The State of the Stimulus

by publius

I’m sensing a bit of Democratic anxiety – maybe even panic – about the stimulus bill.  And while I’m not exactly thrilled with how things are going, I think everyone needs to step back, chill, and look at the bigger picture.

First, the stimulus bill remains one of the most aggressively progressive efforts in some time.  Yes, things could be better.  But there are lots of great spending priorities in there – and even the tax cuts are directed in a much more progressive direction.  So even assuming people like Collins and Nelson cut $200 billion out (and they won’t get close), it’s still a fairly big and very progressive bill.

But if you still feel down on Obama at the moment, take a second to imagine what “stimulus” would look like under a McCain presidency.  Essentially, there would be a ton of corporate and rich-people tax cuts coupled with far smaller spending projects and far less aid for states, unemployment benefits, etc.  McCain would threaten to veto everything until he got pretty close to what he wanted – and Democrats would ultimately cave because (1) they’re chickens; and (2) their short-term media strategy (i.e., controlling news cycles on a dime) is terrible.

So let’s not get too frantic – even the hypothetical worst-case scenario isn’t terrible.  And it could have been much worse – we could have had a similarly bleak economy with a President whose policies aren't even designed to fix it.

Also, I don’t think recent events undermine Obama’s outreach strategy.  It's not really directed at Republican legislators anyway.  To be grossly cynical, its purpose is to keep his public approval numbers up.

But all that said, I do think the Obama team is making several mistakes – and I’ll go through them one at a time.

First, the Obama camp underestimated how much daily effort would be needed to sell this thing.  The stimulus is a necessary and noble effort – but it won’t sell itself.  You have to go out and make the case for it aggressively each day -- each news cycle. 

Interestingly enough, this same problem – indifference to winning news cycles – popped up a lot during the campaign.  The Obama team preferred the long-term – organizing, plotting, etc.  But as for the day-to-day stuff, they never were, frankly, very good at it.  (In this respect, the financial meltdown spared them a fairly brutal October).

Second, they’re deluding themselves if they think Republican votes will buy them political cover down the road.  This bill is going to be owned by Democrats whether 1 or 100 Republicans ultimately vote for it.  If things go well, Democrats will get credit.  If they don’t, then Democrats will get blamed.  Them's the cards.

Think back to Iraq.  The GOP was eventually punished for supporting Iraq even though it was a bipartisan effort (bipartisan in cowardice, but bipartisan all the same).  Sure, maybe a cleaner distinction on Iraq would have helped in 2004.  But in 2006 and 2008, the old Dem votes didn’t matter anymore.  Iraq was a GOP war, and they got blamed for it.  Gephardt’s 2002 Rose Garden dance was basically forgotten by the public.  The same will be true for the Democrats on the stimulus.

The point, then, is that Obama needs to resist cuts that will do substantive damage to the stimulus.  If dropping a few cosmetic provisions (e.g., film industry tax credits) will help, fine.  More votes are better than less votes, other things being equal. 

But more votes are certainly not better than less if the GOP is allowed to significantly reduce the stimulus punch.  The bill is big enough that I’m not too worried yet about the proposed cuts (which I think are mostly for theater at this point) – but it’s always possible that herd mentality could kick in, causing Democrats to panic.  If they were frightened into demanding truly large cuts, it would be the worst of all possible worlds for Obama – a big expensive bill that’s not big enough to work.

Finally, I think Obama is missing a moment to make a larger positive case for government.  There’s more at stake here than just the stimulus – this may be the great post-Reagan moment.  But I’ll save all that for a future post because it deserves a more lengthy discussion.

Comments

[shah8]

I think a bigger problem is the lack of surrogates in Congress pushing the bill agressively. The long term problem is that Obama has to bring the media to heel. They are quite obviously trying to Carter him. All clean up, no progressivism, and a Republican in 4 years.

[Hartmut]

Has senator Joe Palpatine made a statement about the bill yet? Would be just like him to threaten to be the deciding vote in the senate.

[Brett Bellmore]

The problem is that it's a massively unpopular bill, much like the first stimulus package. Even in the midst of a financial meltdown, with suffering all over, they can't get a majority of the public to believe this bill is going to do more good than harm. (Which shows some good sense on the part of the public, I think.) And while it was possible to lard down the first package with enough pork to pass it in the face of public opposition, can the government still afford that much pork, given the increasing trouble they're having finding anybody willing to buy their paper?

You could respond by stripping the bill down to the simplest possible form, unambiguously just a stimulus package, and nothing more, but the Obama administration's view is already on record: A crisis like this doesn't come by every day, you've got to take advantage of it.

"There’s more at stake here than just the stimulus"

Exactly, and that's the problem. If it were just a stimulus package, it would already be passed.

[hjk]

Maybe I'm too inclined to give Obama the benefit of the doubt right now, and I agree with the bit about dems ultimately owning this bill, but I think there's another way to look at the bipartisan gesticulations.

Think back to Obama's statement about wanting 80 votes in the senate for the stimulus. On it's face, it was completely ridiculous, so much so that I can't imagine he ever really believed he could get this. So what was the point then? (1) It sent a signal about his bipartisan intentions while at the same time (2) setting the bar for bipartisanship so high that the effort was bound to fail. So if you imagine Obama and his folks thinking several moves ahead, the whole thing sets up a move to take clear democratic ownership of the stimulus--although it hasn't happened yet, Obama can now get up and say "I tried to work with the GOP, and will continue to try, but all I'm getting back is obstruction and right-wing ideology." He can, in other words, cut off the potentially endless substantive wrangling about the contents of the bill, which would be a lot harder if more republicans were engaged in a sincere effort to amend and compromise (as opposed to them trying to gut the whole thing and denouncing it no matter what).

Of course, this theory means that Obama will have to eventually get tough, both in smacking down the republicans and in making an explicit case for the core substance of the stimulus. And by eventually, I mean very soon.

[rea]

even assuming people like Collins and Nelson cut $200 billion out (and they won’t get close), it’s still a fairly big and very progressive bill.

There’s more at stake here than just the stimulus

At this point, I don't care if it's progressive, as long as it works to stave off a complete crash of the economy (although prgressivity and stimulative effect go hand-in-hand). An economy with 30-40% unemployment is not a progressive result, and that's where we could wind up in very short order if we continue to screw around playing political games. Maybe it's because I'm older, and knew people who went through Great Depression I first hand--but if you think it can't happen again, that we've somehow developed an immunity, you're fooling yourself.

[Creamy Goodness]

Obama is missing a moment to make a larger positive case for government.

Government for government's sake, big for big's sake... as always, you are the quintessential statist.

[Kevin Donoghue]

The problem is that it's a massively unpopular bill....

This is untrue.

[Ben Alpers]

1)Publius: Obama is missing a moment to make a larger positive case for government.

Creamy Goodness: Government for government's sake, big for big's sake... as always, you are the quintessential statist.

CG's "restatement" here simply doesn't follow. Making the larger positive case for government is suggesting that government can do good, not that it always does good, much less that bigger is better.

For "quintessential statism" see the policies of the just-departed administration, especially w/r/t civil liberties.

At this point, Republican arguments in favor of small government or against statism can be assumed to be in bad faith.

2) The long term problem is that Obama has to bring the media to heel. They are quite obviously trying to Carter him. All clean up, no progressivism, and a Republican in 4 years.

I'm not entirely sure what the meaning of the verb "to Carter" is in this sentence, but I'm pretty sure that Carter Cartered himself. Also, the media will be predictably awful to the Obama administration. If Obama hopes to "bring [them] to heel," this is going to be a long four or eight years. My guess is that Obama is smart enough not to be banking on the media giving him any assistance whatsoever.

3) Even if this bill passes (and I think it's better than nothing....which I didn't think about TARP, fwiw), this has already been a huge missed opportunity. For example, this may be the best chance in our lifetime to invest in a modern rail network. But there implacable opponents of mass transit both within the administration (Larry Summers) and among the Democratic leadership in Congress. So that will not happen.

[TJ]

What Ben said. Though I would tend to substitute "last chances to ensure future prosperity" for "missed opportunities."

[KCinDC]

Democrats would ultimately cave because (1) they’re chickens; and (2) their short-term media strategy (i.e., controlling news cycles on a dime) is terrible.

When have Democrats been trying to control news cycles? They certainly aren't trying for this bill.

[TJ]

Woops. It looks like Roubini's bailed on the stimulus.

Roubini

[Creamy Goodness]

Making the larger positive case for government is suggesting that government can do good, not that it always does good, much less that bigger is better.

Publius disagrees:

Government is good — that’s what progressives must argue. That’s the long-term strategy.

At this point, Republican arguments in favor of small government or against statism can be assumed to be in bad faith.

I'm not a Republican.

[gwangung]

Publius disagrees:

Government is good — that’s what progressives must argue. That’s the long-term strategy.

I don't think so.

Nothing in that says anything about size or what proportion or what areas.

But that says more about your prejudices than anything else.

[KCinDC]

"Government is good" is not the same as "Government always does good."

[John Miller]

CG, that statement still has no endorsement of big for big's sake which is the statement you used.

Saying that government is good also is not denying that it sometimes does not do good.

Obama's own credo, which I subscribe to is that it is not the size of government that matters, it is the effectiveness of government and that being big for big's sake is definitely the wrong way to go.

[Nell]

Maybe it's just because it's what I really needed to hear someone say, but this is one of your best posts here, publius. Thanks.

I think the point about daily news cycles is especially important. Legislative battles aren't like campaigns, where there's one day down the road where the whole shebang is won or lost. Slippage in early legislative battles means starting from a disadvantage in later ones.

Evidence of disarray/over-whelmedness at the press office may play into this as well. Certainly Gibbs is not as much improvement over the robotic talking heads of the previous administration as one could wish. But more importantly, he's also not risen to the (admittedly daunting) challenge of planning for, staffing, training, and managing a press operation of the scale that the Obama WH turns out to require.

Press was the weakest link of the campaign, but it didn't matter anywhere near as much then.

Axelrod and Emanuel would seem to be chiefly responsible for the so-far-craptacular quality of message and message coordination with members of Congress.

[ThatLeftTurnInABQ]

I’m sensing a bit of Democratic anxiety – maybe even panic – about the stimulus bill. And while I’m not exactly thrilled with how things are going, I think everyone needs to step back, chill, and look at the bigger picture.

We have nothing to be concerned about but Concern itself.

As I see it the big problem with the stimulus bill in Congress right now is that nobody knows exactly what will happen as a result of passing or not passing it, and it is very lopsided with respect to political upside and downside. Realistically it is 4-5 times too small to turn the economy around. So the best that can come from it is that instead of getting Great Depression 2.0, we only get a brutally hard recession.

If you are a Congress person who voted yes on the stimulus, how do you take credit for that? Gee Mr and Mrs Voter, I'm sorry that you lost your job and your car and you had to move back into your parent's house (at the age of 42) for 2 years before you found another job, but look on the bright side, at least you didn't have to stand out in the freezing rain on a bread line for 6 hours a day - because I vote for the stimulus!

And that is the good news version.

On the other hand, if the stimulus really bombs, then the Dems will own it and the GOP will clobber them with it for the next 20 years. And memories of George W. Bush will help about as much as, oh say, memories of Richard Nixon helped in 1980.

In other words, here we are at 1976 all over again, as far as the Congressional Dems are concerned. Thus nobody wants to stick their neck out on this one.

I'm afraid that Obama is going to have to roll this rock up the hill all by himself. A few weeks ago it looked as if the stimulus plan would pass by general acclimation requiring little in the way of political captial from the WH. No longer - we aren't in Kansas anymore.

[TJ]

On the other hand, if the stimulus really bombs, then the Dems will own it and the GOP will clobber them with it for the next 20 years. And memories of George W. Bush will help about as much as, oh say, memories of Richard Nixon helped in 1980.

I suspect if the stimulus really bombs big, the GOP will be the least of the Dems worries. Feudal societies don't really need political parties.

[ThatLeftTurnInABQ]

Legislative battles aren't like campaigns

Nell, that whole comment was spot on. I think you are right about the press coordination especially. They seem to be off to a very rocky start.

Another problem is it may be just too early into the admin for them to effectively coordinate with Congress on a big complex bill. How many big bills normally pass in the month of a new admin, after a transition between parties?

The executive branch isn't even all the way staffed with Obama's people yet, and I have to wonder how much is going on behind the scenes similar to the disarray we've already heard about at Gitmo (no organized case files) - the WH may be the world's largest archeological dig right now as they try to sift thru the ruins of the Bush years, sort out the stratification layers (Malfeasance I, II, and III, the Incompetance revival period,...) and catalog it all, before figuring out how to start putting the pieces back together again. So I think this is a WH that isn't ready to lead on Capitol Hill just yet, and our best hopes for getting the stimulus bill through this quickly were depending on Reid and Pelosi.

[br]

You know, I was with Publius a week ago, but frankly these progressive arguments aren't selling me. All this crap about missed opportunities for expanding the government make me shudder. This bill is about stimulus and trying to guestimate what is going to have the most targeted impact to reverse the downturn. This is not about trying to, in one fell swoop, institute the New New Deal. Roosevelt didn't do that in 10 days.

The bottom line with all of this is that economics is not science. Paul Krugman is not always right. We have no idea if this stimulus bill will work. We have no idea if the recession will get much worse or will just get better. We have no idea!

The bill will pass. It will probably be a decent approximation to the first bill. We will probably be able to pass some more legislation after that. It will employ new people, and provide extended benefits to those in need. And it will be another accomplishment on a very long and awesome list of accomplishments of Obama's first two weeks. (What, no SCHIP post on ObWi?)

So stop screaming about media narratives and your pet infrastructure projects that are getting cut. You're all beginning to really annoy me, and I'm on your side!

[Kevin Donoghue]

TJ: Roubini

No, Buiter. Good article though, so thanks. Not sure whether to agree with it. Sure, GWB was careless of America's fiscal credibility, but did he really piss it all away?

[russell]

Government for government's sake, big for big's sake... as always, you are the quintessential statist.

Here, try this on. When publius says:

Government is good — that’s what progressives must argue.

consider it in the context of:

The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'

Maybe that'll help sort it out for you.

I think Obama should call it a day on trying to win Republican support for the stimulus. They won't vote for it unless it has every damned thing they want in it, and nothing they don't want. Even then, they'd vote against it, just to shove it up Obama's nose.

Then, when the economy tanks and we see breadlines again, they'll blame Obama for it.

I'm with br, I wish the bill was just stimulus, and left the progressive agenda for another day.

Fund the extension of unemployment benefits so they'll last two years, put a 6 or 12 month moratorium on residential foreclosures for folks who are out of work or can't pay due to hardship, pour a ton of money into state and local government to fund operations and prevent layoffs in the public sector. You know, people like teachers and cops. Fund emergency assistance for food, heat, and housing expenses, and assume a 10% unemployment number when you do it, because we may well get there.

In other words, keep the freaking wolf from the door.

Maybe mild middle class cuts, but I don't think that needs to be the emphasis. If you make enough money to be significantly affected by an income tax cut, you're not the person that needs the help right now.

You could probably spend a couple hundred billion just on that stuff, and you'd keep a lot of people warm and fed, and in the public sector, employed. I'm not trying to favor public sector folks here, it's just that this is NOT the time to be cutting back on public services.

We can rebuild infrastructure later. Not years later, months or maybe a year later. But we don't need to push all of that through in week 2.

My two cents, FWIW.

[ThatLeftTurnInABQ]

No, Buiter. Good article though, so thanks. Not sure whether to agree with it. Sure, GWB was careless of America's fiscal credibility, but did he really piss it all away?

It isn't all GWB's fault. This cake has been baking since the 1980s.

The last question is a good one, IMHO. Problem is, I'm not sure we will know the answer until either (a) the downturn is over and we made it thru with our credibility more or less intact, or (b) the trapdoor under our feet opens swiftly and with little warning, aka a currency crisis or dollar valued asset crisis (there is debate over which form it might take).

Buiter comes right out and says something which is currently taboo in the US:

I have spent a good part of my career as a professional economist working on developing countries and emerging markets - in South America, in Central and Eastern Europe and the former Soviet Union and in Asia. Increasingly, I find it helpful to analyse the crises afflicting the US and the UK as emerging market crises - perhaps they could be called submerging markets crises.

The unspeakable truth here that Buiter is pointing out (Yves, too in highlighting the IMF study of past banking crises) is that in structural terms our current banking crisis (and sadly, our response to it thus far) isn't much different from those which have plagued developing countries. But we dare not say that aloud because the spirits of US exceptionalism might be angered at any suggestion that we might have something to learn from the past experiences of Argentina or Indonesia or other global riff-raff like that. For us, The Rules Are Different.

[Hogan]

But we dare not say that aloud because the spirits of US exceptionalism might be angered at any suggestion that we might have something to learn from the past experiences of Argentina or Indonesia or other global riff-raff like that.

Really? I don't think the Congressional Republicans could make it any clearer if they renamed themselves the IMF and called their proposal "structural readjustment." Neo-liberal shock therapy is exactly what they have in mind for our internal Third World, or, as we used to call them, "working people and the middle class." (Although I don't know how much more financial deregulation would even be possible at this point).

[Bernard Yomtov]

And while it was possible to lard down the first package with enough pork to pass it in the face of public opposition, can the government still afford that much pork, given the increasing trouble they're having finding anybody willing to buy their paper?

Interest rates look pretty low to me. Ten year treasuries are under 3%. Doesn't sound like there's too much trouble.

You could respond by stripping the bill down to the simplest possible form, unambiguously just a stimulus package, and nothing more, but the Obama administration's view is already on record: A crisis like this doesn't come by every day, you've got to take advantage of it.

What would your "stripped down" stimulus bill look like, Brett? If you want stimulus you have to spend. That's a big part of what's so infuriating about Republican opposition on the grounds that "it's a spending bill."

Of course it's a spending bill. That's how you stimulate the economy. You don't do it with business tax breaks or reductions in the estate tax.

[spockamok]

Pub said - "Sure, maybe a cleaner distinction on Iraq would have helped in 2004. "

Nope. Would that it were so. But that's not where the country's head was at the time. Them's the people, them's the media.