Motives Behind the Stimulus

Michael Grunwald, of Time magazine, has authored "The New New Deal," his reporting on the Obama stimulus. He makes the case for how well intentioned the stimulus deal was and the belief that without it, the economy would have been in even worse shape. I don't intend to debate those points. I think that hidden in the book is the admission that Obama wanted to use the stimulus to permanently alter the politics of America and lock the country into long term federal government involvement in new parts of the economy. Grunwald is certainly left of center, and he skewers Republicans for what he considers their purely political opposition to the stimulus. From The Economist:

One thing that may surprise readers not fully acquainted with the grisly nature of political sausage-making is the degree of cynicism that surrounded the passing of the Recovery Act. It was naive of Mr Obama to expect the Republicans to play ball. But because he needed to win at least a couple of their votes in the Senate to break the threat of a filibuster, he tried hard to court them. Mr Grunwald lays out in shocking detail how the Republican leadership decided early and wholeheartedly not to co-operate with the new president. So deep was their opposition that they even opposed things that they supposedly supported, such as the Recovery Act’s deep tax cuts and its emphasis on infrastructure.

But, even if shamelessly and politically motivated, the Republicans were right to have opposed the stimulus, because of what Obama was trying to accomplish.

The whole point of an economic stimulus is that it is supposed to stimulate. It needs to move money out of the door fast, get it quickly to where it can do most good and not carry with it a tail of long-term spending commitments. But Mr Obama’s agenda was always much bigger than that, and it is in explaining this that Mr Grunwald’s book is at its best.

Much of the meat involves parsing the issues that riled the Republicans: how the stimulus bill was to be used as a tool to transform American society. Right from the start, Mr Obama wanted his Recovery Act to spend money on a low-carbon future, on radical school reform, on health reform and on creating jobs. All of these, Mr Grunwald thinks, are laudable aims. Many readers would agree. But Republicans in Washington have other views. New energy projects, like job creation, should be left to the market, not picked by bureaucrats; school and health reform should be a matter for individual states. What they saw was an attempt to use the crisis to push the political economy of America in a more statist and Washington-centric direction. Mr Grunwald does not attempt to deny that; it is simply that he has no problem with it.

In terms of economic history, I think that the stimulus failed because we have already entered an era in which the accumulation of government debt has left fiscal and monetary policy ineffective. With interest rates near zero and the governments at all levels having issued tens of trillions of debt that may not be repaid, more debt to stimulate the economy will also have the effect of reducing confidence.

If the Democratic administration had such nakedly political motives for the outcome of the stimulus, then Republicans were right to oppose it.