fiscal stimulus

National Journal says the Senate has reached a compromise stimulus deal.   Nevertheless, nobody has much cause to be happy about the passage.  The President, Congressional Republicans and Congressional Democrats have managed to hit the rare trifecta of failure.

1. The Emperor has no leverage:  President Obama promised to ban earmarks and pork in this legislation, and then folded like a lame duck when Congressional Democrats demanded their earmarks.  Not only can Obama not pass his top priority legislation on his own terms with a major Democratic majority, the Congressional Democrats aren't even listening to him.  President Obama cannot be happy that he's been shown to be so impotent on his biggest policy priority.
2. Republicans have very little leverage: After years of political domination, Republicans have made virtually no progress on strategic policy goals.  Meanwhile, Democrats look certain to entrench significant policy gains within weeks of the election of a Democratic President.  And while Obama offered some tax cut overtures to Republicans, the massive deficits implicit in the bill make them pyrrhic victories.  Tax cuts can't outrun the bill coming due. 
3. Democrats had to compromise: I was given a Senate document today that shows the (then-current) status of negotiations.   Note what is being cut (a lot of non-stimulus spending that Unions would like) and what is being added (defense spending).   See the document below the fold...

Dan Mitchell discusses the stimulus legislation.

At some point, our Leskonomics policy (free money!) of simply throwing more money at problems has to stop.  But that would require two things:

1. Politically viable ideas for making more limited government electorally palatable.  Right now, significant cuts to the major programs would get many supportive politicians voted out of office; that's not a good strategy for winning.
2. Leadership and charisma necessary to rally popular and political support for those policies.

Democrats don't seem interested in any idea beyond "throw more money at it", and Republicans don't seem to have any ideas at all.  Unfortunately, neither of them has a significant, immediate incentive to behave any other way.  That means our government is only capable of change when we actually run off the cliff.

I've been trying to figure out how to describe the fiscal stimulus bill more accurately, but the options I've heard (The De-Stimulus, the Debt Bill, etc) just haven't quite captured it.  And then I saw an element of the bill that spends $10 million to erect even more housing (yes, despite the over-supply of housing)....

The SHOP funding will be competitively awarded to eligible national and regional nonprofit housing organizations to develop or rehabilitate low-income housing.

It's expensive stimulation (that apparently helps with erection), and helps Democrats capture more votes by creating a massive national dependence upon government.

It's the Viagra Plan.  A Little Blue Bill that eliminates electoral dysfunction.

Yesterday, I wrote about Obama's fiscal stimulus strategy.  I'm hearing that Republicans also have a strategy - or rather, a tactic - though it's not as readily apparent yet.

First, the political landscape: With a 70% approval rating, Obama is not very vulnerable. But Congress has a 20% approval rating, so Congressional Democrats are vulnerable. 

Now, there are a couple different basic aspects to the stimulus bill:

• Tax breaks
• Discretionary aid/public works spending

On the tax cuts, there's some alignment between Obama and Congressional Republicans.  Notice that, in recent days, Sen. McConnell and Rep. Boehner have made a concerted effort to talk about tax relief as a stimulus...associating themselves with President Obama on an area where they agree and can cooperate.

The discretionary aid/public works spending is different.  That's where the corruption, waste and pork enters the picture.  Obama isn't going to actively oppose Congressional Democrats on the stimulus bill, but he's also too smart to expend his own political capitol pushing waterslides and mobster museums (yes, really) as economic stimulus.

If Congressional Republicans align themselves with Obama on broad parameters like "tax relief", that leaves only Congressional Democrats making the case for the earmarks and suddenly "shove-ready" spending that will be ripe for abuse, waste and corruption.  Republicans can open the 111th Congress with a popular fight against the kind of corruption that made Congress so unpopular.

The assumptions there are that (a) the Congressional Democrats will actively defend their earmarks and wasteful spending, and (b) President Obama will not defend the earmarks and wasteful spending.   But if those assumptions are wrong....well, that could be a victory, too.

That's an interesting play, and perhaps it will work to some extent.  However, it's also a risky play, more likely to damage Democrats than to improve policy.  In the absence of a strategy to improve policy though, we have to settle for tactics.

Barack Obama appears to be making significant overtures to cultivate Republican support for his fiscal stimulus plan with massive tax cuts (albeit short-term tax shifts rather than structural changes or actual cuts).  The Leftroots (and Paul Krugman) are fairly upset about this.  Kevin Drum says this attempt to win bipartisan support (rather than just the few Republican votes he absolutely needs to secure passage) is a bad idea, because Obama is making concessions he doesn't have to make and diluting Democratic policy.

The netroots is understandably anxious to enact all of their favorite policies - they earned political capital in the campaign and they intend to spend it, they'll argue without a trace of irony - but that's what President Clinton did in 93-94, right before he learned the difference between stated preference (nice things are nice!) and revealed preference (wait, you want to do what to me?).  The Democrats tried to run out of the gate and discovered too late that they'd left a lot of people behind.  In 1994, those people voted.

Obama's strategy is a lot more sophisticated than that.

Here's the calculation on fiscal stimulus: If Obama gets his way, he's looking at massive, trillion dollars deficits, and much more government intervention in the economy.  The public may tolerate this due to fears about economic crisis, but if it works out well and the US gets a relatively soft landing from the recession, then the costs will still be visible (deficit, intervention), but the benefits will be intangible (the crisis that didn't come). 

What's more, the Democrats have only one possible solution to the massive deficits coming down the pike: increase taxes.  (Object lesson: "We can spend more of your money" is the Democrats solution to everything)

If Obama passes the perfect progressive stimulus bill without much Republican help, he owns the spending, the deficits, the tax hikes and all of the pain that comes with it.  Republicans will be happy to run against those problems in 2010 and 2012.

But if Obama buys significant Republican support for his bill, Republicans will own the deficits, tax hikes and intervention, as well.  The stimulus bill will be for Republicans what the Iraq war was for Democrats - a policy they first supported, then regretted, then tripped over themselves to explain.  The "they were for it before they were against it" ads would be inevitable and devastating.

Republicans are in a difficult situation here. 

• If they oppose the bill and it fails, they will be blamed (fairly or not) for any economic problems.
• If they support the bill and it passes, they will share the blame for the enormous costs it will entail.
• If they oppose the bill and it passes, the lack of policy leverage would leave the bill much worse than if they had forced potentially valuable compromises (e.g., sunset provisions and exit strategies).

Obama doesn't want bipartisan support, so much as he wants political immunization.  In this case, unity and bipartisanship = lashing the Republicans to the mast of Government.

There aren't many good solutions here, but one thing seems likely: as with the Democrats and the Iraq war, the future leaders of the Republican Party will probably come from among the politicians who can say "I told you so" when they run because they said "no" now.

Soren Dayton has had a couple good posts on transparency recently, and I concur wholeheartedly that the issue is one on which Republicans should be cooperative and proactive.  They should also be insisting upon promises, metrics and accountability from the new Democratic leadership while that leadership is still in its idealist phase.  Eventually, public choice theory suggests Democrats will begin to value political protection over transparency, and the opportunity for policy progress will be lost.

So, it's important to act soon, not just in Congress, but outside, as well.  At Tech Liberation Front, Jerry Brito has an interesting idea for introducing some transparency and measurement into the proposed stimulus plan.  But it's going to take some crowdsourced help...

Last Thursday I asked for help creating a site that would facilitate crowdsourcing the task of prioritizing the 11,000+ projects proposed in the U.S. Conference of Mayors’ $73 billion “Main Street Economic Recovery” stimulus plan. The point of doing this is to help President-Elect Obama keep his promise that any stimulus spending will be directed at critical infrastructure, and not pork. Roads and bridges and schoolhouses are infrastructure, but dog parks and tennis centers in wealthy neighborhoods probably don’t count. [...]

Now that we have the data in an easy-to-remix format, I’d like to ask for your help developing the backend for the site.

Brito outlines what he has in mind, and what you can do to help the project, in his TLF post.  If you think you can help, please do so.   He's also inviting people to join the project Google Group, Crowdsourcing Accountability.

Down the road, it would also be very helpful if transparency projects like this could not only expose how money is being spent, but could also measure whether those projects and programs are meeting the goals that Congress alleges.  If a project is funded because it will create [X ]jobs, lift [Y] people out of poverty and lead to [Z] economic growth, then we should be able to measure it.   And if it doesn't meet those goals, we should be able to hold politicians and bureaucrats accountable....at least as accountable as they want to hold corporate CEO's, who aren't even spending public money.

The first step is finding out what they're doing to for us.   It's a good way for activists to get involved.  Go help Jerry Brito if you can.