President Obama’s budget director, Peter Orszag, sent a letter to Senate leaders on Tuesday, a letter similar to the letter he sent to House leaders last week.
The problem as I explain it: The “recovery and reinvestment” package contains many initiatives that are slow to spend out or otherwise ineffective in boosting (”stimulating”) economic activity in the short term, yet are likely to become more permanent (beyond the recession). That doesn’t mean the longer-term measures don’t have merit for promoting longer-term economic goals, but it does mean that such policies don’t have to be rushed into. It also doesn’t support the deficit financing of such policies, for the negative (public) saving that deficits represent would largely offset the positive economic effects from addressing the broader set of longer-term saving and investment needs. The CNN-Money story explains:
Critics argue that worthy longer-term measures should be put through the normal legislative process and be subject to so-called pay-go rules, which require lawmakers to pay for the cost of a measure by either raising taxes or lowering spending elsewhere.
In his letter, Orszag said the administration wants lawmakers to minimize the long-term cost of all provisions as much as possible. “Furthermore, the president is committeed to paying for any extenion of the temporary tax cuts included in the recovery plan that he would like to make permanent.”
How he plans to do that will be detailed when he submits his fiscal year 2010 budget request later this month.
But Obama hopes to have signed the stimulus bill well before that. “No plan is perfect, and we should work to make it stronger,” the president said Wednesday. “But let’s not make the perfect the enemy of the essential.”
I agree we can’t let the perfect be the enemy of the essential (and good). But let’s also not let the inessential be the enemy of the effective and the worthwhile. For the immediate to short term, we need effective stimulus–that is, government policies that immediately increase economic activity, whether indirectly through well-targeted transfers to households and businesses that encourage them to spend that money quickly (and spend more than they otherwise would have), or through direct (and prompt) government purchases of goods and services, which if can be done quickly, produce a more reliable (direct, dollar-for-dollar) initial boost to GDP. Over the longer term, we need worthwhile investments–that is, government policies that steer more dollars to those public and private investments and activities that will best increase our nation’s productive capacity, and that will most strongly pass a cost-benefit test, even after factoring in the added cost of any deficit financing. It seems to me that with these longer-term investments, an initiative that might produce solid economic benefits even if deficit financed, would produce even higher net benefits if deficit financing were avoided.
I think at least some in Congress, Democrats as well as Republicans, are starting to get it, and are starting to balk. And for those who recognize that we can’t let inessential be the enemy of the effective and the worthwhile, it’s not being obstructionist; it’s being responsible.
