The week ahead promises to be a big one. We will begin to see, if it is indeed possible, the Senate’s attempt to right the wrongs of the House stimulus bill. I think it is possible, and indeed likely. It will be challenging, however, and the reasons for finding some middle ground are extraordinarily strong.
For a story from yesterday discussing the move toward a compromise in the Senate see Democrats Indicate Areas of of Compromise on Stimulus from yesterday’s New York Times.
Yesterday’s papers also offered perspective on some of the deeper issues that are being addressed in this stimulus bill and they are deep indeed. There are many of us, including many Republicans (the ones who think that a government-funded economic stimulus is even necessary), who think the stimulus should first and foremost be about stimulating a stalled U.S. economy. There are others, in particular House Democrats, who want the stimulus to begin to address social issues they feel have been too long ignored. “Some of what is going on might best be called a classic case of pent-up demand–demand by Democrats for the kinds of programs that they could never get passed during the Bush years.” This quote is from a New York Times story that ran yesterday entitled A Stimulus Plan With Dual Goals: Reform and Recovery. It is an excellent article that explains why this stimulus bill is so controversial, especially among Republicans. What’s controversial is the bill’s attempt to do two things at once, stimulate the economy and begin to reform the system.
My strongly held view is that this bill needs to be about stimulus with only small doses of “reform”. Yet I got a clearer picture of the philosophical debate being played out here in a column in yesterday’s Washington Post by former secretary of labor Robert B. Reich. It’s entitled Once the Stimulus Kicks In, the Real Fight Begins. Who knew that the fight that’s being waged here in the stimulus bill is one between “cyclists” and “structuralists” for control of U.S. economic policy. In fact, Reich argues that this fight will only get bigger in the years head as attentions turn to entitlement reform. I certainly had never thought of it in these terms. I regard this as a must-read piece in helping one build an appreciation of the philosophical battle that’s being waged behind the scenes. While I would classify myself fundamentally as a cyclist, it is very helpful to me to understand the structuralist argument. While I don’t think America can ignore growing structural inequities, as it does almost uniformly under Republican-controlled government, I believe the battle for structural reform has to be subtle and limited, and it cannot supplant the reality of business cycles. Hence my view that the overly ambitious structural reform measures contained in the House stimulus bill are inappropriate to the task at hand, which is stimulating the economy into growth.
There was another piece in yesterday’s Washington Post that was very helpful to me in more fully appreciating the complexity of the task of writing a stimulus bill, particularly a stimulus bill that will actually accomplish its goals. It is Amity Shlaes’ FDR Was a Great Leader, But His Economic Plan Isn’t One to Follow. Obviously Ms. Shlaes is not a “structuralist”. At the very least she has feet firmly planted in the “cyclist” camp. As previously when I’ve read Ms. Shlaes, I am struck by her historically informed argument in favor of letting the private sector, not government, fuel economic growth. She does not believe a stimulus bill along the lines of that being crafted will be useful. Her formula would be to first strengthen government regulation of the markets and than to incentivize the private sector to grow. Here’s an excerpt:
The Depression tells us that public works are probably less effective than improving the environment for entrepreneurs and new companies. The president has already put forward a big tax cut for lower earners. He might offer a commensurate one for higher earners. He might expand the tax advantages he is currently offering to companies — wider expensing of losses, for example — and make them permanent. A discussion that permits the word “trillion” might also include the possibility of bringing down U.S. corporate taxes, taxes on interest, dividend and capital gains — again, permanently. The cash that a relatively competitive United States draws from abroad will move the country forward faster than any stimulus.
So the Depression and the New Deal are both worth going back to, but for different reasons than many suspect. We may rely on the best of the New Deal, the matter-of-fact bravery our parents and grandparents showed then, to help us through today’s unexpected challenges. But we don’t have to repeat New Deal stimulus experiments, because we know that they didn’t work.
This all makes me think, again, that we are rushing into this stimulus too fast. This needs to be much more carefully crafted to do more good than harm (the principal harm being a gigantic increase in the U.S. deficit). As it is, I fear we’ll end up with an economically inconsequential mishmash that only manages to raise the deficit to staggering new heights and create along the way some new and ongoing entitlement programs. This concern is compounded when one factors in that our country’s true deficit is much larger than that which is most often discussed. (See George Will’s column yesterday entitled Congress Will Have the Buffet.)
In closing, let me cite two additional columns, both from the Washington Post that reinforce my growing fear that this bill is deeply flawed and needs repair. The first, published today, is Robert J. Samuelson’s Too Little Bang for the Bucks. Here’s an excerpt:
The decision by Obama and Democratic congressional leaders to load the stimulus with so many partisan projects is politically shrewd and economically suspect. The president’s claims of bipartisanship were mostly a sham, as he skillfully maneuvered Republicans into a no-win position: Either support a Democratic program, or oppose it — and seem passive and uncaring.
But the result is that the stimulus, as an act of economic policy, is hobbled. A package so large can be defended only because the economy is so weak — and seems to be getting weaker by the moment. The central purpose is simple: halt downward momentum. Perhaps some of the out-year spending might ultimately prove useful. But the immediate need is for the stimulus package to stimulate — now. It needs to be front-loaded; it isn’t.
The second column is David Broder’s piece yesterday in the Washington Post entitled The Votes Obama Truly Needs. This is another must-read. Broder hits the nail squarely on the head and echoes my call to slow this train down in order to make certain delivery of the desired product. He also argues, correctly, that the relevancy and success of the Obama presidency is at stake. Failure to get a bipartisan majority on the stimulus bill will set a precedent that will be hard to break. Here’s an excerpt:
This bill, so much larger than ordinary legislation, even the wartime defense appropriations, is almost certain to be the biggest, if not the last, weapon the government employs to halt the sickening economic slide that has gripped the country in the past five months. So much is uncertain, and so much is riding on it, that it’s worth taking time to get it right.
Professional economists from both the right and left have raised questions that are anything but frivolous about its design. Martin Feldstein, a top Reagan adviser, has questioned the efficacy of the current menu of tax cuts and spending proposals to generate consumer demand and produce jobs. Alice Rivlin, who played a similar role for Bill Clinton, has called for a sharper focus on short-term job growth as distinguished from slow-acting steps for energy independence or health-care quality. Even the Congressional Budget Office has challenged how quickly this massive infusion of dollars will be felt in family budgets and the marketplace.
Beyond these policy challenges, there are political considerations that make it really important for Obama to take the time to negotiate for more than token Republican support in the Senate.
Nothing was more central to his victory last fall than his claim that he could break the partisan gridlock in Washington. He wants to be like Ronald Reagan, steering his first economic measures through a Democratic House in 1981, not Bill Clinton, passing his first budget in 1993 without a single Republican vote.
The first way leads to long-term success; the second foretells the early loss of control.
Yes, this will be a very important week in Washington. There is a lot at stake.