Make It Bigger

by publius

Tomorrow’s Post article (via TPM) usefully outlines some criticisms of the current stimulus plan from Democrats – namely, too many tax cuts and too little public infrastructure investment.  This is a good development – the pressure on the bill shouldn’t be coming solely from the Eric Cantors of the world.  There needs to be leftward pressure too.

Frankly, I’m torn on Obama’s “outreach” strategy at this point.  Here’s the best justification that my feeble mind can conjure:

Obama is, as always, looking long term.  When he says the stimulus is just the beginning, I think he believes it.  He expects to do other big things.  I also suspect he thinks the political dynamics here are fluid.  That is, success today will increase chances of even bigger successes tomorrow. 

For instance, if Obama can deliver a big bipartisan success on this initial early test, it will dynamically increase his political power.  The increased power, in turn, will enable larger New Deal-type changes down the road.  Or that what they’re thinking, I suspect.

Here’s the problem with that theory though – the dynamics work the other way too.  It’s just as plausible that the resulting deficit will – for good or bad – make it far more difficult to pass anything really big in the months and years to come.  (I sincerely hope that the last sentence bags me a Von Hoffman one day, but I doubt it will.)

Our country needs a massive, New Deal-level public infrastructure investment.  We also need a massive health care overhaul.  My fear, then, is that the political appetite for such ambitious and expensive programs won’t be there after Congress passes the stimulus bill.

That’s not an argument against doing the stimulus – just the opposite in fact.  It’s an argument that progressives should try harder to get more in there right now while we can.  History turns on a dime – who knows what will come.  

For that reason, I’m leaning more and more toward ignoring the House Republicans and toward spending more time and effort to dramatically expand the infrastructure projects in there.  Make it a cool trillion in a half.  Build more fiber.  Build more grids.  Build some supertrains.  Do the things that the 21st century economy so desperately requires – things that will pay enormous dividends for generations to come. 

These opportunities don’t come around that often.  Obama has the combination of a financial crisis and soaring honeymoon approval levels.  He should use it.

Plus, the stimulus is going to pass.  The Republican leadership is playing a game of chicken at the moment, but a few GOP Senators will eventually flinch.  Think about it – do you really think the GOP can keep a filibuster together in the face of new layoffs every single day? 

Of course not.  The stimulus will pass, and Obama can – almost – get anything he wants through Congress right now.  The GOP’s best strategy is to oppose a bill that ultimately gets passed, and then hope for the worst.  But a filibuster that actually succeeds would be political suicide.

All that said, I generally support the outreach.  I think it’s good policy, and it helps everyone feel invested.  I also think it’s good politics in that it lowers the levels of future Republican hatred (that’s what Bush and Rove never realized – they rammed things through, but their unilateral actions set in motion the backlash that ultimately dethroned their party).

So it’s a very tricky question – particularly for someone like Obama who takes the “new politics” quest very seriously.  But at the end of the day, this is an opportunity for major structural change that Obama likely won’t see again.  It would be sad to blow that historic opportunity out of a desire to accommodate Eric Cantor.

So I say go for it.  Make it bigger.  Build what needs to be built.  Realistically, it may be the only opportunity for real change that we have.

Comments

[freelunch]

I'm not sure exactly what is being done in the package, but if it doesn't include 100% funding of SCHIP/Medicaid and Unemployment compensation for the next 18-24 months, it's not helping the states well enough.

[Maynard]

My stocks have lost 40% of their value and so has my house. I owe more than it is worth. Last week I lost my job. My wife and I have decided that the most sensible thing to do to get back on our feet is to go on a huge spending spree with the credit cards.

[d'd'd'dave]

//That’s not an argument against doing the stimulus – just the opposite in fact. It’s an argument that progressives should try harder to get more in there right now while we can. History turns on a dime – who knows what will come.//

"Empty their pockets now, because when they wake up they may run."

[Brien Jackson]

"Obama is, as always, looking long term. When he says the stimulus is just the beginning, I think he believes it. He expects to do other big things. I also suspect he thinks the political dynamics here are fluid. That is, success today will increase chances of even bigger successes tomorrow."

My sense is that Obama wants to keep the sum total under $1 trillion for psychological reasons. I don't know if it would, but it's easy to see that mental threshold being an easy thing for the GOP to demagogue to a populist segment of the public who has been fed right-wing nonsense about fiscal policy as CW for the better part of the last 3 decades.

Also, it wouldn't terribly if Obama wasn't *trying* to get Republicans to oppose it, such that he can then (loudly) point out that he was more than accomodating to Republican concerns (there has to be some reason he leaned as hard as he did on Waxman over the contraceptive thing, you don't personally pressure someone with as much influence as Waxman for nothing), but that they voted against it anyway clearly sugggesting they were never acting in good faith. The idea being to get media cover for more ambitious packages later tat Republicans are going to oppose.

Obviously I don't *know* any of that's true, but it's the only way I see the sum of events making any real sense.

[d'd'd'dave]

// Make it a cool trillion in a half. Build more fiber. Build more grids. Build some supertrains. Do the things that the 21st century economy so desperately requires – things that will pay enormous dividends for generations to come. //

We're broke but if we can just fill the store house in one big binge before the spigot stops then it won't matter. Let's buy everything we might need in the next 100 years.

[d'd'd'dave]

//All that said, I generally support the outreach.//

What you're advocating is more of a football-style straight arm than an outreach.

[rea]

Gosh, Maynard--if you were a government, that would make sense. Your spending spree would increase demand, and help put people back to work. Since you're just one person, not a government, though, and since you're only trying to solve your own financial problems rather than everybody's, it's probably a bad idea.

[publius]

rea is exactly right on maynard's point - micro-econ isn't the same as macro

[von]

This post exactly reflects my concern regarding the stimulus package: Some view the stimulus package not as solely a means to stimulate the economy, but rather as a means to enact a bunch of policy preferences and government expansions without having to justify them.

Publius, correct me if you're wrong, but you're basically arguing that this is Obama's one big chance to push through a package and that Obama should take the opportunity to get as much as he can out of the package -- whether it's strictly related to the stimulus or not.

[publius]

Sort of, but I still think it's stimulus. Check out yesterday's layoffs -- there's no sign at all that the recession will come to some magic end in 2011.

these projects are sorely needed in good times or bad. But b/c they are bad times, they have the added benefit of stimulus.

i think your view of stimulus is too narrow -- and too short-term -- given the circumstances.

[ThatLeftTurnInABQ]

Sorry Publius but I disagree, because IMHO there are larger forces at work here than US domestic politics. The problem is that whatever stimulus we decide on (whether via direct spending, transfer to the states, tax cuts, or some combination thereof) has to be paid for.

And not just in the long term sense that someday we will need to raise taxes (probably to Truman-Eisenhower era levels) to pay down the resulting deficit, but in the short term sense that our deficit has to be financed via the sale of Treasuries - the cash has to come from somewhere, and at the present time that is the best place to get the money (there are alternatives, but they all have very very bad consequences).

But right now it looks like our ability to raise addition funds selling to the long end of the yield curve is very limited, because foreign central banks are shifting their porfolios towards the short end of the curve (they would be fools not to). See this post by Brad Setser for some very scary graphs showing how rapidly foreign demand for long bonds (note that Setser is graphing not just T's but Agencies and corp bonds) is tailing off (hat-tip: Nemo, who unpacks what this means in plainer language).

What this all means is that we can only finance a stimulus up to a maximum amount equaling the size of current year foreign demand for short dated Treasuries. It isn't US domestic politics that is in the drivers seat to determine this number, but rather our Chinese banking overlords and how long of a leash they are willing to put us on.

And by the way, this same answer applies to the question implicit in von's critique of the stimulus - why is so much of the stimulus scheduled for 2010/2011? Why not shift it to impact sooner, in 2009? The answer is that we have to spread out the cost of the stimulus over several years or risk blowing out the market for short dated Treasuries. Killing the goose that lays the golden eggs is one thing we can't risk right now.

[Maynard]

How is the government going to pay for it?

[Brien Jackson]

"How is the government going to pay for it?"

It was just a month or 2 ago when we were selling T-Bills at a 0% interest rate. I don't think there's going to be much problem finding buyers for the debt.

[d'd'd'dave]

Yes, short term rates are very low. Are we going to pay this new debt off in the short term?

[blogbudsman]

Now that we know who history's next Carter is, we can only wonder in great expectation who will be the next Reagan.

[Slartibartfast]

Publius, correct me if you're wrong

Something wrong there; can't put my finger on what, exactly.

[gwangung]

How is the government going to pay for it?

Isn't this question eight years too late?

[Uncle Kvetch]

Gwangung beat me to it.

I propose that Obama find a really butch, steely-eyed, take-no-prisoners name for the stimulus package: "The 'We're Still #1, Suckahs!' Economic Recovery Act," or the "Suck. On. This. Freedom and Liberty Plan" or the "Our God Is Bigger Than Their God Long-Term Fiscal Policy." Maybe that'll be enough to get the people who haven't shown a whit of concern for fiscal responsibility over the last 8 years to stop with the disingenuous handwringing already.

[Kevin Donoghue]

Reagan proved deficits don't matter.

[ThatLeftTurnInABQ]

I propose that Obama find a really butch, steely-eyed, take-no-prisoners name for the stimulus package

How about "The Freedom Debt Stimulus"?

Freedom isn't free, it's borrowed, at adjustable rates.

[bedtimeforbonzo]

"My fear, then, is that the political appetite for such ambitious and expensive programs won’t be there after Congress passes the stimulus bill."

The political appetitie may also reflect the public appetite.

Reading and watching the business news, there is a growing belief that the banks will need ANOTHER bailout, largely because they spent the first $350 billion like drunken soldiers.

How do you think that will play in Peoria?

Whatever Obama does in the way of a stimulus plan or bank bailout, the money must be spent wisely and I thought Dems are long past the idea of "Make It Bigger."

Even before I read blogbudsman's Reagan reference, I was thinking along the same lines, thinking it won't be long before a 2012 candidate emerges saying, "Government is the problem."

I hope Obama is smart enough not to fall into that trap.

[Sock Puppet of the Great Satan]

" See this post by Brad Setser for some very scary graphs showing how rapidly foreign demand for long bonds"

Also, Setser notes the primary driver of the drop in demand for long term US bonds is the drop in demand for US *Corporate* Bonds. Which is pretty rational, given the past six months.

[I'd have a lot more respect for the CFR's econ coverage if they hadn't also retained English-major conservative hack Amity Schales as an economics blogger.]

[bedtimeforbonzo]

Before I go take a day-off, snowed-in nap, I offer this commentary.

[von]

Something wrong there; can't put my finger on what, exactly.

Hmmm. I can't tell if my typo ("correct me if you're wrong") makes more or less sense than what I intended to write.

[von]

Reagan proved deficits don't matter.

Except for the fact that Bush-the-father had to raise taxes, this might be true.

[Kevin Donoghue]

Except for the fact that Bush-the-father had to raise taxes, this might be true.

I think Cheney's contention was that he really didn't have to, raising taxes cost him a second term and Bush-the-son wasn't going to make the same mistake.

I didn't mean to give the impression that I was endorsing Cheney's contention. Like other commenters I am just amused at the way Republicans return to rectal fiscitude when Democrats are in power.

[blogbudsman]

Democratic Rectal Fist - cute. In preparation for established labeling, can we call our current president 'H' or pH, or just 'Aitch'. Actually I kid because I care. 'H' may turn out to be more moderate than McCain, if he can escape from the Pelosi/Reid menage-a-trois.

[Slartibartfast]

Did he really just work "preparation H" into a blog comment, or is that just me being in the right age bracket for that sort of thing popping out at me?

Figuratively speaking, I mean.

[Sebastian]

"It’s just as plausible that the resulting deficit will – for good or bad – make it far more difficult to pass anything really big in the months and years to come. "

Well if the deficit really is a problem, then it should make the passage of those things more difficult because it changes the cost/benefit analysis. And if it isn't a problem then it shouldn't make the passage of those things much more difficult because it won't change the cost/benefit analysis.

So you have to decide if you think decficts of the level you're talking about really matter.

Passing it now or passing it later isn't going to make the deficits go away. It sounds like you are advocating a "close our eyes and hope" method of analysis.

I'm not going along with that. It worked so well in Iraq.

[ThatLeftTurnInABQ]

Also, Setser notes the primary driver of the drop in demand for long term US bonds is the drop in demand for US *Corporate* Bonds. Which is pretty rational, given the past six months.

Sock Puppet,

Sorry, I forgot to link to the other Setser post regarding the Nov Tic data which fills in this picture (it is at Nemo's site, but I didn't link to it directly).

China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases.

and later he summarizes:

The big stories in the TIC data, it seems to me, are:

– The ongoing reallocation of central bank portfolios toward short-term Treasuries. That reallocation has been huge. Central banks held $$276.8b of t-bills at the end of September. They hold $427.2b at the end of December. And judging from the Fed’s custodial data there is every reason to think that total rose in December. Foreign central bank demand for safe and liquid assets rose at the same time as private demand rose.

Also note that although they haven't jumped just yet, the FOMC keeps making noises about wading in to purchase long-dated Treasuries if necessary. If market demand for those was stronger, they probably wouldn't be saying that.

Thus my conclusion that we need to finance the stimulus via the sale of short dated Treasuries, unless we want to start the process of the monetization of our debt (which is a whole nother Pandora's box).

Regarding Amity Shales on the other hand, I'm in agreement. Some pundits are best left forgotten.

[ThatLeftTurnInABQ]

publius,

von has been conspicuously present in comments trying to defend his thesis that the stimulus should be trimmed to remove longer term spending, but we don't seem to be hearing from you. Are you running up the white flag of surrender on your proposition to make it bigger, or is this just a generic case of not mixing it up in the comments as a matter of SOP?

[publius]

ha - no, it's a matter of chasing 2 small children around the house and trying to force food down them. ;)

I told gary this a while back -- I'm not as active in comments generally as I woudl like. it's just b/c something has to give b/w work and family and reading enough to stay on top of news, and I unfortunately don't always put in the time i should. i do try to read almost all the comments though -- though sometimes much later in the day. and i always learn good stuff from everyone.

so it's sort of a lame excuse, but that's the excuse

[Gary Farber]

Meanwhile: House Passes $819 Billion Economic Stimulus.

With no Republican support, the House approved an $819 billion stimulus plan that will serve as the cornerstone of President Obama's efforts to resuscitate the economy, an early victory for the new president but still a disappointment because of the lack of Republican votes.

The measure passed 244 to 188, with 11 Democrats and 177 Republicans voting against it.

The two-year economic package includes $275 billion in tax cuts and more than $550 billion in domestic spending on roads and bridges, alternative-energy development, health-care technology, unemployment assistance, and aid to states and local governments. It would also provide up to $500 per year in tax relief for most workers and more than $300 billion in aid to states for funding to help rebuild schools, provide health-care to the poor and reconstruct highways and bridges.

[ThatLeftTurnInABQ]

so it's sort of a lame excuse, but that's the excuse

No need to apologise, there's nothing lame about it. Raising the next generation is the most important thing any of us can do. Have fun with the kids!

[bedtimeforbonzo]

As with anything these days, Obama -- or his surrogates -- could do a better job selling his stimulus plan.

publius' Make It Bigger proposition made more sense to me after listening to CNBC's Jim Cramer today.

Cramer made the point that the portion of the stimulus bill set aside for infrastructure programs is so small that it won't even make a dent into fixing the country's building woes.

I mean, who doesn't want better roads and bridges? Newer schools and libraries? Workable sewers?

[Gary Farber]

"As with anything these days, Obama -- or his surrogates -- could do a better job selling his stimulus plan."

To who? It's already passed the House, and will pass the Senate. So who should he sell it to? You think all the Republicans need is a better selling job?

[bedtimeforbonzo]

To who?

Let's start with von.

[john miller]

btfb, The last I heard was that something like 60% of the public is behind the stimulus. That's higher than the approval for our going into Iraq the way we did.

He isn't going to convince everybody, particularly those who still believe that cutting taxes is a stimulus.

[russell]

For that reason, I’m leaning more and more toward ignoring the House Republicans and toward spending more time and effort to dramatically expand the infrastructure projects in there.

The stimulus passed the House with ZERO Republican votes.

Not 50. Not 10. Not 2. Zero.

Not one freaking Republican voted for the bill. IMVHO, Obama should no longer waste his time "engaging in dialogue" with the minority members of the House.

They're going to vote against anything that isn't exactly to their liking in every particular, and will probably vote against things that *are* exactly to their liking if they think it will give them something they can use to beat Obama about the head and neck.

So, you know, why bother. To hell with them.

The question of whether it's a good idea or not to take on more debt right now is an interesting one. But that isn't what the House vote was about.

A vote purely on the merits would yield at least a small handful of Republican votes. Even one, for God's sake. Somewhere in the House of Representatives there is a Republican who thinks passing the stimulus bill is, on the merits alone, a good idea.

There were zero.

They're not interested in fixing anything. They just want to score points. Screw them.

[john miller]

russell, I tend to agree.

The point that will try to be pushed is how Obama isn't really bipartisan because he didn't cave into Republican demands. However, I think after all the publicity of Obama reaching out to them and making some concessions, they will come across as whining little children, which is pretty much what they have been reduced to.

[Gary Farber]

Any Republican House member who had voted for the stimulus would have been pilloried by Rush Limbaugh tomorrow, and none of them can stand that.

[Gary Farber]

"The point that will try to be pushed is how Obama isn't really bipartisan because he didn't cave into Republican demands."

But he did.

Fat lot of good it did.

[bedtimeforbonzo]

"The last I heard was that something like 60% of the public is behind the stimulus."

In the face of record numbers of job losses and home foreclosures, I'd expect that to be so.

A strong majority supported October's $350 billion bank bailout, too -- hell, we were told not supporting it would condone bringing on this century's Great Depression.

My concern is, like the bank bailout, this thing is being rushed through in the name of doing something -- when the bank bailout showed it is essential to do something right.

CNN just reported that only $90 million of the bill's $550 million will go to the nation's crumbling infrastructure -- the crucial shovel-ready jobs we keep hearing about.

At the risk of sounding as if I am siding with the Republicans, their one-sided vote will look prescient if the Obama stimulus turns out to be pork-laden.

[bedtimeforbonzo]

How the House's partisan passing of the stimulus bill is playing overseas: London's Telegraph is saying Obama got bitch-slapped.

[Gary Farber]

"At the risk of sounding as if I am siding with the Republicans, their one-sided vote will look prescient if the Obama stimulus turns out to be pork-laden."

Can you describe how you'd define "pork" in this context, so we'd know what you meant by it? Because in my experience, that usually means some type of earmarks for specific districts, and so far as I know, there are none in this bill, so I'm wondering what you're referring to.

"CNN just reported that only $90 million of the bill's $550 million will go to the nation's crumbling infrastructure -- the crucial shovel-ready jobs we keep hearing about."

Billion. Billion. Not "million." "Only" $90 billion dollars.

Except here is the Senate bill:

[...] The biggest winner in the appropriations portion of the marked-up bill is infrastructure, with nearly $137 billion slated for improvements. That sum includes $27 billion for highways, $19.5 billion for schools, $9 billion to expand broadband Internet access, and $8.4 billion for mass transit.

Another $125 billion would go toward education, including $13.9 billion to increase the Pell Grant maximum award. Energy initiatives get $49 billion. Programs that protect those hit hardest by the financial crisis, including nutrition programs, child care, and social services block grants, make up $25 billion of the package. Meanwhile, $16 billion goes to health spending.

On the same day, the Senate Finance Committee passed its portions of the package by 14 to 9. That included one $69.8 billion amendment to the bill, a measure designed to protect more than 30 million households, mainly with incomes between $100,000 and $500,000, from the alternative minimum tax this year. Other amendments included tax credits for broadband in rural areas and more tax credits for investment in renewable energy.

In any case, the cost of the House bill is:

[...] After Democrats initially estimated their plan would cost $825 billion, the Congressional Budget Office announced this week that the total cost was $816 billion, with about 65 percent of that amount expected to be spent by September 2010. During debate, lawmakers added $3 billion for mass-transit programs.

[Gary Farber]

Also, picking out the Daily Telegraph as an example of how anything is playing around the world is precisely as useful as picking out the editorial page of the Wall Street Journal: you're picking the most Tory paper in Britain, and, oh, surprise, they don't like what Obama is doing, I'm shocked, shocked.

[liberal japonicus]

btfb,
thanks for that, if you want a laugh, check out the tag cloud on the right side of blog, 4 down under 'blog about'. If you aren't familiar with a tag cloud, the more a word is used as a tag, the larger it gets, providing a visual representation of what is tagged.

Interestingly enough, when I looked at the tag cloud this am (it was linked at TPM) Bill Ayers and Tony Rezco were just after Dan Quayle.

[bedtimeforbonzo]

Gary: I don't think pork has to be simply earmarks. As worthy as increasing the maximum Pell Grant award is, I'm not sure how that $13.9 billion is going to stimulate the economy and put the guy who just lost his job at Dell, Home Depot or General Motors back to work. Also, contraception initiatives -- antoher worthy cause -- may work as stimulus of a different sort. Jobs. That's what are needed. All the rest is pork and politics as usual.

[Gary Farber]

"Jobs. That's what are needed. All the rest is pork and politics as usual."

As it happens, no economist agrees with you, so I'd suggest more reading about how stimulus works.