Are We Sufficiently Stimulated?
By: Brandon Sherman
Eavesdrop on one of those classic arguments between a Lehigh student in the College of Business and Economics and one in the Arts and Sciences College, and you’re likely to hear the former extolling the virtues of post-graduation job security. This year, however, the battle lines aren’t so clear. A recession of epic proportions has the global economy hemorrhaging jobs and Lehigh students of all stripes scrambling to fill out grad school applications.
The post-election story was that we just had to wait until January for Bush to leave office, and then we’d begin a steady road to economic recovery. Well, January has come and gone, and signs pointing toward the economic yellow brick road have been chopped down by local vandals. Three weeks into the Obama presidency, we find ourselves in the midst of a bitter partisan battle over the proposed economic stimulus package.
While media pundits run circles around themselves trying to figure out whether or not Rush Limbaugh is leading the GOP, it’s helpful to note that the stimulus debate will have real consequences, especially for those about to enter the workforce, or join the unemployment club, as the case may be. Amidst the confusion it can be tough to separate the snake-oil salesmen from the real solutions. Here’s a look at the arguments being made, who’s making them, and, most importantly, who’s right and who’s wrong.
The partisan breakdown of the stimulus showdown is simple. Republicans have come out decrying the bill as a Democratic holiday shopping list. They argue that public spending should be replaced with tax cuts. They oppose any measures that grow government and increase the deficit. To Democrats, this is a tone-deaf solution. When paranoia and uncertainty guide our economic decisions, tax rebates end up under the mattress before they see circulation in the economy. Monetary policy won’t be of much help either. Interest rates are already so low that any further cuts would effectively require banks to pay people to borrow their money.
Businesses will continue to close, and the unemployment rate will rise above the current 7.6% without a stimulus that addresses the colossal shortfall in aggregate demand. That’s why, for Nobel Prize winning economist Paul Krugman, no package is big enough, and the Obama administration’s attempts to appease centrists by lowering the price tag are counterproductive. By his math, a recent Senate compromise that shed $86 billion in spending from the bill will cost the economy 600,000 jobs over the next two years. Plus, state and local governments will be forced to cut essential services, and our severely neglected infrastructure will continue to decay.
In another sense, the intricacies of the stimulus package are barely consequential. When a Nobel Prize winning economist’s wrath can be spun into a commendable bipartisan achievement, you can be sure that the bill probably lacks a foundation in robust economic analysis. As usual, political posturing and media narratives are guiding the negotiations.
In that arena, the GOP finds itself adrift at sea, with little strength of leadership or coherence of ideas. That’s why their one rallying cry that remains relevant, the call for tax cuts, seems to be cutting through the noise. Throw in a few cabinet appointees who “forgot” to pay their taxes, and the Republicans suddenly have a convenient, if intellectually vacuous, set of talking points to circulate. It is true that the high cost of this stimulus plan will sting for generations to come, but no credible economist is saying we have much of a choice.
On the other side of the aisle, Democrats are still trying to manage their newfound majority. They likely overestimated the strength of Obama’s coattails in authoring a sloppy bill that they hoped would be rushed to his desk with minimal scrutiny. The result was a tough call for the President, who has to hew closely to his post-partisan campaign pledge without getting trampled on by the GOP. To his credit, he’s been more accessible and accountable to this process in the last week than the previous President was in the last year.
But Obama’s critics are already declaring the bipartisan experiment an abject failure. Those critics who define bipartisanship as the ability to get right wing House Republicans to support massive government spending projects are being deliberately obtuse. Maybe within the Capitol there hasn’t been much of a bipartisan awakening, but there has been a real change in the relationship between the executive and legislative branches. Instead of using executive power and legislative majorities in concert to bludgeon the minority party into submission, Obama has acted as a mediator between competing interests in Congress. He issued House Speaker Nancy Pelosi a public flogging when he demanded the removal of family planning provisions that she had publically defended the day before.
As a result of the new dynamic, this is more of a centrist package than most have acknowledged. It first made headlines when the rollout in the House featured more tax cuts than most pundits had expected. And sure, it’s $800 billion, but when the forecasted shortfall in demand is in the neighborhood of $2 trillion, this stimulus could be so inadequate that another round of spending may be necessary. And all that “pork” that Republicans are hyperventilating over? It amounts to less than 1% of the entire package. Again, this is a political battle, not a substantive clash of conflicting economic ideologies.
One bipartisan point of agreement seems to be that time is of the essence. Administration officials and independent economists alike are stressing that swift action ought to be prioritized over nitpicking. One such economist, Jeffrey Sachs, was recently announced as Lehigh’s 2009 commencement speaker. It’s refreshing that Sachs is no market fetishist; he has been a champion of progressive economic policy initiatives, including a rollback of the Bush tax cuts on the wealthiest Americans, infrastructure spending, aid to state and local governments, and a strengthening of the social safety net to lessen the impact of this recession on poor families.
For many Lehigh students, especially those who roam the halls of Rauch Business Center, he articulates a perspective that is often drowned out by our preponderance of supply-siders. As Sachs sends the Class of 2009 from the ivory tower to the mean streets, his words should lend some clarity to the way we view our nation’s economic plight. Let’s just hope politics doesn’t get in the way.
