Politically Feasible Stimulus

Robert Waldmann

Is going to disagree with Barack Obama and Paul Krugman (alternative title “which one here is not like the others”). Krugman writes and Obama implies that no large stimulus will pass congress.

I think a proposal to send a $500 check to every US citizen containing family would pass congress. In particular some allegedly Democratic Senators (cough Conrad) are arguing for a temporary extension of Bush tax cuts for the rich. My proposal dominates Conrads both as effective stimulus and as popular politics.

Update: However, it is not gonna happen

the top White House spokesman on Thursday said a large spending measure is not being considered.

“Some big, new stimulus plan is not in the offing,” White House press secretary Robert Gibbs said.

Note that Sam Youngman at The Hill uses “spending” and “stimulus” as synonyms, supporting the mistaken belief that the ARRA did not include tax cuts for the vast majority of Americans. I almost wonder if no one in the White House considered doing it with just tax cuts. I consider it a no brainer.

update II: this is weird. A trial balloon in the Washington Post. The possible proposal is a payroll tax holiday. I think that is better policy than an income tax rebate, but it is much worse politics. People in the USA are angry and want to soak the rich and especially hate hate hate tax cuts for corporations (proof at pollingreport.com search for “Gallup Poll. April 6-9, 2009. N=1,027 adults nationwide. MoE ± 3.”). Somehow the Obama administration is determined that they express their populist rage by electing Republicans.

They will get no political benefit from the bill. If it passes people won’t believe that they cut payroll taxes. Only a check in the mail will convince many many US voters that some taxes were cut.

Also an anonymous source has decided to basically assert the false claim that the stimulus bill did not include huge tax cuts

More spending on infrastructure, particularly transportation projects, is also under discussion. But it would be easier for a package composed purely of tax cuts to “avoid the stain of a ‘bailout’ or ‘stimulus’ label,” said one official familiar with the talks, speaking on the condition of anonymity because the deliberations were private.

Check the quotes. A Obama administration source linked the words “stimulus” and “bailout”. I think that’s a firing offence. The line must be “This time we will propose only tax cuts as, for some reason, many people didn’t notice the huge tax cuts in the stimulus bill.” And if the reporter asks for explanation, repeat slowly.

Can anyone there play this game ?
My thoughts based on less solid evidence after the jump.

Krugman argues that there is no way to get significantly more stimulus out of congress (he began writing this when arguing that the ARRA stimulus was too small).

He writes “the Republicans will oppose him regardless” and “we need another round.
I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it …”

Obama clearly agrees. In the latest comment on the economy (which I could find) The Whitehouse doesn’t go far beyond supporting the small business helping bill which Republicans are filibustering in the senate. In particular, the White House almost declared that they are not going to propose another really large stimulus “Now, no single step is the silver bullet that will reverse the damage”

I will explain why I think my proposal is political dynamite. Republicans might oppose it suddenly discovering their concern for the deficit (while arguing for extensions of Bush’s tax cuts). I am sure this is political suicide. Or they can go along and Americans get a nice check in the mail soon before they vote (before the end of October — I would call it the trick and treat bill).

They and the Washington Post editorial board and similar scolds will denounce it as a transparent attempt to buy votes. This will publicize the measure.

I am very dismayed by Obama’s “no silver bullet claim.” First I think it’s false as applied to stimulus. The form of the stimulus matters, but right now the main issue is that it should be large. Yes money giving money state governments is better than giving money to consumers who might just save it, but congress will give no more money to state governments.

Another key thing is that the bill be simple. When asked in a poll, only 12% of US adults correctly stated that the Democrats had cut taxes for the vast majority of US families (in ARRA). 12% !!!

Assuming I’m right (a big assumption) what’s wrong with Obama ? I think partly he is too pure to buy votes — he will propose a stimulus which he thinks is efficient. Partly he is cautious (which is insane given the polls, when you are behind you have to gamble). Partly the ghost of Ira Magaziner haunts the White House (this was the guy who loved complexity for its own sake and designed the horrible Clinton Clinton and Magaziner health care reform fiasco). A simple, simple bill doesn’t appeal to people who want to show they are smart (I am not thinking of Obama here).

Mostly, I bet they just can’t stand admitting that Paul Krugman was right. No one likes doing that, but it is, alas, part of the human condition.