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Wednesday, February 04, 2009

Death Cab For Stimulus?

by dday

Senate Democrats have whipped the stimulus bill, and they say they don't have the votes.

Senate Democratic leaders conceded yesterday that they do not have the votes to pass the stimulus bill as currently written and said that to gain bipartisan support, they will seek to cut provisions that would not provide an immediate boost to the economy.

The legislation represents the first major test for President Obama and an expanded Democratic Congress, both of which have made economic recovery the cornerstone of their new political mandate. The stimulus package has now tripled from its post-election estimate of about $300 billion, and in recent days lawmakers in both parties have grown wary of the swelling cost.

Moderate Republicans are trying to trim the bill by as much as $200 billion, although Democrats working with those GOP senators have not agreed to a specific figure.

If that comes out of spending and not tax cuts - and since Republicans and moderate Democrats are driving the boat on this one I assume it will - then the bill will be completely unable to accomplish its goals on job creation. It may provide a temporary boost, but won't do what's needed to stop the bleeding. The recession will continue for years and maybe slip into depression.

Keep in mind that, when pressed, Republicans can't come up with more than 1% or 2% of the bill to criticize as "pork." All of those could be taken out - I don't think it's necessary, but hypothetically - and the bill would essentially be exactly the same in size. So to eliminate enough spending to actually cut the bill, you'd have to get rid of things that would create lots of jobs and actually leave something tangible for the future, whether in health care or education or energy or infrastructure. This is what Republicans are demanding, because they wouldn't dare slash the tax cuts.

Meanwhile, the same people who say they don't want the bill larded up with things that aren't germane want to use it to lower mortgage rates to 4% and give giant tax incentives to homebuyers, reinflating the housing bubble and hoping everyone can just get to the next election cycle on its back. This is serious lunacy, and it's infected both parties. We have to fix the housing crisis, which is very central to the overall meltdown, and in particular stop foreclosures (which most of the Democratic plans try to do). But reinflating the bubble at a time when houses aren't at the price they historically should be is mountains of stupid.

The upshot is that this bill, with the entire goal of stopping a careening disaster in the economy and putting people to work, is seriously off the rails. And I've got to say, a lot of it is because the Obama Administration isn't answering the critics with any kind of force or action plan. Now the job numbers for January due out on Friday - which could be astronomically bad - will create more of a sense of urgency, but that won't create action on Washington unless people are knocking at the gates. The bad timing of the Daschle withdrawal ruined Obama's media blitz yesterday, as his "I screwed up" line got all the headlines. But even the content of their pushback when they've bothered to do it has been suspect.

The most serious charge against the stimulus package is that it does not pack enough punch. Two different camps have been making this argument over the last few weeks. Publicly, the Obama administration hasn’t really answered either one.

The first camp says that the stimulus is simply too small. The recession is likely to idle almost $2 trillion of resources — buildings, equipment and people — this year and next, yet the current stimulus will fill only $700 billion of the hole. Several liberal economists, the forecasters at Goldman Sachs and Mark Zandi (an economist whose forecasts the administration has used) all argue for a bill of at least $1 trillion.

The second camp says that, dollar for dollar, the current package is not as effective as it should be. The public face of this group is Martin Feldstein, a longtime adviser to Republicans. Rather than across-the-board tax cuts, he is calling for targeted tax cuts that people will receive only by spending money, on a new house or other items.

The administration has responded to its critics mostly by repeating its original arguments that the economy desperately needs help — which is true, but doesn’t address the criticisms. So I spent much of the last few days asking Team Obama to be more specific.

Yes, specific would be good. We need a Ross Perot-style PowerPoint presentation at this point. This is big and tricky and America doesn't have a lot of recent experience with massive government spending. They need to be sold. And Obama needs to take control of the Senate's runaway train and understand that there is not going to be a penalty for doing too much, only too little.

Credit crises are terrifically nasty beasts. They have a habit of making economists look foolishly optimistic.

The odds that, a year from now, Mr. Obama and Congress will regret not having been more aggressive seem bigger than the odds that they’ll think they overdid it. Why not redouble efforts to find a few other ways to spend money quickly? More than 50 mass transit agencies across the country are cutting services or raising fares, and the stimulus bill does nothing for them.

Today, the Obama administration can still blame the Bush administration for the economy’s condition. Next year, fairly or not, that won’t be so easy.

Finally, as Chris Bowers notes, the Obama team is asking shockingly little from its constituents. There was an organizing call last night that asked for some input, and they're setting up house parties, but that's EXTREMELY late in the game. This is the biggest legislation of the year, which will set the tone for all of the future promises Obama made. That he's not effectively using the bully pulpit or organizing his cadres is astounding. It could be that they are working so hard on all these simultaneous crises that they forgot how important it is to bring the people along. Let me quote Bowers' final sentence:

The silence is deafening.