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Not Very Stimulating

Megan McArdle goes after the stimulus package, which even its defenders contend won’t spend the bulk of the money for eighteen months:

But in the context of stimulus, eighteen months is a long damn time.  Eighteen months is, in fact, about how long it takes a stimulus to work through the system.  If for no other reason, that ought to be a little worrisome for progressives because that means the stimulus won’t have even 2/3 of its full effect until after midterms.  It is simply not “even truer” that conservative intransigence is causing worse delays than the focus on spending the money on massive new projects.  It’s not even as true. It’s not true at all.  No matter how you assess the relative benefits of spending to tax cuts, tax cuts could be 95% out the door in April.  So could many other kinds of rapid government spending–preventing fare cuts on transit systems, sure, but also repainting all the faded yellow lines on highways, or repairing park benches, redecorating government offices, etc.

Why does speed matter so much?  Because the primary argument for fiscal stimulus right now is not that we need to alleviate the pain of a temporary economic contraction–that’s what things like beefier unemployment insurance, food stamps, and housing assistance are for (the first and the last are very good ideas, by the way.)  The argument is that we’re in danger of a liquidity trap–that we could end up at a permanently lower level of output, as described by Keynes and popularized by Paul Krugman in the story of the Capitol Hill Baby Sitting Collective.  (Though it’s worth noting that the ultimate solution was to double the money supply . . . )

.    .      .

Though you wouldn’t think it from the really quite shocking incivility emanating from the pro-stimulus side, the empirical evidence that this works in a large industrial economy like ours is basically nonexistent.  The problem is, we have very, very few examples to test on:  America during the Great Depression, and Japan in the 1990s.  And neither America nor Japan managed to stimulate their way out of their troubles.  You can argue–and many do–that this is because we, and they, didn’t stimulate enough.  That may be true.  But unless you can forward test your theory, it’s a just so story . . . as we just painfully found out about the “It was all the Fed’s fault” narrative of the 1930s banking collapse.  There is no excuse for calling people who question your highly theoretical model fools and charlatans.

Because President Obama appealed to the brainier pundits, stocked his cabinet with “smart guys,” and talked a good game about directed spending and bipartisan legislation, many expected something better than the House Democrats’ embarrassingly un-stimulative bill. The tactic of the Obama administration, like all administrations that don’t much want to debate the merits of their proposals, is to attack its opponents as being uninterested in the well-being of the public or recalcitrant for partisan reasons.

You hear the echo of so many other White House spinmeisters when White House press secretary Robert Gibbs declares:

I think the spending in this bill will create jobs. It will put people back to work. It will get this economy moving again. Some people might not want to do that. The president believes we face an economic crisis that doesn’t allow us the option to turn our back on that happening.

Yes, those mean Republicans simply want people to remain unemployed.

There are three risks here for the Obama team: First, some Democrats may start getting nervous and won’t walk the plank unless Republicans do. We saw that Tuesday when Rep. Paul Kanjorski (D-Pa.) said in a C-SPAN appearance that Democrats have “lost our way” and “shouldn’t be pressed by silly deadlines” to rush a bad bill to the President’s desk. Much like his Republican colleagues he argues:

“In order to get it right, we have to spend time and analyze how much is going to hit the street as fast as it can hit the street and I don’t think we’ve done that. I think, to a large extent, many of the parts of the stimulus are programs that are going to take years and years and years to accomplish …”

Second, the bill might not “work” — or even provide the appearance of doing much of anything. The recession drags on, unemployment spikes, and all we have to show for it is a huge deficit. The responsibility will rest with the President and the Congressional Democrats. The voters will not be pleased.

And finally, the patina of bipartisanship is fading fast. President Obama is cordial and polite to his opponents, but he doesn’t do what bipartisanship demands — cross his own party to draw the other side into a deal. There is nothing unusual in governing almost exclusively from the President’s own side of the aisle. That’s what Presidents George W. Bush and Bill Clinton did, until they lost their Congressional majorities. But it ends when your governing majority thins. Moreover, it is not the stuff of historic, transformational politics. It is really nothing new.

We will see whether the Senate works its will on the bill and fashions a more effective and bipartisan approach. Those rooting for an effective President and a new governing majority better hope the Senate does just that.


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