September 19, 2008
On Obama’s Stimulus: Don’t Look Back, Forge Ahead to a New Century of Prosperity
Last week, Obama announced his stimulus package, a plan to spend nearly 800 billion dollars on infrastructure projects, modernizing schools and health records, expanding clean energy production, providing much-needed relief for state budgets, and extending tax cuts to 95% of working Americans.
By most standards, this is a big stimulus plan that could do a lot to bolster confidence, increase consumer spending and unfreeze credit. And yet, as Paul Krugman put it last week,
"To close a gap of more than $2 trillion -- possibly a lot more, if the budget office projections turn out to be too optimistic -- Mr. Obama offers a $775 billion plan. And that's not enough.
... The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job."
Krugman has taken great pains with his columns recently to explain why a stimulus package on the order of a trillion dollars or more is called for, and why the numbers Obama is talking about now are not close to sufficient. But where Krugman sees economic under reach, his fellow Friday Times columnist David Brooks sees political over reach:
"The conventional advice for presidents is: focus your energies on a few big things. Obama just blew the doors off that one.
Maybe Obama can pull this off, but I have my worries. By this time next year, he'll either be a great president or a broken one."
On the surface, it would seem that Brooks is correct--normally, a honeymoon period is not adequate cover for something so politically audacious. But on this issue, Brooks is stuck in the past. Much of the Democratic caucus representing moderate districts needs to see economic recovery as soon as possible, and liberal Democrats want to see Obama spending on good progressive causes. If anything, there has been a degree of political backlash from Democrats in congress that Obama is not doing enough.
So why is Obama planning a stimulus bill that falls short of what the economy needs?
The answer to this question seems to be the conventional wisdom that these projects must be "shovel ready"--in other words, spend as much money as possible and create as many jobs as possible as soon as possible. Anything that isn't shovel ready might not yield its peak economic benefits until more than two years from now, reducing the timely impact of the stimulus.
But economists are suggesting that this downturn will last much longer than two years--the Congressional Budget Office recently reported that we are in the midst of the worst recession since World War II. Perhaps it is time to discard the language of "jump-starts" that is impeding the path to true economic revitalization. Maybe now is not the time to limit ourselves to simple shovel-ready stimulus. Maybe it's time to start making big, long-term public investments in the areas that are essential for a prosperous, healthy, and equitable 21st Century in America. Invest in crucial necessities like clean energy, health care and education reform, and infrastructure and modernization projects like a smart grid and broadband. And let's not be limited to the immediately obvious but also invest in essential areas like spurring innovation and expanding educational services.
The goal of a "stimulus" is to put the economy back on the path it was on before the downturn started. But this should not be the goal of Obama's economic plan--to return us to the time when college grads went to Wall Street to make a quick buck by trading back and forth on dubious mortgages. It's time to stop looking backwards to 2007 and instead look forward, towards the new century still unfolding before us.
It is not easy to see what the future holds, but there are ways to prepare this country for it nonetheless. Krugman noted this week that one dollar of public investment can yield one and a half dollars of GDP. And that means that next week, when Barack Obama takes office, he can work to pass an economic revitalization plan that doesn't just create 21st Century schools and laboratories and grids and health information systems, but also lifts our economy out of recession and puts us on track to build a new American and global century of prosperity, health and democracy.