Should Progressives Shun the Economic Recovery Package?

Some of my fellow progressives have expressed disappointment with the economic recovery package that President Obama just signed into law. Forgive me, but I don't share it. I view the package as an outstanding piece of legislation - all the more remarkable when you consider that it came less than 30 days after the new administration took office.

The critics basically say that it's a missed opportunity because it doesn't presage a new era of public investment akin to the New Deal.

This charge misses the fact that many of the New Deal's transformational polices did not come in one early legislative package. Rather, they took several years to craft and enact. Social Security, unemployment insurance, and the National Labor Relations Act that opened the door to labor organizing by big industrial unions didn't come until President Roosevelt's third year, as part of what historians call the "Second New Deal."

In fact, one of FDR's first initiatives to address the Depression -- the National Recovery Act --got the economics wrong by essentially creating cartels to fix prices at higher levels than the market would otherwise bear and pricing goods out of many consumers' reach. Obama's recovery package gets far higher marks on this score by putting money in the hands of people who will spend it, thereby stimulating the economy.

Moreover, the new law puts building blocks in place to make progress on some of the toughest problems of our time -- soaring health care costs and global warming -- by investing considerably more than in the past in comparative effectiveness research, health information technology, new energy technology, and energy efficiency. We will need to do more on these fronts, but the measures in the law provide a good starting point.

Even when acknowledging these investments, some critics say the package should have been bigger. Perhaps. But, the law's allocations for road and bridge building, energy efficiency investment, and the like pretty much hit the limits of what the government can spend well in the next couple of years. Had the package grown, the growth probably would have come in low bang-for-the-buck tax cuts, some of which were dropped when the package shrunk in size in order to secure the needed Senate votes for passage.

In its final form, the package largely reflected the central goal of Obama and his economic transition team as they crafted its main elements in November and December -- to finance high bang-for-the-buck stimulus measures to address the economic emergency. In so doing, the package stands some misguided policies of recent decades on their head.

For example, the plan recognizes that in a deep recession like this one, stemming job loss entails creating more demand for the goods and services that businesses produce -- and that the most effective ways to do that are to put money in the hands of hard-pressed low- and moderate-income families that will spend it (rather than save it) and to prop up public-sector spending for services that benefit the public. The new law does both in spades.

Its tax cuts are quite progressive, even after accounting for its relief from the Alternative Minimum Tax (which mainly benefits people with incomes over $200,000). In fact, the law's tax cuts alone will lift 2.3 million low-income working Americans, including 1 million children, out of poverty --and that's before factoring in the law's strong and highly stimulative unemployment insurance and food stamp provisions.

The law also provides strong fiscal relief to help states moderate the depth of their own budget cuts, tax increases, and lay-offs that would further injure the economy and squeeze the recession's victims.

Furthermore, the law downplays general business tax cuts, which don't work well in a recession. Firms won't retain or hire workers because they get a tax cut if no one will buy the goods and services that the workers would produce. Contrary to widespread impressions among some progressives, only 1 percent of the package goes for general business tax cuts. (There are additional business-related tax cuts for activities such as alternative energy development.)

To be sure, the law is not perfect. It should not have included the Alternative Minimum Tax relief, and it should have included more for state fiscal relief, school construction, and health care coverage for low-income laid-off workers. Unfortunately, these shortcomings were the price of securing the necessary 60 votes in the Senate.

But, compare this package to those enacted during past major recessions, even after months of work. I've been in Washington for 36 years and have witnessed at least four previous downturns. This is by far the best designed recovery package of the last third of the century, and probably the best one over a much longer period.

Robert Greenstein is Executive Director of the Center on Budget and Policy Priorities.

Comments

[steamboatbob]

Greenstein is right on target. Too bad someone on the right isn't talking sense in a similar way to the Republicans. When both thre far right and far left sides are against something, it is probably pretty good.

[dadw5boys]

The price of recovery is the same.

Pay it and keep people working on something usefull or pay it to feed them and house them with nothing usefull to do.

Either way it will be expensive.

Either get results for the money or choose not too.

[Erdgeist]

The guiding principle behind any stimulus package is how much bang for the buck do we get, otherwise called the multiplier effect. Tax breaks for the rich or business has about zero for a multiplier effect. They end up hoarding it.

But what also needs to be done is to examine the impact that U.S. corporations, who off-shore, have on the GDP which from what I can tell is significant. Addressing this problem, Paul Craig Roberts writes:

"Clearly, it is a mistake for the US government and economists to think of the imbalance as if it were produced by Chinese companies....The imbalance is the result of US companies producing their goods in China and selling them in America....When a company shifts its production from the US to a foreign country, it transforms US GDP (US Gross Domestic Product) into imports. Every time a US company offshores goods and services, it adds to the US trade deficit."

Now comes the kicker.

"US labor is simply removed from production functions that produce goods and services for US markets and replaced with foreign labor. No trade is involved. Instead of being produced in America, US brand names sold in America are produced in China."

President Obama needs to put a stop to the labor arbitraging practice which is responsible for the loss of millions of good jobs. It is not free-trade.

Source: http://onlinejournal.com/artman/publish/article_2320.shtml

[Clem2]

There is good and bad in the simulus bill.

But what I want to know, and maybe this is not the simulus bill but the bank bailout bill, if we, the taxpayers have paid for the banks-- we've kept them afloat-- we essentially own them, why don't we kick out the management that ran them into the ground and replace them?

The only reason I can think the gov doesn't do that is that Geitner, etc., are way too tied to Wall Street.

Fine.... buy the banks, restructure them, put in new CEO's and staff, let them get moving again and then teh govt. can get out of the bank business.

I feel like we're in a Banana Republic.

The CEO's made off with millions/b­illions...­. then we've bailed them out more billions they kept and won't loan.

Are we idiots or what?

Why isn't anyone in jail?

[kozy]

Clem2, you feel like you are in a bananna republic because you ARE. The majority of people haven't recognized that so far.

[Aaror]

I agree for the most part with this article, but I disagree with your statements on the Alternative Minimum Tax.
The AMT is broken because it was written with no adjustment for inflation. This means that a tax initially intended to only hit the top 10% of the population has been hitting more and more people. The tax is a 26% tax (going to 28%) on pretty much all income, the normal deductions all go away for AMT.
The problem is that once the tax was written, any attempt to fix it "costs," trillions of dollars in future tax revenue.
After all, 20 years from now, we will all pay 26% income tax, changing that back to the progressive income tax bracket system will cost the government a lot of money.
But it needs to be fixed, and the congressional efforts to fix it a bit here and a bit there when they can should be applauded, not derided.
Besides, one of the objectives of this bill was to "sound big," to reassure businessmen and other nations that we were doing our part, slipping this in helped make our number bigger without really costing us anything.

[ataxpayer2]

Mr. Greenstein is correct. This is a good package but no matter what, there are people who will never be satisfed. The saying of, you cannot please all of the people all of the time is true. President Obama will find he may please some of the people some of the time but he will not please all of the people all of the time. Especially not the Republicans. They are so set in their ways they would rather see the party go down then try to cooperate or compromise. This grand old party is trapped in an old, outmoded ideology, contemptuous of any compromise and so bitter about the loss of power. They seem more interested in critiziing the Democrats than in rescuing the nation from the worst economic crisis since the 1930s, a crisis which they helped make along with the disastrous Bush administration. They are crying about this "terrible" plan and claim they will not take a penny from it---well that remains to be seen. I'll bet the "conservative" southern states will be the first ones in line--or should I say, on the take.

[joebhed]

Wow, it's really nice to have someone come aboard and explain...­.......umm­mm, the "package".
There's a damn good reason for everything.

Actually, neither the content of the Stimulus "package", nor its price tag, bother me a bit.
It's the revenue side that is problematic.
And not progressive.
It's about borrowing the money.

Borrowing the money to fund our economic recovery is unnecessary, inflationary and, to a large degree, self-defeating.
The people need the support to the economy that the "package" will deliver, and they deserve it.
The American people did not cause the global financial crisis that is unfolding.
It was brought about by the banks.
And the bankers.
The debt-money system of the private federal reserve bankers is broke.
We need a new money system.

It's time to put the banks out to bank pasture, where they will be free to privately lend and risk their own money, like most people think they do today.
If we install 100 percent reserve banking, we would instill confidence in the banking system.

The United States Treasury should issue the entire hundreds-billions in funding for the economic recovery of this country.
The Treasury should issue that money debt-free.
Like Lincoln did.
And JFK under executive Order 11110.

We do not need to borrow it from bankers, or anyone else.
It is payable upon the full faith and credit of the American people.
It's OUR money system.
Its OUR money.

Greenbacks.

[leftLibertarian]

A better deal would be to recover all bailout money and to give each tax payer a $150,000.00 debit card.

[Aaror]

$150,000 times 100 million taxpayers (a lowball estimate) is 15 trillion dollars, where would we get that money?
Even putting it the way you meant, would giving every American a $10,000 debit card and increasing the national debt by 1 trillion (increasing the debt of every taxpayer by $10,000) really help?
This plan makes jobs, the "tax cut," or "bribe taxpayer," plans just play with the books and try to trick people into thinking they have more money by borrowing from their kids.
If we are going to borrow a trillion dollars from our children, do you want to tell them it was for roads, power lines, and bridges, or do you want to show them a fur coat you bought with the money you borrowed from their future earnings?
Why can't the Republicans be as fiscally conservative as the Democrats?

[hillvoter]

We should not have supported this bill. Their is only $30B (less than 4%) in the bill for rebuilding infrastructure the way they did in the 30's. Too much of the bill is political payoff at the expense of bipartisanship. Everyone is in the same boat and we should encourage participation by the other half of our society. Just because we don't agree with someone doesn't mean they don't have some good ideas.

[dcdanny]

Of course we were right to support this bill. We're not going to have resources to rebuild anything if the economy craters. This stimulus was triage, and the bulk of it either rescues foundering state governments or gets money quickly into the hands opeople who (a) desperately need it and (b) will spend it.

[Henry]

Could you please enumerate the "political payoff" that you are upset about. I thought 40% was tax cuts which make republicans orgazmic. I know a lot, a lot goes to states with republican governors and that has categories, but political payoff? Please do enlighten us. (are you talking about Blagojevich?)