Are You Nervous Yet?

If you weren’t nervous enough about the Obama team’s plans, David Brooks is sure to set you off on a round of nail biting. He explains the scope of what’s ahead:

In Thursday’s speech, he vowed to do everything at once. He vowed to throw the big things into the stimulus soup — tax cuts, state aid, road and bridge repair — but also the rest of the pantry. He proposes broadband projects, special education programs, a new power grid, new scientific research, teacher training projects and new libraries.

And if that seems daunting, untested and overwhelming to you, you’re in good company. Brooks concludes:

This is daring and impressive stuff. Obama’s team has clearly thought through every piece of this plan. There’s no plank that’s obviously wasteful or that reeks of special-interest pleading. The tax cut is big and bipartisan. Obama is properly worried about runaway deficits, but he’s spending money on things one would want to do anyway. This is not an attempt to use the crisis to build a European-style welfare state.

The problem is overload. Four months ago, no one knew how to put together a stimulus package. Now Obama wants to use it to rush through instant special-ed programs and pre-Ks. Repairing the power grid means clearing complex regulatory hurdles. How is he going to do that in time to employ workers in May?
His staff will be searching for the White House restrooms, and they will have to make billion-dollar decisions by the hour. He is asking Congress to behave and submit in a way it never has. He has picked policies that are phenomenally hard to implement, let alone in weeks. 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.

This sweeping, enormous legislative onslaught suffers from at least two problems. First, this sort of thing really hasn’t ever pulled us out of a recession. Second, it presupposes that an exquisitely balanced plan — with just the right sort of spending and just the right amount of taxes — can be divined and then slide through Congress unsullied and unaffected by base political concerns.

This is hubris squared. The problem with government-directed economies is that no economic guru is smart enough to duplicate or improve upon markets (yes, even ones subject to economic bubbles and excesses). And all the shovel-ready projects, health care “savings” and the like will all be subject to reams of government regulations, spools of red tape and heaping doses of irrationality, because it is, after all, the government. How this is going to help us grow the economy, which is what we’re trying to do here, remains a mystery. And then Congress will get its mitts on whatever plan (however clever it may be) comes out of the Obama team. And the bill will get worse — more arcane, convoluted, and expensive.

But I think something significant happened this week as people got down to talking about real (well, as “real” as a trillion can seem) numbers. The politicians, and maybe the voters, got a bit spooked. The cure could indeed be worse than the current predicament — especially if the “cure” is an iffy enterprise at best. We’re going to spend more than a trillion, very likely not get out of the ditch and still have to pay it off?

Perhaps everyone should stop racing around and think long and hard about this. In fact, that’s what Christina Romer, our soon-to-be head of the Council of Economic Advisors and her husband have done, Brooks tells us:

The Romers surveyed the recessions of the previous 50 years to try to reach some conclusions about what works. “Our central conclusion is that monetary policy alone is a sufficiently powerful and flexible tool to end recessions,” they wrote. Automatic spending policies like unemployment insurance have sometimes helped. Discretionary policies, like tax cuts and stimulus plans, have not been of much use. As they put it: “Discretionary fiscal policy, in contrast, does not appear to have had an important role in generating recoveries.”

The Romers briefly described how different administrations responded to recessions. All the administrations, Democratic and Republican, resisted large-scale fiscal stimulus plans. They didn’t believe they could time a stimulus package correctly. They didn’t trust Congress to pass the bills quickly or cleanly. They concluded that they shouldn’t be making policy in what Kennedy administration economists called “an atmosphere of haste and panic brought on by recession.”

That’s the most sensible thing I’ve heard all week.