The Beauty of Free Money
The concept of “found money” is delightful. We cherish the cash that turns up under the bed, in a coat pocket, or in a long-forgotten bank account. And found money may be key to the success of Barack Obama’s presidency.
No, the federal government isn’t going to discover new billions under some rock in a national park. But with the economic downturn, the new president’s imperative will be to spend as fast as he can, to the tune of perhaps $500 billion, to keep the economy from going belly up.
That’s a huge reversal of the normal pattern. Victorious candidates typically discover that their campaign promises are more expansive than government finances allow. Breaking pledges becomes a test of fiscal responsibility.
No recent president suffered more from the fiscal squeeze than Bill Clinton. In 1992, candidate Clinton promised middle-class tax cuts, welfare reform and major spending on job training, education and other worthy programs.
But as soon as he was elected, the green-eyeshade crowd was all over him. Deficits were raising interest rates and his priority had to be a balanced budget. So Clinton junked his tax cut, failed to put up new money that would have made welfare reform easier, and scaled back other pledges.
There’s certainly a case that Clinton made the right bet. We would gladly trade in the current economy for the roaring ’90s.
But the political costs of Clinton’s choices were high. By reneging on his middle-class tax cut, Clinton gave ammunition to Republicans, helping them take over Congress in 1994. And by failing to push through welfare reform when Democrats were in control, Clinton was later forced to acquiesce to a more tightfisted overhaul of public assistance with the new Republican majority.
Obama’s luxury is that the economic demands of the moment almost perfectly coincide with his political interests. When even conservative economists are urging Obama not only to cut taxes but also to spend and spend and spend some more, he has the opportunity to keep a whole raft of political promises all at once.
Middle-class tax cuts? Practically a done deal. New investments in green technologies? No problem. “Smart” meters to help households save on energy costs, plus a new electricity grid? A natural. Universal broadband? It’s about future growth. Investments in medical information technologies? Good for jobs now, good later for cost containment, better treatment and health insurance reform.
Already, there is grumbling that Obama shouldn’t try to do anything special with the stimulus; only old-fashioned programs need apply. The critics are grousing: How dare Obama try to use the crisis to transform the country!
But this view is shortsighted. If the government has to spend a lot of money, why not use it for programs that lift the economy now and have a long-term payoff later? Insisting on the same old approach to a stimulus means demanding only backward-looking investments that leave us with the same old problems once the spending spree stops.
Of course, the stimulus should include some tried-and-true measures. There is nothing wrong with spending on roads, bridges and mass transit, along with school construction and rehabilitation. It’s a good time to make up for our longstanding underinvestment in infrastructure, that boring but hugely important word. State and local governments also need fiscal help if they are to avoid retrenchment that would only negate federal stimulus efforts.
And as a recent report by Sharon Parrott of the Center on Budget and Policy Priorities warned, the downturn “is likely to cause significant increases both in the number of Americans who are poor and the number living in ‘deep poverty,’ with incomes below half of the poverty line.” The poor should have first call on the new spending. They need help — and they will spend the money quickly because they have to.
What we should fear most is not that Obama will get to keep some of his campaign pledges but that the stimulus will fall victim to classic logrolling. With so much cash on the table, the temptation will be enormous to lard up the package with a slew of unproductive projects and all manner of narrow tax breaks for interests you probably never knew existed.
In light of this danger, it would be far better if the new president started the debate with an imaginative proposal. Without a vision, the stimulus will perish in a pile of pork, and half a trillion dollars would be a terrible thing to waste.
E.J. Dionne’s e-mail address is postchat(at)aol.com.
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