Wednesday, February 18, 2009

Dear Republicans: It's time for Policy, Not Politics

The American Recovery and Reinvestment Act (a.k.a. the stimulus bill) is now the law of the land. I have read every public version of this bill, and let me tell you, it fluctuated dramatically as the House and Senate grappled with it. While the end result is relatively positive, the process of enacting this bill was a sad example of partisan divisiveness.

It is interesting to compare the politics behind this bill’s passage to a rough historical parallel. In 1933 Congress passed the National Industrial Recovery Act (NIRA), creating executive regulatory power over private banks, and enabling massive spending through the Public Works Administration (PWA).

Gail Radford, a historian who specializes in the New Deal, wrote in her 1996 book, Modern Housing for America: Policy Struggles in the New Deal Era:

“When Roosevelt sent Congress his National Industrial Recovery bill…he stressed that it should be passed immediately with no changes so he could move forward straightaway with his recovery program. Probably an even more compelling reason for insisting on no changes was that, since the NIRA was a complicated bundle of compromises he knew it might totally unravel once Congress started tinkering. The deteriorating economic situation along with the new president’s enormous popularity enabled him to achieve essentially what he wanted. The NIRA passed through both chambers virtually unchanged in less than a month. Since Congress was under great pressure to act quickly, there was little debate on the proposed legislation.”

I guess history does not always repeat itself. Sigh.

Today, in 2009, we are embarking on a period of attempted economic recovery with one political party standing stubbornly in opposition. However, in reality, this bill was a pretty good balance between liberal and conservative economic strategies, interest groups, and regions of the country. The bill holds a combination of tax relief, loan and grant programs, and direct spending.

The argument made by Republicans in Congress that the bill is too large, and is a “spending bill,” is ridiculous. Economist Dean Baker wrote on his blog: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple.”

The Republican opposition is overtly about politics and not policy. Why do I say this? Because most major conservative economists have said that the Recovery Act’s approach is basically the right one. Yet Republicans in Congress keep asserting positions that are not supported by economists or policy makers of any political leaning.

Bruce Bartlett, who was policy advisor to Presidents Reagan and George H.W. Bush, believes that a combination of short-term stimulus spending and long-term tax credits is the answer. And he argues in his column in Forbes that we have no time to wait:

“The problem is that fiscal stimulus needs to be injected right now to counter the liquidity trap. … [I]f much of the stimulus doesn't come online until next year, when we are likely to be past the worst of the slowdown, then crowding out will greatly diminish the effectiveness of the stimulus, just as the critics argue.”

Fortunately, the goal of the Act is to get projects started quickly over this year and next. Some of the measures are not going to kick in until 2011, but much of this money will be pumped into the economy much sooner.

Edward Glaesser, a Harvard professor and one of the nation’s most conservative economists, disagrees with Bartlett on one point. He supports investing in infrastructure, but is critical of spending it on “shovel-ready projects,” arguing that major infrastructure spending is good, but needs more long-term planning. However, overall, he is supportive of the approach in the Act. He asserts in an op-ed in the Boston Globe:

“What will minimize the risks of a fiscal fiasco? There are three plausible plans: new tax cuts for middle-income Americans; investing in infrastructure; and providing aid to states.”

Well... the Recovery Act does all of these things. The final legislation has $288 billion for tax relief, $144 billion going to state and local governments, and $111 billion for infrastructure.

Certainly both Glaesser and Bartlett have criticisms of this legislation; however, their criticisms were not reflected in the rhetoric argued by Republicans in Congress. The Recovery Act turned out to be a pretty sound compromise. The fact that not a single Republican in the House voted for it showed a preference for divisive partisanship over a true will to develop a balanced solution.

It’s clearly about nothing but politics, and we don’t have time for that kind of pettiness with the economy in such bad shape.

Overall, despite the delay and the divisive politics, the Recovery Act turned out fairly well. The major criticism I have is that it is not big enough, and that there is far from enough money for rail transit. Economist Dean Baker queries, “There is a question of whether the spending will go to areas that will provide benefits, long-term or short-term, to the economy…” In this regard, the American Recovery and Reinvestment Act is far from perfect. However, popular wisdom says that additional stimulus bills will follow. Stay tuned.

No comments: