President Obama’s stimulus proposal failed to garner a single Republican vote in the House yesterday. Their objections were many but were they legitimate? On balance, no; but neither were the defenders of the bill examples of reasonableness.

Objection 1: This bill contains pork barrel spending. So, what? The aim of the bill is to stimulate the economy. The problem with a project like the bridge to nowhere wasn’t that it was the result of an earmark. The problem was the bridge went nowhere. A bridge to somewhere might have been a very stimulative investment, but the funding for the bridge might still require an earmark to get passed.

Objection 2: This bill simply expands the government deficit. Yes, that’s the idea. At a time when private businesses can’t get credit to expand, and the economic conditions suggest contraction not expansion, government is the only economic actor that can loan itself the money. Additionally, state and local governments can’t run deficits and their tax revenues are way down given the falling price of real estate, taxes on which fund most local governments.

Objection 3: Obama’s stimulus package should contain more tax cuts and less spending. This is precisely wrong. A tax cut may or may not be spent in a way that stimulates the economy. It might be invested, which is good, but it also might be put into a savings account which does nothing for the economy. Government spending is, by definition, an intervention in the economy. Funding a bridge means workers will be hired to build it. Funding a tax cut means some people will invest in a company that might subsequently hire a worker.

Objection 4: We don’t know if it will work. This is true, we don’t know but critics (and defenders) should not overlook the important psychological effect of both the crisis and of this government effort to address it. People not only feel abused by the titans of industry whose excessive bonuses continued even while the same titans were driving their companies into the ditch, they also feel powerless and that is a crippling emotion that prevents the kind of confidence that will really turn the economy around. I do not know if this stimulus will jump start the economy. No one does. I do know that it was imperative that the instrument of public power demonstrate that we are not powerless. We may make a mistake in passing this bill, we may hit a home run. But, we are not powerless.

Are there no legitimate objections? Two jump out. First, the "Buy American" provision introduces protectionism into the bill. That is a separate debate and, given the history of the Great Depression and the role of protectionism in it, the requirement that the stimulus funds only use American-made products is one that requires greater scrutiny. I do not worship at the pagan altar of free trade, but I also think that negotiations that seek to raise standards on both sides of a trading partnership are more suited to both long-term growth and greater equity in our international relationships than a last minute addition to a bill like this one.

Secondly, it is a shame the stimulus does not more explicitly move the nation in a concrete direction on the two urgent but long-term goals of energy self-sufficiency and universal health care. Health care especially remains a drag on corporate payrolls throughout America and diminishes our ability to trade. And, it would be nice to see concrete examples of government funded efforts to provide renewable sources of energy, to see the bang for the buck, by directing more funds to high speed rail lines, wind farms, etc.

The Democrats now own the stimulus package. If the economy improves between now and the mid-term elections in 2010, Democrats will be able to take sole credit for the transformation. The Republicans are taking a huge risk: bipartisanship diffuses the credit and the blame. Even if the economy stays where it is, their posture of doing nothing is a tough selling point, not least when so many of their objections ring untrue.

 

Comments

Anonymous | 1/29/2009 - 5:21pm
This is the best summary of the pros and cons of the stimulus package that I've seen so far. Thank you
Anonymous | 1/29/2009 - 11:54am
This is one of the best thought-out and well-written critiques of the stimulus package that I've yet seen. I wish I'd written it myself!
Anonymous | 1/29/2009 - 11:28am
I would go even further regarding the inadvisability of tax cuts. Tax cuts on the wealthy fueled the speculative boom which drove up housing values, gas prices and stock prices. The last thing we need is more of the same. Given that the Chinese are thinking about reducing the financing of the debt, interest rates will surely rise as American investors buy more debt. We have two choices, continue to borrow from the wealthy or simply tax them, relieving our children of the obligation to pay the money back. (Actually, it could be argued that their children will have to pay the money back, since the poorest 20% pay little income taxes and have much of their payroll tax refunded to them).