Tag Archives: stimulus bill

A Sign of the Times

Posted on by

It is a sign of the polarized times in which we live that partisans of different stripes can look at the same objective indicators – persistent and increasing unemployment—and come to radically different conclusions about what is to be done. The Republicans see proof in the unemployment numbers that the original stimulus package was ineffective and misguided. The Democrats see it as a sign that the original package was not enough and that we need another one.

Because I like to cast myself as a moderate, let me split the difference. I think the original stimulus package probably was beneficial. It was always unrealistic to think that it would prevent unemployment from going above 8%, but it is equally unrealistic to believe things would be better now without it.

Yet I do not believe another package is what we need for two reasons. The first is that the problem with the original stimulus plan is that the money has not been spent fast enough (mainly because too much of it went for pent up Democratic spending priorities rather than “shovel-ready” projects). So a much better plan would be to reprogram some of the original package toward projects that will spend money more quickly. Helping state governments avoid layoffs might be a good place to start. The second reason that I’d oppose another stimulus bill is that I think unemployment numbers may not be a good indicator of where the economy is going or whether the first package worked. As we observed in last recession (for reasons we do not quite understand), employment and wages only started improving after the economy had recovered. So throwing another batch of stimulus at an economy that may be already recovering would not be prudent.

On the Virtues of Strategic Bipartisanship

Posted on by

President Obama has been roundly criticized for making such demonstrative efforts to woo Republican support and having his efforts rewarded with only three votes and a weaker stimulus plan. Although it would be hard to argue that his post-partisan strategy paid short term dividends, I believe that it was the right approach over the long run.

In evaluating the strategy, we have to compare it to some other approach. It seems that the only other option to compromising would have been to “play chicken” with the Republicans. He could have presented exactly the plan he wanted and dared them to filibuster it. The Republicans almost certainly would have done so and defended themselves with the argument that a left-wing president was trying to ram his agenda through Congress. So the net result may well have been a delayed stimulus package and possibly new doubts among centrist voters about the president’s ideological proclivities. Moreover, the president may well have had to compromise anyway to secure cloture.

So instead, I think the president took a very politically shrewd approach. He courted and wooed Republicans and conservative opinion makers. He pledged to work with them. He transformed much of the stimulus into the only policy instrument that Republicans believe in: tax cuts. Yet, 98% of the Republican in Congress voted against. So who looks like extremists now? It will be much harder for Republicans to run against Obama as a leftwing extremist and easier for him to run against them as unreconstructed Hooverites. Of course, the Republicans will still cry out that socialism is on the march, but I think it will work even less well than it did in November.

So is there any evidence that I’m right and Obama’s critics are wrong? I think the Clinton healthcare debacle shows exactly how the counterfactual would have played out. The Clintons decided to pursue what they viewed was the right policy and hoped to use the Democrat’s numerical majority to enact it without compromise. This approach made it easier for Republicans to attack the plan as complex, bureaucratic, socialized medicine. The failure of Clintoncare and the perception that Clinton’s policy views were outside the mainstream contributed to the Republican sweeps in the 1994 election.

Ironically, the Republicans are still playing by the old script. Only time will tell whether Obama’s bipartisan ad lib will change the storyline.

P.S. Tim Groseclose and I formalize a similar argument here (JSTOR access required).

Catching Up

Posted on by

Because I gave several talks in the UK last week, it has been some time since I updated the blog. Events have unfolded so quickly that it seems like an eternity. So let me play the lightning round to catch up.

Taxing Appointments

I have to say I’m fairly shocked at how quickly the promised smooth transition unraveled over tax and ethics problems. Stuff happens so Richardson’s withdrawal didn’t seem like a big deal in the big picture. But Obama’s vaunted vetting process was supposed to weed out annoying distractions like tax evasion. Is evasion too strong a word? For Geitner, no. He failed to give the U.S. government money that the IMF explicitly gave him to pay U.S. taxes. What did he think the extra money was for? Daschle’s case is more complicated, but only slightly. Unlike Geitner, it may be that no one ever explicitly told him he had top pay money on his perks. But a senator who wrote tax law ought to have known better. Assuming that Killefer’s only indiscretion was $900 in D.C. unemployment tax, I have much more sympathy for her. D.C., like many states, treat families with nannies as a small business and require not just social security taxes but payments into disability and unemployment funds. From experience, I know it is almost impossible to comply without a professional accountant. But Obama couldn’t push all three nominees and hers was the least important (I’m really not sure what a Chief Compliance Officer is supposed to do.)

Hitting the Ground Running

Several years ago Rose Razaghian and I published a chapter in an edited volume analyzing how quickly presidents make their first appointments to high executive office positions and how quickly the Senate confirmed them. Our argument was that increasing partisan polarization had slowed both processes. Early on I thought the Team Obama was going to reverse the tide and move more quickly than recent presidents. Just eyeballing things, I’m pretty sure that I was wrong. In a week or so, I hope to produce a report card detailing exactly how Obama is doing.

The Stimulus Package

I have very mixed feelings about the stimulus package. I’m generally sympathetic to the idea that now is the ideal time for the U.S. to make very significant investments in infrastructure, education, and energy conservation. But that is not what this package looks like. First, it has two many small tax cuts that seem likely to be saved rather than spent by consumers. Some tax cuts are very desirable, however. I would especially like to see a cut in payroll taxes. Those taxes are very regressive so lowering them would quickly get money in the hands of people most ready to spend it. It also makes sense on tax equity grounds. But a hodge-podge of new credits and deductions just lowers revenues and make the tax system more complicated. Nobody will be able to spend in anticipation of a tax cut that they can’t anticipate. The projects that the bill includes also don’t seem to be the sort that I want to put on my son and daughter’s credit card. I’d be happy to tell them that they will have to pay up big for a bunch of stuff that is going to make their lives better. But I don’t see a lot of those things in the package.

Post-Partisanship

President Obama is taking heat in some quarters for reaching out to Republicans and getting so few votes to show for it. Nevertheless, I still think it was the right thing to do. First, he obviously has to get some votes in the Senate. Second, I think there may still be political rewards for having offered the hand and putting the Republicans in the position to spurn it. After all, the ultimate goal of “post-partisanship” is not to make nice, but to reclaim the center and build a permanent majority. In fact, I think he might have done more to give at least a few Republicans a stake in the House version of the bill. By securing only that the two most non-germane programs (family planning and sodding the Mall) were dropped, he gave Republicans the opportunity to continue to say they were ignored.

Protectionism

I’m certainly not alone in thinking that one of the biggest long term fears is that the financial crisis will rekindle economic nationalism and protectionism. Certainly those pressures were evident when the House version of the stimulus bill included a “Buy American” provision. If we go down that path, other countries are sure to follow. Protectionist sentiment has also flared up significantly in the UK. There have been several unauthorized “wildcat” strikes protesting that subcontractors at a UK power plant plan to use foreign workers (in this case Spanish). The union claims that the foreign workers are intended to undercut wages. The foreign companies have intimated that there are concerns about the productivity of British workers (not the least of which is their penchant for illegal strikes). In response, there have been rolling sympathy strikes leading to labor unrest similar to that 1970s. So Gordon Brown’s government has not given into striker demands, but protectionist sentiment seems certain to grow there, here, and everywhere else.

Amending the Constitution

Given my ranting about gubernatorial appointments to fill Senate vacancies, I have to profess support for Russell Feingold’s proposed amendment to require special elections. My only concern is that amending the Constitution is (rightly) hard and would take several years even if successful. The way I see it, its in the interests of the voters of each state individually to make this change. So states should just do it themselves and not wait for the amendment. (P.S. The negotiations over Judd Gregg’s replacement were just as objectionable as what went on elsewhere.)

On Repealing the Law of Gravity

Posted on by

This analysis by the Associated Press points out the difficulties associated with living up to President Obama’s pledge that the stimulus bill will be earmark free. The lede:

President Barack Obama’s ban on earmarks in the $825 billion economic stimulus bill doesn’t mean interest groups, lobbyists and lawmakers won’t be able to funnel money to pet projects.

They’re just working around it — and perhaps inadvertently making the process more secretive.

This should come as a surprise to few political scientists. The idea that legislators or presidents could completely eschew political criteria in making spending choices is almost as plausible as the thought that Congress could pass a law directing a river to flow uphill.

Although earmarking, the practice of placing explicit spending instructions in bills (often without much notice or debate), has received enormous attention, political scientists have long understood that such provisions represent but a minor part of congressional influence over spending decisions. As Doug Arnold demonstrated in Congress and Bureaucracy, congressional influence is just as likely to come from two different sources. The first is the spending formulas that are written into legislation. While such formulas may appear neutral on their face, they are carefully crafted to direct spending in ways to maximize political benefits. The second is the inherent desire of bureaucrats to please those legislators who control the purse strings. Therefore, even if spending decisions are formally delegated to agencies, political considerations may still be very important in how the money is spent.

So banning or limiting earmarks can only result in a minor redirection in the river’s course. It cannot stop the water. Moreover as the AP piece points out, shifting spending decisions from earmarks to formulas or bureaucrats (or mayors or governors) may lessen transparency and accountability.

I have little doubt that earmarking has led both to corruption and the undue influence of some groups. But it has struck me that banning the practice is a cure worse than the disease.