About That Stimulus
Lawrence Summers, who as a senior adviser you would have to think speaks for Barack Obama on economic issues as much as anyone else, has an op-ed urging that the President-elect err on the side of too big rather than too small a stimulus.
As difficult as these conditions are, however, the Obama administration also inherits an economy with great potential for the medium and long terms. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national challenges and put our economy on a solid footing for years to come.
In this crisis, doing too little poses a greater threat than doing too much. Any sound economic strategy in the current context must be directed at both creating the jobs that Americans need and doing the work that our economy requires. Any plan geared toward only one of these objectives would be dangerously deficient. Failure to create enough jobs in the short term would put the prospect of recovery at risk. Failure to start undertaking necessary long-term investments would endanger the foundation of our recovery and, ultimately, our children's prosperity.
One of the biggest problems for civilization as a whole is a failure to understand the big picture and engage in long-term planning. In the political arena this is particularly acute. But crises like we have offer the opportunity for long-term advancement that can secure our economic future. We need increased union membership because it's the greatest way to increase wages and expand the middle class, providing a foundation for broad prosperity. The most stable societies in the world with the highest economic growth have high concentrations of union membership. We need health care reform because our industries cannot compete with countries who take care of health care costs, and because the soaring prices will bust budgets far into the future. We need a new energy future because climate change is unsustainable and because alternative energy and green jobs can be the linchpin to a needed industrial base for the economy.
It also looks like Obama will insist on a middle class tax cut, which was a campaign promise, as part of the stimulus. In a revenue-neutral scenario where the Bush tax cuts for the wealthy are rolled back, that makes a certain amount of sense, making the tax code more progressive. But handing over a relatively small sum of money to the middle class is just a band-aid that delays the real work of economic expansion. We need to simplify the tax code, but the focus on it is I believe unhelpful.
...Paul Krugman thinks the numbers are still too low. I'm happy to see the battle be fought over that, though given Republican obstructionism it won't be. What the Administration ought to do is pick a number bigger than what they want, then compromise down from it.