Learning From Stimulus Bill Made Difficult With Lack of Bipartisan Support

By Dr. Duru written for One-Twenty

February 15, 2009

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When President Obama came to office, he pledged to focus governance on what works and not on ideology. This approach to government comes out clearly in his book, "The Audacity of Hope: Thoughts on Reclaiming the American Dream." Unfortunately, this idealism is off to a rocky start with near unanimous Republican opposition to the economic stimulus bill. I suppose after President Bush presided over a record-breaking expansion of government deficits and a ninth-inning suspension of many free market principles, it was too much to ask Congressional Republicans to allow a Democratic President to twist them into even more government spending and bigger deficits. Republican Representative Zach Wamp from Tennessee probably referred to this frustration when speaking out against the stimulus plan: "Just because Republicans spent too much money after September 11 and lost our way on financial matters doesn't mean the Democratic Party should be allowed to wreck our ship of state...This is taking us quickly down the wrong road. Vote no."

The Republicans have made a fascinating political calculation that could be the all-or-nothing bet of a generation. If Obama succeeds, the Republican Party will solidify an impression that they are out of step with the majority of America. They could lose most major elections for at least a generation. If Obama fails, the Republicans get a huge flashpoint for the 2012 (or 2016?) elections. The Democrats have also made a fascinating political calculation. By ramming through such massive legislation (over 1000 pages!?!) against such strong Republican resistance and opposition, they have removed a lot of the motivation for Republicans to cooperate for the remaining years of Obama's administration. The Republicans are now in a nothing-else-to-lose situation.

But what exactly will we learn as this stimulus program slowly works its way through society in the coming years? Are we even ready to learn? I am afraid that this early, massive failure of bipartisan cooperation has set the stage for years more of bias confirmation. If the stimulus program fails, supporters will assert that the stimulus program simply was not big enough. If the stimulus program works, opponents will claim that the economy recovered despite the massive government intervention. For example, how do you really prove that a stimulus program has saved jobs that would have otherwise been lost? As another example, we have economists like University of Nevada, Reno, Professor Bradley Schiller who wrote a Wall Street Journal opinion piece titled "Obama's Rhetoric Is the Real 'Catastrophe'" suggesting that Obama's warnings of Depression are actually causing a deepening economic malaise. Schiller finds an odd comfort in the fact that the economy only appears about as bad as the 1981-1982 recession: "Real gross domestic product (GDP) rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That's comparable to 1982, when GDP contracted by 1.9%." Let's put aside whether the CBO is including assumptions for Federal stimulus. Schiller confuses Obama's warnings of future, deepening calamity with a conclusion that we are already there. But if you are pre-disposed to hate government intervention in the private economy then certainly Obama's warnings might sound alarmist and overblown. Now that a stimulus bill is in place, Schiller's argument suggests that criticism of the bill may undermine confidence in its ability to work...and thus undermine its stimulative potential. Somehow, I doubt such concerns will quiet critics. Finally, once we act to avert future catastrophe, we can only speculate on how bad things could have been. Just as we can only speculate on what would have happened had President Bush directed Paulson and advised Bernanke to let all the bad financial firms go the way of Lehman last year.

Indeed, I suspect the very definition of success and failure of the "American Recovery and Reinvestment Act" will depend upon ideological biases. Moreover, economists will be able to find ample data and statistics to support either (any?) position and will perpetuate the festering, endless debates that mark the "dismal science" (EconTalk recently posted an interesting podcast discussion on truth and bias in economics). Fortunately, President Obama is already fully aware of the judgment that awaits him, the only judgment that matters in the end. He responded to a questioner at a townhall meeting in depressed Fort Meyers, FL as follows: "I expect to be judged by results. I'm not going to make any excuses. If stuff hasn't worked and people don't feel like I've led the country in the right direction, then you'll have a new president. I am relieved to have now a President who indicates that he is willing to accept the judgment of the people and has some sense that actions do not equal success, results do.

We already know how difficult it is to learn the "right" lessons from singular moments in economic history. For years, I have always accepted what I learned in high school about the Great Depression. It was the basic storyline that President Roosevelt's programs slowly but surely got America back on its feet. World War II came along and put the final icing on the cake of recovery. As has happened to many other people, this current crisis motivated me to review history and gain a more sophisticated appreciation of what happened during the Great Depression. The podcasts of EconTalk have been very helpful in providing me a richer perspective on the Great Depression. Moreover, I realize that there is on-going debate with many merits on just what worked and did not work during that time.

Insufficient or incomplete data are sometimes the barrier to understanding. This time around, we should be getting a lot of transparency on how and where these many billions will get spent at Recovery.Gov. We should all hope that this record will teach us the critical lessons we need to learn - that it will deliver more answers to economists, politicians, and regular citizens than fodder for more endless debates.

Be careful out there!

Full disclosure: None. For other disclaimers click here.

DR. DURU®, 2009