Congress Passes Stimulus: Great but Not Enough

In a major step, Congress yesterday passed a compromise stimulus package sending it to a President who is likely to sign it. For a moment, let's put aside our usual cynicism. This is a real achievement in this political environment. It's a defeat for the usual post-Reagan approach to economic problems (cut marginal tax rates) and a victory for Democratic ideas (put spending power in the hands of as many people as possible). What this campaign for the 6th District seat should be all about is creating a better political environment, one where we can expect even better things from our national government.

But is this "stimulus package" enough? Bob Kuttner of the American Prospect rightly argues that a "stimulus" is not enough. The reason? The US is experiencing economic headwinds that are much stronger than the usual business cycle. According to Kuttner:

In fact, the entire concept and language of "stimulus" misses the point—and misses a huge opportunity. A stimulus is a macro-economic concept. It is sensible medicine when the economy is in an ordinary business-cycle downturn. Government deficit spending or tax cuts can pump more money into the economy, as can lower interest rates mandated by the Fed.

But this is no ordinary cyclical recession. Rather, it is a sharp and needless economic contraction, caused by a serious blow to the financial system, which was in turn the result of deregulation. Banks' balance sheets have taken a huge hit from the spillover
of the sub-prime disaster, and credit remains scarce and expensive even after several rate cuts by the Federal Reserve. Worse, this downturn comes on top of three decades of stagnant or declining real living standards for about two thirds of Americans, and increasing insecurity of employment, health insurance, and retirement, as well as rising costs of housing, education, and energy.

In short, there are very good reasons for believing that much of the problem is structural; that 30 years of conservative "reforms" of the economy have made the US economy much weaker over time.

Ideal Candidate's proposals for infrastructure spending and capital budgeting and for reform of Wall Street are ideas for moving the debate beyond stimulus to structural reform.

This is the area where an Ideal Candidate can create contrast with Gerlach. Gerlach's economic ideas (such as they are) represent a popular distillation of the same post-1973 consensus (deregulation and tax cuts are panacea) as got us into this mess. The Ideal Candidate represents change.

Let the debate begin.