Obama’s stimulus flawed?
STIMULUS IN HINDSIGHT: DID OBAMA’S AGENDA SLOW ECONOMIC RECOVERY? By Jill Lawrence
WASHINGTON, D.C. (Politics Daily) – America can’t shake its recession blues, even if the recession is officially over. The painfully slow recovery is typical in the wake of a financial crisis like the Wall Street collapse, economists say. Still, the hard times are so persistent that I have been feeling twinges of guilt about President Obama’s stimulus package. Many of Obama’s ideas for a new economic foundation ended up in that package: expanded broadband coverage, competitive grants for innovative schools, computerized medical records, more science research, more investment in clean energy.
I wanted all that, and the stimulus would miraculously make it possible. Using it as a vehicle, we could lay those foundations for growth in the second month of the Obama administration. But lately I’ve been second-guessing that rush to turn campaign pledges into reality. The jobless rate has been so high for so long. Was it a mistake to shoehorn Obama’s longer-range economic plans into a package intended to jump-start the economy? If that money had been applied to more traditional stimulus, with shorter-term impact, would more people have jobs? Would economists be less concerned about the potential for a double-dip recession?
After talking to five economists, I can give you the bottom line: Spending the money differently probably wouldn’t have changed our circumstances much. But the economists took diverse paths to that conclusion, and they have varying opinions about where to go from here. The $787 billion stimulus package, passed in February 2009, was about one-third tax cuts to people and businesses, one-third aid to states and localities, and one-third Obama’s domestic agenda. Many economists and the nonpartisan Congressional Budget Office credit the stimulus with ending the recession last year.
Some say the unemployment rate would have been up to 2 points higher without it. But the rate is still high – 9.5 percent in July and the August number, due Friday, may edge higher.
What might have been
A bigger stimulus would have been better, several economists told me. “If there was an obvious problem with it, it was sheer size,” said Josh Bivens, an economist at the labor-backed Economic Policy Institute. As for the allocation of the money, he said that given the need for speed and tough negotiations for 60 votes in the Senate, “it was hard to be too disappointed in how it was structured.”
Other economists offered wish lists for what might have been.
David Madland, director of the American Worker Project at the liberal Center for American Progress, would have liked to see the administration “pour money” into Americorps, Teach for America and caregiver jobs. “The moment for that kind of major investment was right at the beginning,” Madland said. “If they had pushed for much greater public service and direct care jobs, I feel pretty certain they would have gotten them.”
Mark Zandi, chief economist at Moody’s Analytics, said he would have added money for more temporary tax cuts, probably a payroll tax holiday. “We have it now but it’s so small it’s not very effective. That would have given us a bigger kick,” said Zandi, who advised Republican presidential nominee John McCain in 2008. Zandi called it a mistake to put infrastructure spending into the stimulus bill. “It’s good policy and we can use the jobs, but it’s not an effective way of getting money into the economy quickly,” he said. Nor was spending on Obama priorities such as education and broadband “particularly helpful” in putting money into the economy fast, he told me.
“You could make strong cases” that they are good long-term policy, he added, but they aren’t effective stimulus and “they also confuse people with respect to what stimulus really is.” Douglas Holtz-Eakin, a former McCain adviser and former CBO director, said the country could have gotten the same economic results from a $300 billion to $400 billion stimulus centered on payroll tax cuts. He agreed that Obama’s domestic policy agenda was inappropriate in the stimulus bill. Those programs have to do with “what we want to look like as a nation” down the road, he said, and their merits and costs should have been debated after the financial crisis passed.
Economist Rob Shapiro, a former Commerce undersecretary who advises Democrats, was an architect of the stimulus. He said the Obama campaign asked him what an innovation-driven stimulus package would look like and he outlined pretty much what we got. Does he regret the domestic-policy component? “Absolutely not,” Shapiro told me. “Those are still going to be productive long-term investments.” He does regret, however, that the initial stimulus “wasted” money on small-business tax cuts that he says don’t work in bad times, and did not include a loan program for homeowners facing foreclosure.
The administration instead gave incentives to banks to rewrite mortgages, but Shapiro said very few homeowners were creditworthy enough to get the new loans. Some 1 million foreclosures are anticipated this year and housing prices are expected to continue to decline into 2011. By one estimate, 20 percent of homeowners are underwater – their homes are worth less than their mortgages.
Jill Lawrence is a PoliticsDaily.com Senior Correspondent and former national political correspondent for USA Today. She has also written about politics for The Associated Press, The Boston Globe, The Atlanta Constitution and other publications. Lawrence has covered every presidential campaign since 1988. Columbia Journalism Review named her one of the top 10 campaign reporters in the country in 2004.