Wednesday, August 24, 2011

Automatic, So Automatic

I mostly agree with Ezra Klein's look back today at the stimulus bill and other options available. I completely agree that a $2T bill wasn't possible, and that most of the other suggestions he has collected are some combination of wouldn't have passed, passed anyway, or wouldn't have made much difference.

With one major exception: aid to state and local governments. I'm not absolutely certain that a new automatic stabilizer could have passed, but if Barack Obama had made it a significant priority right away, I think it might well have had a very good chance. And unlike unemployment insurance extensions, which as Klein points out more-or-less happened anyway, additional state and local government aid did not happen, with (in my opinion at least) devastating consequences.

The effects of the recession on state and local governments was quite predictable (although of course the magnitude of the problem wasn't). My impression is that the administration assumed that a bipartisan coalition of governors would be able to successfully push Congress to act. I think that was a reasonable assumption, one that I would have agreed with at the time  -- but as it turns out, it was completely wrong.

An automatic stabilizer scheme could be long-term deficit neutral (see for example this idea). There's no real way to know whether a free-standing separate bill could have passed in spring 2009, and it's certainly important to consider the risks of trying -- remember, there was no guarantee that Arlen Specter was going to switch parties or that Ben Nelson wasn't going to, and it's hard from here to know exactly what might have pushed them (or other marginal Senators who voted for the stimulus) the other way. But this is one where, as it turned out, there would have almost certainly been a significant reward from adding it, and as far as I can tell it's totally realistic to think it had a chance.

Of course getting something like that into law (and, for that matter, automatic changes in unemployment insurance) would also have the excellent effect, as Matt Yglesias has been saying roughly forever, of helping out in future down times, too. Which is why it would still be a good idea now, although it's obviously not likely to happen at this point.


  1. @ Jonathan - Any ideas why that "bipartisan coalition of governors" wasn't successful? Did they even come together & try? Like you & the Obama administration, I would have made that bet.

    I agree with you that the lack of a state-aid bill is the big policy failure of the first 2 years. I am just not sure how it was going to happen. The ideal time was fall of 09 but the Senate was totally frozen by the ACA. I can't remember anything passing at that time. Then the Brown election probably killed any change at all.

    The biggest Obama counterfactual for me is what if President Obama goes with Rahm's smaller health care bill in Fall 09 and then switches full force back to the economy. Are we (& Obama) in better shape today? That's the one that keeps me up at night cause it seems a reasonable question rather than a far-flung fantasies of most Obama-failed-us counterfactuals

  2. A smaller health care bill? I don't know. For one thing both Obama and Clinton had made health care reform a centerpiece of their campaign, and failure to go for universal coverage would likely have caused disillusionment and liberal criticism to set in much earlier and with more ferocity than it did. For another health care was a priority of Nancy Pelosi, an actor whose preferences Obama very much had to respect. I grant you that much about the health care initiative could have been better handled, including the timing (allowing Olympia Snowe to delay things as long as she did was a mistake). But I suspect that going with a smaller bill would have been viewed as a major strategic defeat for Obama right up front (certainly it would have been so viewed by late August) making everything that much worse in the long run.

    Perhaps more to the point, what could Obama have accomplished with this major switch to the economy that could have made much of a difference (that was passable and effective)? And isn't that presuming more than a change in strategy, but rather an entirely different set of beliefs and understandings on the part of the Administration? Obama and his advisors seem to have been operating up until very recently with the attitude that this was normal business recession with unusually severe effects, and that therefore all they really had to do was pass a stimulus to cushion some of the damage and wait until the numbers inevitably started back up. I am sure that if they had realized what they were dealing with in terms of the economy in late 2008 and early 2009 they would have acted differently, but they seem to have been very convinced of their diagnosis, so that is like saying that if blue was red it would be easier to see in daylight.

    Don't get me wrong. As I've said I agree that the health care initiative had a lot of problems, and in fact I'm rather convinced that it is going to be crippled by the Supreme Court and we will have to start again some other time. But I just don't see how going with a smaller initiative followed by a hard pivot to the economy would have resulted in significantly better results. Indeed, I don't see that going with a smaller initiative followed by such a pivot was even really an option given the situation and the Administrations beliefs at the time.

  3. I'm not sure why you think state/local aid would have any better chances of passing the Senate than additional stimulus or cap-and-trade did. The same Blue Dogs that wouldn't touch additional stimulus wouldn't touch a state/local aid package - because they're afraid of spending.

  4. I really don't understand how the politics of this were supposed to work.

    It was easy to vilify state/local aid as a "bailout" for jurisdictions which had been irresponsible with their money. Meanwhile, as I keep pointing out, lots of conservative Democrats represented places that wouldn't have benefited much from such a program if it was at all targeted. And if it wasn't targeted, the amount in question would have to be huge, running into the fundamental sticker-shock issue.

    So this is a nice idea from a wonk perspective, but I just don't see how it solves the fundamental political problem in 2009, which in a nutshell was that a lot of the places that were likely to need fiscal help were represented by Republicans who were only interested in opposing Obama, and some of the places that were unlikely to need much fiscal help were represented by conservative Democrats.


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