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The Second Stimulus

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July 9, 2009

It’s a subject that many people are talking about, but not many politicians want to discuss.  It appears as though a second economic stimulus package will be necessary to save our sinking economy and get people back to work.  Because of the huge deficits already incurred in responding to the financial meltdown, along with the $787 billion price tag for the first stimulus package and because of the President’s promise to get healthcare reform enacted, there aren’t many in Congress who are willing to touch this subject right now, although some are.  A July 7 report by Shamim Adam for Bloomberg News quoted Laura Tyson, an economic advisor to President Obama, as stating that last February’s $787 billion economic stimulus package was “a bit too small”.  Ms. Tyson gave this explanation:

“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum.  “We probably have already 2.5 million more job losses than anticipated.”

As Victoria McGrane reported for Politico, other Democrats are a bit uncomfortable with this subject:

Democrats are all over the map on the stimulus and the possibility of a sequel, and it’s not hard to see why:  When it comes to a second stimulus, they may be damned if they do and damned if they don’t.

Kevin Hall and David Lightman reported for the McLatchy Newspapers that at least one high-ranking Democrat was keeping an open mind about the subject:

“I think we need to be open to whether we need additional action,” House Majority Leader Steny Hoyer, D-Md., said Tuesday.  “We need to continue to focus on bringing the economy back to a place where we’re not losing jobs.”

An informative article by Theo Francis and Elise Craig, in the July 7 issue of Business Week, explained the real-world difficulties in putting the original stimulus to work:

Dispensing billions of dollars, it turns out, simply takes time, particularly given government contracting rules and the fact that much of federal spending is funneled through the states. Moreover, some spending was intentionally spread out over several years, and other projects are fundamentally more long-term in nature.  “There are real constraints — physical, legal, and then just the process of how fast you can commit funds,” says George Guess, co-director of the Center for Public Finance Research at American University’s School of Public Affairs.  “It’s the way it works in a decentralized democracy, and that’s what we’re stuck with.”

Nevertheless, from the very beginning, when the stimulus was first proposed and through last spring, many economists and other commentators voiced their criticism that the $787 billion stimulus package was simply inadequate to deal with the disaster it was meant to address.  Back on December 28, Nobel laureate Paul Krugman explained on Face The Nation, that a stimulus package in the $675-775 billion range would fall short:

So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into.

On July 5, Professor Krugman emphasized the need for a second stimulus:

The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon.  The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted.  That — coupled with the fact that yes, stimulus takes time to work — is the reason for a second round, ASAP.

Another Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg TV back on January 8, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said.  “The real question is — is it large enough and is it designed to address all the problems.  The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On February 26, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate.

On January 19, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff.  This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.  He is now in the uncomfortable position of figuring out how and when he can roll out a second stimulus proposal.

President Obama should have done it right the first time.  His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.  As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

How The Democrats Self-Destruct

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June 29, 2009

For the past few days, we have been inundated with news reports detailing the self-destructive behavior of the late singing sensation, Michael Jackson.  Perhaps it is this heightened awareness of self-destruction that is causing people to take a closer look at the self-destructive behavior taking place within the Democratic Party.

Most notable is the behavior of President Obama.  As his Inauguration approached, many people were surprised to learn that some principal players selected for Obama’s economic team were the same people responsible for creating this mess during the Clinton years.  The most prominent of these is Larry Summers, who is expected to replace Ben Bernanke as Chairman of the Federal Reserve in January.  On June 24, Robert Scheer, on his Truthdig website, bemoaned the fact that Obama is following the “trickle down” strategy of bailing out the big banks, while doing nothing to really solve the mortgage crisis:

It’s not working.  The Bush-Obama strategy of throwing trillions at the banks to solve the mortgage crisis is a huge bust.  The financial moguls, while tickled pink to have $1.25 trillion in toxic assets covered by the feds, along with hundreds of billions in direct handouts, are not using that money to turn around the free fall in housing foreclosures.

*    *    *

Here again the administration, continuing the Bush strategy, is working the wrong end of the problem.  Although President Obama was wise enough to at least launch a job stimulus program, a far greater amount of federal funding benefits Wall Street as opposed to Main Street.

*    *    *

Why was I so naive as to have expected this Democratic president to not do the bidding of the banks when the last president from that party joined the Republicans in giving the moguls everything they wanted?  Please, Obama, prove me wrong.

If President Obama doesn’t prove Robert Scheer wrong, Obama might find himself facing some hostile crowds at the “town hall” meetings as 2012 approaches.

The President might also be surprised to encounter large-scale Democratic grassroots disappointment over his proposed “overhaul” of the financial regulatory system.  As I pointed out on June 18, President Obama’s financial reform proposal, released on that date, drew immediate criticism for the expanded powers granted to the Federal Reserve.  On June 24, The Nation (which prides itself on having a liberal bias) ran a harshly critical piece by William Greider, entitled:  “Obama’s False Reform”.  In addition to criticizing the expanded powers granted to the Federal Reserve, Greider emphasized that the proposal did not contain any significant measures, or “hard rules”, to reform the financial system.  Beyond that, Greider took Obama to task for the false claim that the regulatory system was overwhelmed by “the speed, scope and sophistication of a 21st century global economy”.  The article emphasized the need to “slow down the rush to weak solutions” by taking the time to find out about the root causes of the breakdown and then to address those causes:

Give subpoena power to Elizabeth Warren the Congressional Oversight Board she chairs.  Hire some of those investigative reporters who have no political investment in digging deeper into the mulch.  What exactly went wrong?  Who has bloody hands?  Where are the fundamental reforms?  If the economy returns to “normal’ rather soon, the ardor for serious reform might dissipate with much left undone.  That is a small risk to take, especially if the alternative is enacting the bankers’ pallid version of reform.

President Obama is now taking pride for the passage in the House of Representatives of the “climate change bill” (H.R. 2454, the American Clean Energy and Security Act of 2009).  Despite the claim of House Majority Leader Steny H. Hoyer (D-Md.) that the bill’s passage in the House was “a transformative moment”, 44 Democrats voted against the bill.  One harsh critic of the bill is Democrat Dennis Kucinich.  Here’s some of what Mr. Kucinich had to say:

It won’t address the problem.  In fact, it might make the problem worse.  It sets targets that are too weak, especially in the short term, and sets about meeting those targets through Enron-style accounting methods.  It gives new life to one of the primary sources of the problem that should be on its way out — coal — by giving it record subsidies.  And it is rounded out with massive corporate giveaways at taxpayer expense.

*   *   *

.  .  .  the bill does not require any greenhouse gas reductions beyond current levels until 2030.

Worse yet is the Democrats’ fumbling and bumbling with their efforts at healthcare reform legislation.  Polling wiz Nate Silver of fivethirtyeight.com, did a meta-analysis of the polls conducted to assess public support for the so-called “public option”in healthcare coverage, wherein people have the option to buy health insurance from the government.  The insurance companies obviously aren’t interested in that sort of competition and they have launched advertising campaigns portraying it as controversial and flawed.  Nevertheless, Nate Silver’s report revealed that five of the six polls analyzed, demonstrated lopsided support for the public option, exceeding 60 percent.  Despite the strong popular support for the public option, Mr. Silver pointed out in another posting, how there is a great risk that Democrats might oppose the measure due to payoffs from lobbyists:

Lobbying contributions appear to have the largest marginal impact on middle-of-the-road Democrats.  Liberal Democrats are likely to hold firm to the public option unless they receive a lot of remuneration from healthcare PACs.  Conservative Democrats may not support the public option in the first place for ideological reasons, although money can certainly push them more firmly against it.  But the impact on mainline Democrats appears to be quite large:  if a mainline Democrat has received $60,000 from insurance PACs over the past six years, his likelihood of supporting the public option is cut roughly in half from 80 percent to 40 percent.

Awareness of this venality obviously has many commentators expressing outrage.  On June 23, Joe Conason wrote such an article for The New York Observer:

If Congress fails to enact health care reform this year –or if it enacts a sham reform designed to bail out corporate medicine while excluding the “public option” — then the public will rightly blame Democrats, who have no excuse for failure except their own cowardice and corruption.  The punishment inflicted by angry voters is likely to be reduced majorities in both the Senate and the House of Representatives — or even the restoration of Republican rule on Capitol Hill.

*  *  *

The excuses sound different, but all of these lawmakers have something in common — namely, their abject dependence on campaign contributions from the insurance and pharmaceutical corporations fighting against real reform.

*  *  *

Whenever Democratic politicians are confronted with this conflict between the public interest and their private fund-raising, they take offense at the implied insult.  They protest, as a spokesman for Senator Landrieu did, that they make policy decisions based on what is best for the people of their states, “not campaign contributions.”  But when health reform fails — or turns into a trough for their contributors, who will believe them?  And who will vote for them?

Those Democrats inclined to oppose the public option don’t appear to be too concerned about public indignation over their behavior.  Take California Senator Dianne Feinstein for example.  Do you really believe she gives a damn about voter outrage?  She was re-elected in 2006, despite criticism that as chair of the Senate Military Construction Appropriations subcommittee, she helped her husband, Iraq war profiteer Richard C. Blum, benefit from decisions she made as chair of that subcommittee.  So what if MoveOn.org is targeting her for ambivalence about the issue of healthcare reform?  MoveOn.org is also targeting other Democrats who are attempting to eliminate the public option.  If these officials have so much hubris as to believe that they can get away with scoffing at the public will, they had better start looking for new jobs now  . . . because the market isn’t very good.