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Posted by on Jan 28, 2009 in Economy, Politics | 13 comments

The Stimulus Bill is a Good Bill

The recently passed House stimulus bill, which received zero Republican votes, is a good bill.

It is not a great bill, to be sure. Alice Rivlin, Budget Director under Bill Clinton, offered the objection that the bill has too many long-term elements that should be separated out and debated on at length before being included in a separate package. I think she’s right on this score.

But that objection doesn’t render the stimulus package a bad bill (and some of the long-term plans might be taken out by the Senate with the understanding that they will be taken up in a later bill).

The opposition offered by Republicans falls along three lines:

1) It’s too expensive.
2) It has too much spending and not enough tax cuts.
3) The spending priorities are wasteful and irrelevant to the economy.

The first objection is a serious one, especially when it is added on to earlier bank bailout bills. But when you are dealing with a stimulus bill, there is a risk of under-doing it as much as there is over-doing it. The economic downturn is deadly serious and will require massive action. That doesn’t please me at all, and I’m not sure if the government plans to sell more debt to China or print more money. But I don’t see that as disqualifying, given the magnitude of the economic crisis.

The second objection is ideological. This is where elections have consequences. Conservative Republicans have advanced a supply side vision where tax cuts go mostly to wealthy investors who, presumably, contribute more money to the whole economy. But that model has run its course with dubious results. Moreover, advocates of that view were defeated by supporters of a Keynesian approach in November – in an election where tax cuts v. spending played a central role in the debate. Just as Reagan had a mandate to cut taxes in 1981, Obama has a mandate to spend more in 2009.

The third objection is where silly politics obscures the ideological differences. The widely-read 40-year wish list that the Wall Street Journal complains about makes a fairly ineffective argument against the very spending items it sees as unnecessary. It mocks $1 billion for Amtrak, as if that doesn’t count as infrastructure. It pans the $2 billion child care subsidy, as if failure to afford child care is not a significant burden for those non-laid-off workers who have to work longer hours to make up for reduced staff. Granted, some items like the National Endowment for the Arts funding could go into a long-term spending package.

But the real objection comes out in this paragraph. Note the ideological assumption in the last sentence.

Another “stimulus” secret is that some $252 billion is for income-transfer payments — that is, not investments that arguably help everyone, but cash or benefits to individuals for doing nothing at all. There’s $81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don’t pay income tax. While some of that may be justified to help poorer Americans ride out the recession, they aren’t job creators.

This is supply side economics at its faultiest. What does the Wall Street Journal think is done with food stamps? In fact, most economists view direct transfers like food stamps as the most efficient kind of stimulus because they will be cycled immediately into the economy. You can’t store your food stamps away like people did with their $500 rebate checks they got in 2001. In fact, working class people are much more likely to prime the pump with transfer payments than are snake-bitten investors who are more likely to save any tax relief (and in very conservative funds that provide little capital to start-up businesses) than put it back in the economy.

The GOP objection includes some substantive points about hodge-podge spending on items of dubious stimulative quality right now. But the heart of its objection is ideological. The Republican Party has not given up on Reaganomics.

What’s worse, however, is that the Republican Party had no problem spending a ton on domestic programs like prescription drugs for Medicare when Bush was President. Surely it couldn’t be mere partisanship that explains GOP support for spending under Bush and sudden fiscal conservative under a Democratic President and Congress. Right?

No, the GOP is listening to Rush Limbaugh here. The political calculation they are making is quite simple. They believe Reaganomics will return them to power in 2010 and 2012 and they hope the Democratic plan fails. They believe, without any polling to back them up, that they lost in 2006 and 2008 because they weren’t conservative enough. They want nothing to do with the Keynesian Democratic plan. The Democrats could have dropped all of the long-term spending plans from the package and no more than about 5 or 6 moderate Republicans would have voted for it in the end.

But all of this is as it should be. There are deep philosophical differences here. If the GOP still believes in its tax-cuts-for-everything ideology then go ahead and oppose it. We’ll see the results by 2010 or 2012. At that time the voters can decide which vision makes sense to them.