What will Senate Democrats do now that President Obama’s $800-billion-plus fiscal stimulus bill is on the Senate floor? Will they make big changes to the bill in order to get Senate and House Republicans to support it? Or will they make only minor changes, more-or-less ensuring that the bill ends up winning with almost no Republican support whatsoever?
Most progressives would hate to see Democrats start making big changes to the bill in order to please Republicans. Their reasons are as follows:
1. Republicans have horrible ideas and a horrible record on the economy. So it’s likely that if Republicans have a say in the stimulus bill, they will weaken it, soften it, dilute it — screw it up, in other words. We need this bill to work, and Republicans are horrible at making things work — so we should keep them as far away from it as possible.
2. It’s not at all clear that Republicans are negotiating in good faith. If Democrats start accepting Republican-sponsored amendments or seriously considering Republican ideas about how to “improve” the bill, there’s still a good chance that most if not all Republicans in Congress will reject the bill anyway — and then Democrats will have weakened, softened, diluted the bill for no reason at all. If Democrats are going to be held responsible for this bill, then they might as well make sure it’s the best possible bill.
I want to make a different argument (albeit tentatively): I think it’s possible that this bill can be changed in ways that will convince a good number of Republican Senators and Congressmen to vote for it — and these changes don’t necessarily have to weaken the bill’s ability to stimulate the economy over the short term. And Democrats should consider making these changes – even if it means abandoning spending on projects that will be good for the country.
First of all, it’s important to recognize that a political battle is underway right now — not over whether the bill is too big — but over whether the bill spends the money in the right way.
And Democrats are losing this battle.
Consider the following recent poll results:
Most Americans are now looking for major revisions in the way the government is approaching the recession.
A Gallup poll out Tuesday showed that a majority of Americans want Congress to either reject or make “major changes” to the economic stimulus package on Capitol Hill.
The poll, conducted from Friday through Sunday, found that 75 percent of Americans want Congress to pass some version of the plan. But the survey reflected deepening doubts about the effectiveness of the programs and spending items currently being considered by federal lawmakers. Only 38 percent of those polled favored the existing stimulus proposal, down from a slight majority holding that view in the Jan. 28 Gallup survey.
Thirty-seven percent want major changes and 17 percent reject the plan outright.
Why are the Republicans winning? It’s largely because the Democratic approach to this bill seems to be that any spending that involves hiring people to do work can rightly be called “stimulus.” And as long as most of this sort of spending is stimulus, Democrats figure they might as well spend the money on things they think will not only stimulate the economy, but also help the country in the long-term. This may be exactly right from a policy perspective.
But a lot of people aren’t buying it, and they are winning support from editorial writers and pundits all over America. Consider this recent editorial from the L.A. Times:
President Obama and congressional Democrats have emphasized that their proposal isn’t the typical exercise in pork-barrel politics. Lawmakers haven’t been allowed to pile on earmarks for pet local projects, and the largest sums are being divided among the states and cities through existing formulas. But too many of the items have little apparent connection with economic growth — witness the nearly $5 billion for prevention, wellness, “comparative effectiveness research” and training in the health field, the $2.1 billion for Head Start and the $300 million to improve teacher quality, just to name a few examples from the 647-page House bill. Other provisions, such as the $64 billion for preventing layoffs at schools, colleges and “high priority” state programs, are about saving jobs, not creating them. In the short term, there may be no difference between preventing job cuts and increasing payrolls — one prevents a bad situation from worsening, the other makes a good situation better. But an investment this large should pay long-term dividends by increasing productivity, and that’s hard to do when so much of the money is going toward maintaining the status quo.
There’s no question in my mind that the spending proposals described above are good. The money should be spent. But the L.A. Times is writing that these proposals “have little apparent connection with economic growth” and this is a sentiment I’ve heard over and over and over again as I’ve listened to Republican and supposedly “objective” analysis of the stimulus bill.
Here’s a “news analysis” from the New York Times with another troubling depiction of the stimulus bill:
Taken together, the economic stimulus plan and the banking bailout have quickly melded into a bitter political and ideological clash, barely two weeks into the Obama presidency.
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.
After years of battling with a White House that questioned the science behind global warming, Democratic lawmakers see a chance to begin programs aimed at environmental protection, using economic justifications for efforts like developing low-emission cars. And with a Democrat in the White House, they also see an opening to push for increased spending on education.
The efforts are fueled by a liberal base that supported Mr. Obama’s promise that he would tackle the biggest issues. That same base is concerned that the long slog ahead will force a delay or an abandonment of those ambitions.
As a result, there is $54 billion in the House bill for new forms of “American energy,” a phrase with an air of nationalism, along with a series of “Buy America” requirements of dubious legality under trade treaties; $141 billion for education; $24 billion for lowering health care costs; and $6 billion for broadband service, the digital equivalent of Lyndon B. Johnson electrifying the Hill Country in Texas.
(Some critics of that effort say it is pitifully small, too small to fulfill Mr. Obama’s campaign promise that all Americans should enjoy “the highest form of broadband access.”)
To those who argue that many of the programs will take years to get rolling, their advocates have replied, “So what?”
“It’s not as if we can just fix what’s wrong and go back to normal,” said James K. Galbraith, an economist at the Lyndon B. Johnson School of Public Affairs in Austin. “Can you overdo? Maybe, but it’s easier to pull back later than to make up for the fact that you did too little.”
But the result is that a piece of “emergency” legislation that would spend heavily to stanch the killing of jobs is now transforming into a series of long-term commitments that are sure to add enormously to the national debt, and keep adding to it long after the Panic of 2008 and the recession — or worse — that it set off are consigned to history.
Galbraith’s “so what?” may sound great to Democrats like me who think the proposed spending described above is a great investment in our country’s future — but his glib indifference only fuels the idea that this bill isn’t about rescuing the American economy so much as it’s about Democrats following through on their political agenda, as the “analysis” suggests. Articles like this one — from the New York Times, no less – erode public support for this bill.
And then Republicans put out lists like this one, outlining what they call “wasteful” parts of the bill:
(CNN) — On Monday, Congressional Republican leaders put out a list of what they call wasteful provisions in the Senate version of the nearly $900 billion stimulus bill that is being debated:
• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.
• A $246 million tax break for Hollywood movie producers to buy motion picture film.
• $650 million for the digital television converter box coupon program.
• $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).
• $448 million for constructing the Department of Homeland Security headquarters.
• $248 million for furniture at the new Homeland Security headquarters.
• $600 million to buy hybrid vehicles for federal employees.
• $400 million for the Centers for Disease Control to screen and prevent STD’s.
• $1.4 billion for rural waste disposal programs.
• $125 million for the Washington sewer system.
• $150 million for Smithsonian museum facilities.
• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.
• $75 million for “smoking cessation activities.”
• $200 million for public computer centers at community colleges.
• $75 million for salaries of employees at the FBI.
• $25 million for tribal alcohol and substance abuse reduction.
• $500 million for flood reduction projects on the Mississippi River.
• $10 million to inspect canals in urban areas.
• $6 billion to turn federal buildings into “green” buildings.
• $500 million for state and local fire stations.
• $650 million for wildland fire management on forest service lands.
• $1.2 billion for “youth activities,” including youth summer job programs.
• $88 million for renovating the headquarters of the Public Health Service.
• $412 million for CDC buildings and property.
• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.
• $160 million for “paid volunteers” at the Corporation for National and Community Service.
• $5.5 million for “energy efficiency initiatives” at the Department of Veterans Affairs National Cemetery Administration.
• $850 million for Amtrak.
• $100 million for reducing the hazard of lead-based paint.
• $75 million to construct a “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies.
• $110 million to the Farm Service Agency to upgrade computer systems.
• $200 million in funding for the lease of alternative energy vehicles for use on military installations.
Obviously, we could go through this list, line by line, and explain why most of these items ARE stimulus. The idea that it isn’t “stimulative” to spend money on construction projects (artic ships, federal department headquarters, museums, flood reduction infrastructure) or upgrade computer systems, doesn’t make even a shred of sense. It is especially confounding to see a $1.2 billion for “youth summer job program” on this list — At a time when so many otherwise-employable youths will be unemployed due to a horrible job market, isn’t it a good idea to keep these people working so they can pay rent, spend money, build their resumes, etc.? And most of the other items on this list will create jobs of one kind or another.
But why in God’s name would we give Hollywood a tax break for the purchase of film? It may be a good idea, but it will strike almost every Republican in America as an absurd idea that obviously has more to do with satisfying a special interest group than with stimulating the economy.
These “minor” items, and countless others we’ve heard mocked on television by Republican pundits, are what the less-than-awesome poll numbers are about — not about whether more of the money should go to business tax cuts. And for people who don’t really understand economics and don’t accept the Keynsian notion that any spending is stimulative spending, these items seem random and cute. They suggest that Nancy Pelosi simply went before the Democratic Caucus in the House and said, “We need to spend $819 billion dollars. What should we spend it on?”
I think a stimulus bill may actually be more effective if it has significant Republican support. Consider the following excerpt from the L.A. Times editorial:
Stimulating the economy is more of an art than a science. A country relies partly on the strength of its resources — such as its workers’ productivity, the availability of cheap capital, the markets for its goods — and partly on consumers’ confidence. The latter is especially important in the United States, where consumer spending accounts for about 70% of the economy. Because any legislative effort to boost employment and end the recession will take months, if not years, to deliver its full benefits, it’s important that the psychic benefits are felt immediately. If people and businesses believe that the effort will improve job security and increase the demand for goods and services, they’ll be more likely to spend more and take more risks. But if they see the stimulus package as just another boondoggle for special interests, they’ll continue the miserliness that is exacerbating the downturn.
The Times’ point isn’t that the current version of the stimulus bill is a “boondoggle for special interests.” The Times’ point is that if the bill appears to be a boondoggle, this hurts the recovery.
There is no doubt that if the current version of the bill passes without any Republican support, Republicans will argue passionately until the end of time that the bill isn’t working, didn’t work – because it can’t possible work. The Republican Party has staked its entire identity on the idea that the current stimulus bill won’t stimulate the economy, and nothing will ever force them to abandon this view.
Unfortunately, I think Fox News journalist/pundit Brit Hume (who called it a “horrible bill”) was correct when he said this on Fox News Sunday:
When the economy recovers, the problem is we’re not going to know what did it. We’re not going to know whether it was just pent-up demand (where) people finally started buying because they had to, or whether it was because of the injections — massive injections, quite apart from the stimulus bill, of cash into the economy by the Fed. We’ll never really know, and the argument about whether this stuff works or not will go on forever.
It’s important to separate out the argument Hume is making about whether the bill will work and the argument he is making about “the argument” over whether the bill will work. Even if the current version of the bill is entirely successful, Republicans will never — NEVER — concede that it did, because such a concession would be the equivalent of saying “we were wrong about the most important issue this country has faced in a generation.”
If the bill passes (without Republican support) and then the economy recovers, Republicans will make the arguments Hume outlined above: that the real reason for the recovery was the release of pent-up demand or the injection of Fed money.
I absolutely believe that if this stimulus package is considered a success, Democrats in Congress will keep their majorities in Congress in 2010, and Obama will win reelection in 2012. If, on the other hand, the bill is considered a failure, the Republicans may win back the House and then the White House. Republicans know that this will be the battle, and they are gearing up to argue vehemently — for the survival of the party — that this bill is bad and won’t work, isn’t working, didn’t work, because that is their path back to power.
And if the current bill passes, the entire right-wing political establishment of this country — including politicians, pundits, radio talk show hosts, columnists, “journalists,” editorial writers, college professors, economists, etc. — will launch an aggressive, unyeilding campaign to malign the stimulus bill as a useless waste of taxpayer money. This means Republicans all over the country will hear that message all over again, and most of them will find the argument persuasive. The Gallup Poll above suggests the American people are already buying this argument.
If more than a third of the country decides the stimulus was a waste, will that prevent the “psychic benefits” described in the L.A. Times editorial? Will that cause people and businesses to “continue the miserliness that is exacerbating the downturn”?
If, on the other hand, Democrats make major concessions — not by reducing spending in the bill, but by spending money on items that will be just as effective at stimulating the economy but won’t provide reasons for Republicans to vote against it — and if, as a result, Republicans support the bill, it will be highly problematic for Republicans to argue later that the bill was failure (just as it was problematic for Democrats to argue the Iraq War was a bad idea after voting to authorize it).
Here’s my proposal: Democrats should eliminate every single item of spending in the bill that Republicans have called “wasteful,” and spend that money instead on items that Republican Senators and Congressmen specifically request — items that Democrats believe would be roughly equal in their “stimulative” impact on the economy.
After the bill passes, Democrats should propose additional spending on these “wasteful” projects and force Republicans to block the spending with filabusters. Then, in 2010, the American people can decide whether to reward Republicans for their filabustering, or reward Democrats for leading this country through the worse economic crisis since the Great Depression.
Please tell me why I’m wrong to contradict my hero, MSNBC’s Rachel Maddow, in arguing for big concessions to the Republicans. (I’m probably wrong, but I want to know why I’m wrong.)
Paul Krugman has suggested:
Note: that’s $600 billion per year–far less than this stimulus allocates.
Martin Wolf at the FT writes:
An AP report indicates that the stimulus bill is actually already receiving bipartisan support, just not in Congress:
I conclude that Democrats should not compromise on the dollar amount of the stimulus. We don’t need a psychic stimulus; we need a stimulus. If they think Republican votes on the bill matter, or they want to assuage irrational fears that the spending is not of the “right sort,” Democrats can certainly “redirect” where those dollars are spent. They should not, however, compromise on changing spending cuts into tax cuts, because studies show that tax relief does far less to stimulate an economy than direct spending–it has far less of a “multiplier” effect.
Joseph Stiglitz has this to say about taxes vs. spending:
If I were a Republican cynically interested in getting reelected, I would want to move enough of the stimulus package to tax cuts so that the tax cuts got through–and would be hard to reverse–but the stimulus was not sufficient to help the economy, then blame the failure on the “Obama stimulus,” whether or not I voted for the bill. Obama is never going to get any credit from Republicans, no matter what he does, no matter what they do.
I think Democrats should be more than willing to change what they spend the stimulus money on — but not change the dollar amount. As Dean Baker points out, spending any money is stimulus. Those who claim that spending on the “wrong kind” of projects is not stimulus simply don’t understand basic economics or are being disingenuous.
Comment by Lee — February 4, 2009 @ 4:11 am
Also, the link regarding the poll goes to Fox News, which obviously spins the results a certain way. Let’s look at the math this way, based on the Gallup Web site:
* “75% [of Americans] want Congress to pass some version of President Obama’s economic stimulus plan.”
* ”Thirty-one percent of Americans are following news about the stimulus plan very closely, with another 46% saying they are following it somewhat closely. Those who are most closely following news about the plan differ little from the overall national average in terms of their attitudes about the plan.”
* 37% of Americans want the stimulus to pass with major changes. But what are those changes? I’m an American who wants the stimulus to pass with major changes–I want the stimulus to be bigger.
* 30% of Democrats want the plan to pass after major changes. I think many of those Democrats may share my views about the nature of those changes. Why do you assume that the changes Americans in general want are the changes the Republican minority wants? The poll does not indicate the content of the phrase “major changes.”
* Almost 80% of Americans are very or somewhat concerned that the stimulus plan is not going to stimulate the economy quickly enough. Based on the quotes in my previous comment, I think this 80% is right to be concerned. The answer to their legitimate skepticism is to increase the amount of spending in the package.
Comment by Lee — February 4, 2009 @ 4:37 am
I think what they should do is remove anything that is being spend in 2011 or beyond (a legitimate complaint) from the stimulus. This will cut the legs out from a lot of the GOP argument.
Then substitute with more shot term stimulus like operating funds for transit authorities.
But I think the title is right even if for the wrong reason. If people think the economy is going to get better they will spend more and it will get better.
Comment by John — February 4, 2009 @ 8:26 am
I would argue (tentatively) we need a psychic stimulus AND a stimulus — and we can have both if our political leaders are united behind the stimulus bill. In terms of our national politics moving forward, support from Republican governors is basically meaningless in this context, unfortunately.
I certainly don’t mean to suggest that the size of the bill should be reduced in any way. I tend to agree with the economists Lee mentions who say the bill runs the risk of being too small. But Michael Wolf also says the bill is “too wasteful and too ill-focused.” If most Americans think the bill is no good, it doesn’t matter why. People on the left aren’t going to devote themselves, as a matter of political survival, to the idea that the bill was a collossal failure — only people on the right will do that.
Lee writes, “Obama is never going to get any credit from Republicans, no matter what he does, no matter what they do.” That doesn’t change the fact that Republican claims that the stimulus bill is a sham won’t work nearly as well if a large portion of Republicans vote for the bill.
Lee writes, “Those who claim that spending on the “wrong kind” of projects is not stimulus simply don’t understand basic economics or are being disingenuous.” I sympathize with the point. But just because you and I agree with Dean Baker, that doesn’t mean the American public is believing it. All Republican arguments I’ve heard regarding this bill involve the idea that spending on the “wrong kind” of projects isn’t stimulus. These arguments come from editorial writers at the L.A. Times, the Wall Street Journal, etc. You can argue that these writers are being ignorant or disengenuous — but is that an argument you can win when you’re arguing with someone who just doesn’t know that much about economics? I’ve heard Martin Feldstein make that argument — is he ignorant?
Comment by Ian — February 4, 2009 @ 11:42 am
I’m not sure what Wolf means by ill-focused–he doesn’t elaborate on that point, except to say that recapitalizing banks is important–but Krugman and Stiglitz would say tax cuts make the bill ill focused. Every dollar spent cutting taxes–except in very narrowly defined cases–is a dollar that could have been spent to better effect.
Comment by Lee — February 4, 2009 @ 2:00 pm
It still depends which taxes. The proposed Payroll Tax Holiday will have the biggest affect on the poorest which may increase their spending since that demographic traditionally didn’t have much stock or real estate investments anyhow.
It may be too small but if it means passing something vs. nothing I say go for small and get Stimulus II: Electric Boogaloo ready.
Comment by John — February 4, 2009 @ 2:12 pm
I agree. Tax relief for the poorest will plausibly go directly into spending, as Stiglitz notes; likewise tax decreases linked to corporate investment is a smart idea.
I also agree that if this is the best that can be done for now, better to pass it than not. If Obama passes a health care reform package this year, that could be designed to have the effect of a stimulus. After all, health care spending is a stimulus.
There are lots of other ways to spend money. In a sense, W. did liberals a favor by taking the wind out of Republican anti-deficit arguments. And by making Obama deficit spending seem relatively small.
Tax and spend, I say!
Comment by Lee — February 4, 2009 @ 2:53 pm
Interestingly, some Republicans and conservative pundits are actually criticizing the bulk of the tax cuts in the bill.
There’s this from the Wall Street Journal:
“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.”
It seems Republicans don’t just want tax cuts — they want specific cuts for the wealthy and cuts for businesses. I agree 100% that these tax cuts won’t be an effective stimulus and Democrats shouldn’t dilute the bill with this stuff. You may be right that this is the only change Dems could make to attract significant Republican votes — and if that’s the case, then a party-line vote is how it will be.
But I’m more interested in getting rid of some spending in favor of other spending — redirecting where the money is spent.
Either that, or Democrats have to start doing a better job selling the theory behind their plan — explaining to the public how this stimulus plan was put together. Because rightly or wrongly, the perception is that it’s a hodgepodge of Democratic ideas.
Comment by Ian — February 4, 2009 @ 3:18 pm
You’re completely right–Democrats need to start explaining and selling their ideas to the American people. That’s one thing Obama is best suited to do–YouTube videos, speeches on the economy, using the lists he generated during the campaign to begin explaining the rationale behind the stimulus.
Dean Baker has this to say on his blog today:
Comment by Lee — February 4, 2009 @ 6:05 pm
Dean Baker makes perfect sense to me. I sincerely don’t understand why people have a hard time understanding the points Baker makes. What are the people at the Columbus Dispatch talking about when they say these proposals “would not generate much immediate economic activity.” They would employ people who will spend money that keeps businesses afloat so they can employ more people. etc. What kind of “economic activity” are these writers at the dispatch looking to stimulate?
Comment by Ian — February 4, 2009 @ 10:57 pm
Here’s an excerpt from a Politico article that shows just how badly Democrats are losing the battle to convey the ideas that Dean Baker argues for. The article is about how Republicans have scored framing points by getting everybody to call the bill a “stimulus” bill.
The prevalence of the word — coupled with the Obama administration’s desire to make the legislation a bipartisan effort — has put the Democrats on defense, forced to explain how one provision or another fits under the “stimulus” umbrella.
“Stimulus equals short-term job creation, so it’s easy to hold up any longer-term investment and shoot it down if it’s not obvious how it creates jobs in the short term. And that allows the Republicans to shoot down a lot of perhaps worthwhile investments,” says Doug Hattaway, president of Hattaway Communications.
Indeed, during the debates in the House, the word “stimulus” became a kind of litmus test among Republicans, who held various provisions up for scrutiny against that standard and dismissed as “bloat” or “pork” anything that didn’t conform.
During the debate, Phil Roe (R-Tenn.) objected to $50 million for the National Endowment for the Arts because “that is not economic stimulus.”
Rep. Ted Poe (R-Texas) objected to $726 million for after-school snack programs for schoolchildren. “I’m sure our school kids need more snacks at taxpayer expense, but does anyone really think that will help the economy? Probably not.”
If the bill is a “stimulus package,” Poe and his colleagues are saying, the question is whether school snacks will stimulate the economy. And in that formulation, it becomes irrelevant that the snacks may be necessary in the context of an economic downturn that is likely to increase hunger.
Rep. Judy Biggert of Illinois is among many Republicans who have begun to refer to the bill as “the so-called economic stimulus package,” by way of suggesting that the legislation is not what it was intended to be.
It is working: Everyone from the Washington Post’s editorial page writers to Democratic Sen. Kent Conrad of North Dakota have begun to hold the bill to the standard that has been used for past stimulus packages: Provisions, they say, should be “targeted, timely and temporary.”
“It does suggest that there’s a metric for judging every part of this proposal, which is, Does it put money back into the economy right now?” says Westen. “And that’s the wrong metric.”
At least, it is if you agree with the Obama administration, which pollster Lake says most Americans do. She suggests that while the GOP might have won this battle, it may ultimately run afoul of public opinion.
“Everything being short-term is not that popular with the public,” says Lake. “They are interested in job creation and getting our economy back on sound footing, and they think of those as long-term goals.”
Baker would probably argue that $50 million for the NEA and money for school cafaterias IS stimulus, and so would I. But Republicans appear to adhere to a more “technical” definition of the word that forces Obama and the Dems to explain why a particular provision is “stimulus.”
The politico article doesn’t explain why these items aren’t stimulus or why Republicans don’t think these items aren’t stimulus – it just suggests that Republicans are effectively arguing that they aren’t.
Democrats need to work harder to win this argument. It’s very frustrating.
Comment by Ian — February 5, 2009 @ 12:15 am