Stimulus, What Stimulus? (Updated)

Here is Paul Krugman’s very initial take on the Senate stimulus package (emphasis added).

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

Every state in the country is facing serious cuts in services over the next few years. In some cases, this means reduced health care or unemployment benefits. In many, layoffs of state employees. California is among the hardest hit in the country, and had its first unpaid furlough this past Friday. The furlough has the effect of lowering employees’ salaries by over 9%. All of these cuts and layoffs have the effect of pulling more money out of the economy, worsening the recession.

The bill is bad, and the blame for it largely rests with President Obama. Certainly, House Democrats deserve blame for larding the bill up, giving Republicans the chance to attack it, and the Senate deserves a healthy dose of blame for passing this milquetoast monstrosity. However, President Obama’s failure to lead on the stimulus is the real problem. He could, and should, have presented a list of demands to the House and used his serious popularity to force it through relatively unchanged. An additional future stimulus, negotiated more fully in the Congress, could have been passed in six months or so, giving Congress the opportunity to pursue its pet agendas.

A large part of his failure to lead is his obsession with bipartisanship. He attempted preemptive compromise with Congressional Republicans, which weakened the bill from the very beginning. He refused to make an aggressive, public case for a large, spending-oriented stimulus, giving Republicans cover to 1) vote against it and 2) hold it hostage. And, finally, he backed Congressional Democrats into a corner where if they didn’t weaken the bill to fit Republican sensibilities they would be seen as going against the highly charismatic and popular leader of their party. A bad move all around. I only hope than in 6 months we have the opportunity to revisit a second stimulus package – this one better designed. I also hope that California’s government lasts that long.

Update: Brad DeLong has the list of spending cut from the stimulus. What the hell was the Senate thinking?

Published in: on February 7, 2009 at 4:40 pm  Leave a Comment  
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