Mistakes and lessons of the Obama stimulus package

Mistakes and lessons of the Obama stimulus package

- in Progressive Voices

Despite the efficacy of the Obama Administration's package in preventing a full-scale Great Depression Number Two and cutting the unemployment rate by a significant factor, it is widely regarded as a political and policy failure. In fact, it can be even regarded as toxic to be too associated with it.

This chain of events did not surprise me, but the scale of the reaction was much larger than I expected. I thought that this might be a minority reaction, and not a response of a significant portion of the electorate.

My worries were expressed in two articles I wrote during November of 2009. I stated a strong concern that the Bush Recession was becoming an Obama problem and that more needed to be done, regarding aiding and persuading the people that the President was talking all necessary action. Couple this state of affairs, with the easier-to-succeed strategy that conservatives had to execute, "just say, no," the chronic problems that the Administration had in generating awareness and excitement about its accomplishments in general, and the difficulty that the average citizen has in grasping Keynesian economics, then you have a tough set of cards to play. 

Sadly, there were other mistakes as well. The major one was packing the stimulus package with too many long-term investments. At first, I thought that this approach had some clever angles.  President Obama took office with a major recession going on and few funds to keep his promises and make the sorts of public investments that he wanted to, regarding education , electronic health data, research and development, and so forth.

But it turned out, that things were so bad, that there was the opportunity to use the stimulus package as a vehicle for doing what he wanted to do anyway (public resources permitting.)  Obviously, given the crisis, this would have made his political base happy, as well as the Democratic Congress (who, largely, crafted the legislation). Moreover, it was much easier to execute this strategy in our ideologically conservative body politic. (Americans tend to be philosophic conservatives and liberal pragmatists.) 

A deep recession and slow job recovery backfired. Support from independents fell. Eventually, taking this course meant that Republicans were able to paint the package as tax-and-spend, liberal business-as-usual. Moreover, a lot of the spending would take quite a while to happen, since many of the investments were more competitiveness programs and projects, not economic stabilization initiatives. Conservatives could even claim that the many might take so much time that they would turn out to be pro-cyclical and not-counter-cyclical.  It could even be argued that they could turn out to be inflationary, if the Administration was successful in their efforts to spur recovery was really happening in the same time frame of the longer term investments.

Not intending to be a smarty-pants Monday morning quarterback, I still believe that something more successful could have been launched.  (And in spite of the fact that I liked many of the long-term investment alternatives  and viewed them as needed on their own grounds.  It might turn out that a decade from now, this approach was a big success.) 

Let's start with a few political points.

  • For a stimulus package to be popular, its effects must be visible. If you have to do a statistical study to prove it is working, your position is already lost.  Citizens and their kin and friends economic position must be improving or starting to turn around for you to earn any political capital for a jobs program.
  • The only number that really matters is the rate of joblessness. Miles of roads re-paved does not cut it.  You will get a few brownie points for maintaining unemployment benefits as they run out, but what people really want is a job.
  • Americans and the unemployed will only cut you so much slack.  They are very impatient and are not policy wonks.

Consequently, the package should have replaced most, if not all, of the longer-term investments (even culling the public works projects since they are expensive and slow to implement) with more anti-recessionary fiscal assistance to states and cities to keep schools, the police, and other critical public services largely intact, tax incentives for work-sharing, support for youth conservation corps in rural and urban settings, hiring subsidies for business (both large and small), increased availability of money for post-secondary education, incumbent worker retraining, transitional public service jobs, and microenterprise. I would also throw in direct tax cuts for households (temporary payroll tax holidays for individuals) and direct grants  — a few thousand of taxable monies for families.

Maybe next time.