Commentary: Joan McCarter

How Much Stimulus is Enough Stimulus?

By Joan McCarter, 2-03-09

We now know that this new political world we live in is neither so new, nor post-partisan. With no Republican votes in the House, and Republican opposition solidifying in the Senate, it’s time for President Obama and the Democrats to stop the elusive chase for a bipartisan bill, and to refocus on making this the best bill possible, make it a bill that will put people back to work and stabilize incomes. Solving this economic crisis isn’t just good policy, it’s much better politics than bowing before the shrine of David Broder style bipartisanship. Bipartisanship is a lot like compromise that way--it only works when both parties are negotiating in good faith. I don’t think we need any more demonstration of the Republicans’ lack of good faith in this process.

The Republicans have succeeded in turning this into a political football, and the Dems have been playing along. It’s as if they are some how insulated from the news. As if they didn’t get the message that 100,000 jobs were lost last week alone. As if they don’t know California is almost out of business. As if they don’t know that the bottom of this economy is hanging on by a slim thread, ready to drop. And as if they don’t understand just what a gift the 2008 election--and Obama’s incredible popularity--is. Right now, they’ve got an unprecedented mandate to enact the kind of package that the nation needs.

The question that needs to be asked now is what kind of package that is. That was one topic of discussion among the economists and analysts at Davos last week as reported by Arianna Huffington at Huffington Post. One answer is that it needs to be bigger.

“I support the stimulus package,” Van Jones, author of The Green Economy, told me. “But when I look at it in its entirety, I fear that we may soon look back and say that we missed a huge chance to go bigger and bolder. After all, there were three flaws with the old economy that has crashed: it favored consumption over production; debt over smart savings; and environmental damage over environmental renewal. Some parts of the stimulus package seem to be more of the same—trying to prop up the old, failed economy. That strategy simply won’t work—but we could waste a lot of money and time trying. Instead, we need a new direction for our economy. You can’t jump halfway across a chasm—you just end up falling into the abyss.”

Rick Levin, president of Yale and an economics professor, echoed Van Jones’ call for “bigger and bolder”: “First of all, there’s a question of magnitude. The overall stimulus is about 6 percent of GDP. We did not exit the Great Depression without a stimulus that amounted to about 25 percent of GDP—we called that World War II… The second problem is with the mix… Only $335 billion worth goes to job creation—that’s about 3.5 million jobs, about $100,000 a job. Three-and-a-half million jobs is only two percentage points on the unemployment rate. That’s not enough. I would get rid of the tax cuts and use the entire package for job creation… There are lots of great public works projects that would be well worth supporting. And, in the near term, what about CCC-type activities that put people to work right away, cleaning up public parks, weather-stripping homes, offices, schools, government buildings?”

As for the tax cuts that are being dangled in front of recalcitrant Republicans to try to bribe them into helping, the tax cuts that supplanted about $22 billion of transportation funding, at least one Nobel laureate warns of their ineffectiveness:

President-elect Barack Obama should avoid tax cuts in his new stimulus package unless they are linked to investment, Nobel Prize laureate Joseph Stiglitz wrote in the Financial Times.

“We need to link handouts to changes in behavior,” said Stiglitz, who won a Nobel Prize in 2001 for his work on the economic value of information. “Household tax cuts, except for possibly the poorest, should have no place in the stimulus. Nor should business tax breaks, except when closely linked with additional investment.”

We need jobs, and we need hundreds of thousands of them. The intermountain west, with the exception of Nevada, has been a little slower to feel the economic hit than the rest of the nation, but it’s settling in now. Jobless rates are increasing throughout the entire region. Nevada has the highest foreclosure rate in the nation, it’s number 3 in unemployment, and number 5 in food insecurity. Montana’s unemployment rate jumped half a percentage point in just a month’s time. Idaho’s jobless rate is higher than it’s been in 20 years at 6.4 percent--13,000 jobs were lost there from November to December. Colorado’s unemployment level has reached a five-year high, at 6.2 percent. Utah has drastically slashed the state budget, trying to keep the state afloat as unemployment rises. Even Wyoming’s boom is slowing, though it still has net job growth.

There’s no way to tax cut ourselves out of this mess, not when our infrastructure is crumbling beneath us, when we’re still hemorrhaging billions and billions in Iraq and Afghanistan, with unemployment offices unable to keep up with the demand, and record numbers of Americans relying on food stamps, 31 million people, about 1 in 10 of our population. (In that CNN story there’s this remarkable aside: “There is some debate about whether giving people money to spend on groceries is a valid form of economic stimulus.” Let them eat cake?)

In times like this, it’s worth paying attention to the words of the one person who was able to grasp the enormity of his situation, and start the nation on a path out of the Depressions. FDR, in 1932:

It is well within the inventive capacity of man, who has built up this great social and economic machine capable of satisfying the wants of all, to insure that all who are willing and able to work receive from it at least the necessities of life. In such a system, the reward for a day’s work will have to be greater, on the average, than it has been, and the reward to capital, especially capital which is speculative, will have to be less. But I believe that after the experience of the last three years, the average citizen would rather receive a smaller return upon his savings in return for greater security for the principal, than experience for a moment the thrill or the prospect of being a millionaire only to find the next moment that his fortune, actual or expected, has withered in his hand because the economic machine has again broken down.

It is toward that objective that we must move if we are to profit by our recent experiences. Probably few will disagree that the goal is desirable. Yet many, of faint heart, fearful of change, sitting tightly on the roof-tops in the flood, will sternly resist striking out for it, lest they fail to attain it. Even among those who are ready to attempt the journey there will be violent differences of opinion as to how it should be made. So complex, so widely distributed over our whole society are the problems which confront us that men and women of common aim do not agree upon the method of attacking them. Such disagreement leads to doing nothing, to drifting. Agreement may come too late.

Let us not confuse objectives with methods. Too many so-called leaders of the Nation fail to see the forest because of the trees. Too many of them fail to recognize the vital necessity of planning for definite objectives. True leadership calls for the setting forth of the objectives and the rallying of public opinion in support of these objectives.

Do not confuse objectives with methods. When the Nation becomes substantially united in favor of planning the broad objectives of civilization, then true leadership must unite thought behind definite methods.

We’re about to find out if we have that true leadership in Washington. But it would be easier for them to lead if we took more of FDR’s advice and made them do it.

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