It's The Effectiveness, Stupid
President Barack Obama was out in Elkhart, Indiana today, in front of an unscreened audience, talking about the need for a big recovery package to get people back to work and reinvigorate the economy. The public supports his handling of the bill and disagrees with the ways the Republicans have dealt with it. It's true that this is more a commentary on the approval of the personalities involved than the specifics of the bill, but it's significant nonetheless.
The American public gives President Barack Obama a strong 67% approval rating for the way in which he is handling the government's efforts to pass an economic stimulus bill, while the Democrats and, in particular, the Republicans in Congress receive much lower approval ratings of 48% and 31%, respectively.
These findings, based on Gallup Poll interviews conducted Feb. 6-7, underscore the degree to which Obama appears to be maintaining the upper hand over his opponents from a public opinion perspective as he and congressional leaders wrangle over the precise form and substance of a new economic stimulus plan. (Recent Gallup polling also shows that a slight majority of Americans in general favor the idea of passing a stimulus plan of around $800 billion, a sentiment that has stayed constant over the last several weeks.)
All good news which portends the passage of something in the next week, something that will have the support and confidence of the public. But the bill is still too small to work effectively, and that's not an ideological statement but a statement of mathematical fact.
The stimulus package scheduled to be voted on Tuesday, say contrarian economists, is simply too small to withstand the economic storm that's coming.
It's a matter of basic math, says economist Dean Baker of the Center for Economic and Policy Research. The economy is currently losing - annually -- $450 billion in housing wealth, $650 billion in consumer spending and $150 billion in commercial real estate value.
"You're talking about a gap on the order of twelve-hundred-fifty billion dollars, and we're trying to plug that with four-hundred-something, so we've got a long way to go," Baker says. (The stimulus package of roughly $800 billion doles out spending and tax cuts over two years.)
Galbraith, too, says that demonstrating that the stimulus is too small is a matter of basic math. The $400 billion it will inject into the economy each of the next two years is equal to about two to three percent of GDP, he noted. But the economy is falling at a much faster rate, projected at eight percent by the CBO this year and 14 percent over two years - and that projection, again, doesn't account for the financial collapse.
If it's too small, how is it, then, that economic models like the Congressional Budget Office's show that the economy will turn around sometime in 2009 or 2010?
The harsh reality: they're just guessing. And they're guessing based on economic models, says Galbraith, that have been built post-World War II and don't take into account the collapse of the financial sector. Instead, they assume the credit markets will be there to help ease the nation out of the downturn.
"We're in a unique crisis in the financial sector, something we've never seen in our lives: a crisis of the insolvency of the largest banks," Galbraith says. "Those banks, until they are reorganized and restructured, will not be part of a new credit expansion."
Yes, these are liberal economists, but they are using very basic facts about the bill, along with the same information that Obama is imparting on his town hall - that this is a unique situation compared to recessions of the past 70 years, and that a grand Washington compromise is not going to be sufficient.
Jobs have fallen off the cliff, and big action is needed to level that off. We're unlikely to see that with a compromised bill, especially one that throws money away on tax breaks for the well-off. In addition to the AMT patch being 99.5% directed at the top 40% of wage-earners, the $15,000 home-buyer credit is targeted at the rich, too.
The Senate's proposed $15,000 tax credit for home buyers would boost the ailing housing market but do little to help low-income people who need it most, experts say.
The measure, which is part of the $827-billion economic stimulus plan that the Senate is due to vote on Tuesday, would offer the credit to anyone who buys a primary residence. But to take full advantage of the credit, buyers would have to earn enough to use it and spend at least $150,000 on a home.
As many as 1 million home sales could result from the tax credit, according to Mary Trupo of the National Assn. of Realtors. "By increasing demand and decreasing inventory, it'll help to stabilize home values and result in fewer foreclosures," she said.
But low-income people will not benefit, said Linda Couch, deputy director of the National Low Income Housing Coalition. "The bill is focusing a lot more of its resources on higher-income households and home ownership than it is on the lowest-income people and people really teetering on the edge of homelessness."
I know there will be additional measures to stop foreclosures and ease payments for those at risk, but this is basically wasted capacity, money that could be targeted at those who would cycle money back into the economy instead of being lavished on people who don't need it.
It's true that this recovery bill is twice as big as what was discussed a few months ago, and represents a minor triumph for liberalism in the abstract. But surely we have to craft policy that meets the historical moment, and there is no success on having a bill bigger than assumed under different conditions last year or bigger than what has been done in other, lesser recessions. Ultimately, policy has to work, and a bill that's too small to be effective will not be anything approaching a triumph if it doesn't stop the bleeding.