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.