moves “laid the foundation for two decades of prosperity.”

In contrast, Brady continued, the Obama White House has tackled the current crisis by relying largely on deficit spending — a strategy Brady called “reckless” and “clearly unsustainable.”

“Unless these excessive spending deficits and debt accumulation are quickly reversed, the United States may experience its own debt crisis,” Brady said. He was warning that the U.S. is en route to becoming the next Greece.

He didn’t mention the following: When Reagan was elected to the White House in 1980, the federal debt stood at roughly $908 billion. Eight years and several tax cuts later, it was $2.6 trillion — a leap of 186 percent.

Put another way: Reagan racked up more debt in eight years than the previous seven presidents had managed in 35 — a span that included the Korean and Vietnam wars.

Some conservatives get this. Earlier this year, Libertarian Party Executive Director Wes Benedict noted that Reagan ran “the biggest-spending administration (as a percentage of GDP) since World War II.”

Why he remains a conservative icon, despite that track record, is a mystery.

But, he said, “If we have any advantage over China, if we have any advantage over India, it’s that we’ve got somebody from everywhere here, and they do well.” Saying that the country “still works for immigrants,” he went on to explain:

The real reason there’s anti-immigration sentiment is that it’s white, male factory workers without a college degree that got killed in the last decade…. The burdens of the last decade’s economic downturn were on white male high school graduates, or non-high school graduates, or [people with] a couple years of college, who shivered in this economy. Their taxes would be lower if we got more taxpayers…. The pressures on social security and the changes we have to make will be less draconian if there’s more people in the system. I don’t think there’s any alternative but for us to increase immigration. We can start [to increase immigration] at the areas at the top and the bottom [of the earnings spectrum] that will not displace people who are the most insecure [jobs-wise]. I don’t see any way out of [the fiscal crisis] unless that’s part of the strategy.

Last week, the Obama administration started reaching out to Sen. Scott Brown (R-Mass.), presumably in an effort to woo him as a swing vote for immigration reform. Senate Majority Leader Harry Reid (D-Nev.) and the White House hope to move on immigration reform sometime this year.

President Obama launched the panel last month after the Senate — behind a cynical group of previously supportive Republicans — killed a proposal to create a similar commission. The panel, composed of 12 members of Congress and various budget experts, will make recommendations to Congress about ways to rein in deficit spending — a concession that Capitol Hill lawmakers can’t do the job on their own.

But don’t try to convince the Republicans. After months of blasting the Democrats’ reform proposals for allegedly bankrupting the country with expensive new programs, Republicans now have a brand new message: The deficit savings aren’t enough to justify passing the bill. From The New York Times:

Republicans moved quickly to throw cold water on the claims, noting that government debt is piling up so fast that the health care legislation would barely make a dent. “Any projected savings over 10 years have already been wiped out five times over in just the first five months of the current fiscal year,” said Don Stewart, a spokesman for the Senate Republican leader, Mitch McConnell of Kentucky.

Mr. Stewart cited budget office data showing that the federal government had “incurred a budget deficit of $655 billion in just the first five months of fiscal year 2010.”

Mr. Stewart didn’t mention that their own multi-billion dollar health reform accomplishment of this decade — the creation of Medicare’s (unfunded) prescription drug benefit — has contributed no small amount to the nation’s budget crisis.