NDN

NDN Praises U.S. Senator Jay Rockefeller for Offering Amendment to Help Legal Immigrant Children

NDN's ROSENBERG PRAISES ROCKEFELLER CHIP AMENDMENT TO HELP CHILDREN OF LEGAL IMMIGRANTS, SAYS IT'S A SIGN THAT PROGRESS CAN BE MADE THIS YEAR ON FIXING BROKEN IMMIGRATION SYSTEM 

NDN President Simon Rosenberg today applauded U.S. Sen. Jay Rockefeller for offering a successful amendment that will give states the option of providing health insurance to children of legal immigrants through Medicaid and the Children's Health Insurance Program (CHIP). Rockefeller offered the amendment during the Senate Finance Committee's consideration yesterday of a bill to expand the overall CHIP program.   

Rosenberg also praised Committee Chairman Max Baucus and other Finance Committee members who voted in favor of the amendment.

"For those interested in fixing our broken immigration system, the sensible resolution by the Senate Finance Committee yesterday is a welcome sign and a clear signal that progress can be made this year. For the last three years, the arguments of a few, deeply out of touch with popular sentiment, have held the immigration debate hostage, preventing progress on what Americans consider to be one of our most important national priorities."

Rosenberg continued, "In poll after poll, Americans rank fixing our broken immigration as one of their top priorities. Few blame the immigrants themselves. Most believe that any serious effort to fix the broken immigration system must include the offering of legal status and a path to citizenship for the millions of undocumented immigrants already here. The American people understand that leaving five percent of our workforce and their families living in the shadows, outside the protection of American law, easy prey for exploitation, with no chance to live the American Dream, is an affront to our core values, and something that cannot stand. It is for this reason that there is such a deep and intense desire in the public to fix the system now."

"The sensible resolution of this first debate in the new Congress over how to best treat the immigrants among us is a hopeful sign that leaders of both parties will be able to come together later this year and pass a comprehensive approach to fixing our badly broken immigration system. In the coming weeks, I urge the full Senate to pass this critical legislation," Rosenberg said.

NDN: Economic Recovery Package Signals New Priorities, Development of a 21st Century Economy

NDN today released this statement applauding the draft economic recovery and reinvestment package:

NDN: ECONOMIC RECOVERY PROPOSAL SIGNALS CHANGED PRIORITIES, ACCELERATES DEVELOPMENT OF A 21ST CENTURY ECONOMY

"President-elect Obama has made clear that this proposal should not only create more jobs, but do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure," said Dr. Robert Shapiro, the Chair of NDN’s Globalization Initiative. "Investments in this 21st century economic infrastructure, such as increased broadband access, computers in schools, health information technology and provisions to green the federal government, are critical to increasing demand for the important technologies and skills that will in turn expand the nation’s capacity for innovation and economic growth."

NDN President Simon Rosenberg praised both the recovery package and President-elect Obama’s commitment to use TARP funds to help keep people in their homes.

"For years, NDN has argued that the central economic issue of our time has been the stagnating wages and incomes of everyday Americans, which led directly to the overleveraging of Americans' largest assets: their homes," Rosenberg said. "By pledging to use TARP funds to keep people in their homes, using part of the recovery package to stabilize the housing market, which is the root cause of the financial crisis, and targeting investments to create long-term prosperity, President-elect Barack Obama and the Congress have made a crucial commitment to focus America’s economic strategy on the well-being of everyday people."

"The new prominence of critical investments in clean technology and clean infrastructure in this package rightly shows that clean energy is no longer a marginal topic and now sits at the heart of America’s economic strategy," said Michael Moynihan, the Director of NDN’s Green Project, who has long argued for clean infrastructure investment. "The inclusion of $32 billion in clean technology investments at the center of this package is not only vital to addressing our short term crisis but also has the potential to power the next great wave of prosperity."

For more of NDN's work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure, please see NDN's backgrounder on Economic Recovery:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

A Race To the Bottom - A Broken Immigration System Has a Social Cost, Too

According to a report just released by the Migration Policy institute, although the U.S. economy's nosedive has probably contributed to a drop in the number of undocumented immigrants coming into the United States, those already here will be less inclined to return home due to the manifestation of the economic crisis in the U.S. and abroad. The study does not focus on how border enforcement has deterred immigrants from returning home. 

In a great piece in the Post today by N.C. Aizenman, co-author, Demetrios G. Papademetriou explains,"The immigration system of the United States makes people wait in line for years to get their visa...so, by the time it becomes available for a family member or a valued employee...They don't want to return to the back of the line." The current broken immigration system exacerbates the economic crisis because -as explained in the report - the more likely and worrisome potential effect of the recession on undocumented immigrants is that it will drive them to accept ever-lower-paying jobs under ever-worsening conditions.  This is why it's so imperative that our legislators realize that immigration reform can be a tool to help fix the economy - the economy and immigration are inextricably linked, I hope Members realize they must stop seeing these two issues as separate and unrelated.  For those who argue, "how are we going to pass immigration during an economic crisis? How are we going to let in those immigrants?" I say: you think we have an unemployment NOW?...I refer you to the report's author: 

"We have to be careful about what people desperate for a job may do," Papademetriou said. "This begins to affect the labor standards and wages of not just the immigrants, but the people who work with them". This has very important social and economic consequences for the country. . . . If we're not careful, we could have situations that are unanticipated and that we haven't seen in this country for a while."

Abroad, the International Monetary Fund estimates that economic growth in Mexico will decline from 4.9% in 2006 to 1.8% in 2009 - we've already started to see the dramatic devaluation of the peso - which further reduces the incentive of undocumented immigrants to return home.  Let's pass comprehensive immigration reform and stem this race to the bottom.

Thursday New Tools Feature: Citizen's Briefing Book

This week, President-elect Obama's transition team introduced Change.gov's newest feature, the Citizen's Briefing Book. Somewhat similar to Open for Questions, the Citizen's Briefing Book allows users to submit policy proposals and vote on other submissions. From the introductory email:

We wanted to tell you about a new feature on Change.gov which lets you bring your ideas directly to the President.

It's called the Citizen's Briefing Book, and it's an online forum where you can share your ideas, and rate or offer comments on the ideas of others.

The best-rated ones will rise to the top, and after the Inauguration, we'll print them out and gather them into a binder like the ones the President receives every day from experts and advisors. If you participate, your idea could be included in the Citizen's Briefing Book to be delivered to President Obama.

Back in October, I wrote:

With the launch of new sites like BigDialogue and WhiteHouse2.org, the tools are there waiting to be picked up. These sites aim to give people a more direct voice in governance...These are some of the most exciting new tools that I’ve seen in a long time; the question is, will our next president embrace them, or ignore them?

That question seems to have been answered, and the team has even addressed the main complaint I had about Open for Questions by improving the navigational scheme for this tool. All in all, Obama's team seems to be adapting with impressive speed - this no longer seems like a gimmicky experimental feature, but something of real and lasting value.  

However, the successful implementation of this tool raises its own interesting set of questions about open-sourcing a representative democracy:

In the first round of Open for Questions, one of the top questions was "Will you consider legalizing marijuana so that the government can regulate it, tax it, put age limits on it, and create millions of new jobs and create a billion dollar industry right here in the U.S.?" At the time, the Obama team essentially dismissed the question, issuing a one-line response saying that Obama was not in favor of legalizing marijuana. However, as of right now, the top submission in the Citizen's Briefing Book is "End Marijuana Prohibition," and there are three other posts about ending the drug war in the top 20, as well as other proposals like "Revoke the George W. Bush Tax Cuts for the Top 1%" and "Get the Insurance Companies out the Health Care."

There has been much written about the massive moral and economic failure of the "war" on drugs, and I personally believe it is a very important and serious issue that deserves more attention. However, for many political and social reasons, it's something no politician will ordinarily touch with a fifty-foot pole (despite very broad acadademic and popular support for reform), and given Obama's likely pick of the wildly un-progressive Republican Jim Ramstad for Drug Czar, the prospects for these proposals seem especially grim.

In this light, it will be very interesting to see how an Obama administration handles this kind of situation - are they merely attempting to create the appearance and feel of accessibility and openness, or do they really believe deeply in the intrinsic value of this enterprise? How far will they be willing to push this experiment? How far should they? These are questions that undoubtedly will come increasingly to the fore as we enter headlong into a new era of American politics.  

How to Find a “Free” $420 Billion to Stimulate the Economy

President-elect Obama says he’ll consider any good idea to address our accelerating economic decline and help stabilize the financial system. In fact, there’s a huge, untapped resource to help do both sitting on the balance sheets of America’s multinational companies: their foreign subsidiaries are holding about $1 trillion in past earnings, because our tax laws defer the U.S. corporate tax until the parent companies bring those earnings back to the United States. If we can get them to do just that, it could finance new jobs and new capital investment, and provide additional liquidity to our strapped financial system. It’s the closest thing to “found money” that Congress and the new Administration will ever find in the current crisis.

And we can make it happen by temporarily cutting the tax rate on earnings brought back here. In fact, we did it once before: in 2004, Congress cut the corporate tax on such “repatriated” earnings for one year from 35 percent to 5.25 percent. Along with a colleague, Aparna Mathur, I’ve looked at new IRS data to see how well the temporary tax cut worked. It increased inflows of foreign-source earnings by some $312 billion, including $252 billion by U.S. manufacturing companies. The 2004 law also told companies how they could use the new funds they brought back; surveys found that that they used $73 billion of those earnings to create or retain jobs, $75 billion for new capital spending, and $39 billion to pay down domestic debt. Without the tax break, companies keep their foreign-source earnings abroad indefinitely, or at least until they can be used to offset domestic losses for tax purposes. That made the 2004 law a free lunch: it produced $34 billion in new federal revenues, including $16 billion in direct corporate tax revenues and $18 billion in personal tax revenues on income the additional jobs and higher wages supported by new funds.

We also have run the numbers to estimate what would happen if the Obama Administration tried this again. We found that it would bring back $420 billion in foreign-source income now held abroad, with $340 billion of that coming into U.S. manufacturing companies. If Congress once again limits how the money can be used, it could mean $97 billion for employment, enough to create or save 2.6 million jobs over two years. It could mean $101 billion for new capital spending, enough to increase the capital stock of U.S. manufacturers by two percent and produce long-term wage gains of 1.3 percent. It also could produce or free up $52 billion for companies to reduce their domestic debt, the equivalent of 21 percent of the bank equity infusions provided by the Treasury TARP program in 2008. Finally, the free lunch: the repatriated funds would produce nearly $45 billion in new federal revenues, split between the corporate taxes on the funds themselves and personal taxes on the additional wage income coming from the job retention or creation and the wage increases linked to the new capital spending.

The economy is so depressed now that this policy may not work out precisely the way it did in 2004-2005. This terrible recession shouldn’t affect how much foreign earnings come back under this policy, but it could mean that less of those funds will be used for new capital spending or jobs, at least for another year, and more will go to paying down domestic debt. Even so, the stimulus effects would be substantial, and it would actually reduce the deficit a little – and that should make it a genuine priority for the new Administration.

Mr. President: Bring Us Together

The election of Barack Obama signaled the beginning of a "civic" realignment, produced by the political emergence of America's most recent civic generation, Millennials (born 1982-2003). Civic generations, like the Millennials, react against the efforts of divided idealist generations, like the Baby Boomers (born 1946-1964) to advance their own moral causes. Civic generations instead are unified and focused on reenergizing social, political, and governmental institutions and using those institutions to confront and solve pressing national issues left unattended and unresolved during the previous idealist era. The goal of a transition during such realignments has to be to lessen the ideological splits that have divided America during the preceding idealist era and take steps to unify the country so that the new Administration can more effectively deal with the major issues it faces.

Reducing ideological divisions and unifying Americans to achieve important common goals has been a focus of Barack Obama since even before he announced his presidency. It is one of the key reasons his campaign had strong appeal to the emerging civic Millennial Generation, which he carried by a margin of more than 2:1. When CBS’s Steve Croft asked the then-candidate in a pre-election interview what qualified him, a junior senator with limited governmental experience, to be president of the United States, Obama led off his reply by citing his desire and ability to bridge differences and bring people together.

Through Your Actions

One way a civic era president-elect can demonstrate the importance he places on the need for national unity is to name members of the opposition party to his cabinet. The actions of Abraham Lincoln and Franklin D. Roosevelt, the only two other Presidents to preside over transitions to civic eras, demonstrate how this game should be played.

For all the media commentary on Lincoln's first cabinet, deemed a "Team of Rivals" by Doris Kearns Goodwin, it should be noted that it contained no one from the discredited Democratic Party, even though it did have representatives that spanned the breadth of opinion within the relatively new GOP. However, Lincoln did add a Democrat, Secretary of War, Edwin M. Stanton, to his cabinet less than a year after taking office. Stanton, a strongly pro-Union Northern Democrat, had opposed Lincoln's election and had served as Attorney General in the final months of the Buchanan administration. However, Lincoln’s selection of pro-Union Democrat, Andrew Johnson, as his vice-presidential running mate in his 1864 re-election campaign demonstrates that it’s sometimes possible to take even a good idea too far. FDR appointed two Republicans to his initial cabinet–industrialist William H. Woodin, who as Treasury Secretary helped FDR implement his economic and fiscal program at the outset of the New Deal, and Harold L. Ickes, who served as Interior Secretary throughout the entirety of the Roosevelt administration. Both Woodin and Ickes were progressives who had supported FDR in the 1932 election. While neither was a member of the Republican Old Guard, together they demonstrated Roosevelt's willingness to reach beyond his own party to enlist what today would be called "moderate Republicans" in a unified effort to overcome major national problems.

Reflecting America's changing demographics and social mores, Barack Obama has chosen the most diverse cabinet and set of top advisors of any president in U.S. history. Two members of Obama's larger number of appointees -- Robert Gates and Ray Lahood -- are not Democrats, the same number for which FDR found room. This represents a greater number of members of the a different or opposing party than were present in the Cabinets of any of Obama’s idealist era predecessors.

President-elect Obama’s attempt to include a wide range of political opinion and backgrounds in his Cabinet and White House team has generated criticism from the most ideological members of his party, just as FDR and Lincoln faced such criticism from the extreme partisans of their day. Obama's appointment of many "centrist" cabinet-level officers who previously served in Congress, the Clinton Administration, or as governors suggests to his critics that he is abandoning his pledge to bring about significant change in economic, foreign, and social policy. But as political scientist Ross Baker points out, "In uncertain times, Americans find it much more comforting that the people who are going to be advising the president are steeped in experience. A Cabinet of outsiders would have been very disquieting." And civic realignments like the present one have come at the most uncertain and stressful times in America's history.

Through Your Words

Lincoln and FDR are also renowned for their ability to use their words to rally Americans to a common cause. Both did so at the very outset of their terms. Both of these great civic presidents’ first inaugural addresses addressed the fears of a nation in crisis with rhetoric that has continued to ring through the ages.

Lincoln, in another last-ditch effort to forestall secession, told the South that neither he nor the Republican Party would make any attempt to undo slavery in states where it already existed. But he also reminded the South that, while only its actions could ultimately provoke civil war, his "solemn oath to preserve, protect, and defend" the Constitution would require him to prosecute that war if it came.

Lincoln concluded his address with an appeal to the secessionists to rejoin the Union:

We are not enemies, but friends…Though passion may have strained, it must not break, our bonds of affection. The mystic chords of memory, stretching from every battlefield and patriot grave to every living heart and hearthstone all over this broad land, will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.

Roosevelt used his inaugural speech to rally the country to the task ahead by telling it, "the only thing we have to fear is fear itself." He reminded his listeners that at previous dark moments in our national history vigorous leadership joined with a supportive public to win ultimate victory in the nation's trials. Perhaps most important, FDR gave clear recognition that the United States and its people had moved from what we have called an "idealist" era of unrestrained individualism to a "civic" era of unity and common purpose:

If I read the temper of our people correctly, we now realize as we have never realized before our interdependence on each other; that we can not merely take but we must give as well; that if we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective.

Even before President-elect Obama had a chance to utter similarly comforting and inspiring rhetoric, his inaugural plans came under fire for inviting Pastor Rick Warren, a fundamentalist minister and activist in the passage of California's Proposition 8 outlawing gay marriage, to give the invocation at his inauguration. But the selection of Warren should not have been surprising to careful observers. In his acceptance speech at the Democratic National Convention, Obama signaled his desire to find common ground on divisive social issues such as abortion, gay marriage, and gun control.

By bookending his inaugural with a benediction from Joseph Lowrey, a minister who favors legalizing gay marriage among other liberal causes, Obama has signaled his determination to put an end to the debates over social issues from an idealist era that is ending and enlist all those willing to join his cause to rebuild America’s civic institutions.

For in the end, it is the American people that Barack Obama must rally to his side. It is they who will ultimately decide the effectiveness of his transition as a springboard to a civic era Administration. So far their judgment is overwhelmingly positive. A late December 2008 CNN national survey describes "a love affair between Barack Obama and the American people." That survey indicated that more than eight in 10 Americans (82%) approved of the way Obama was handling his transition, a figure that was up by three percentage points since the beginning of the month. Obama's approval is well above that of either Bill Clinton (67%) or George W. Bush (65%) at that point in their transitions.

More specifically, the poll suggests that the public approves of Obama's Cabinet nominees, with 56 percent saying his appointments have been outstanding or above average. That number is 18 percentage points higher than that given to Bush's appointments and 26 points above that of Clinton's nominees. To quote CNN polling director Keating Holland: "Barack Obama is having a better honeymoon with the American public than any incoming president in the past three decades. He's putting up better numbers, usually by double digits, than Bill Clinton, Ronald Reagan, or either George Bush on every item traditionally measured in transition polls."

Of course, the final judgment of the Obama presidency by the American people and history will be based on his performance in office starting on January 20. Still, these polling results clearly suggest that Barack Obama has internalized and put into operation the historical transition lessons provided by Abraham Lincoln and Franklin D. Roosevelt, the presidents who led America's two previous civic realignments. If his inaugural address comes close to matching their first inaugural speeches, President-elect Obama will begin one of the most important administrations in the nation’s history with an enormous reservoir of political and public support that will serve him well in the crucial early days of his Administration.

NDN Statement on the Meeting between President-elect Obama and President of Mexico, Felipe Calderón

NDN President Simon Rosenberg and NDN Vice President for Hispanic Programs Andres Ramirez today said President-elect Barack Obama's meeting with Mexico President Felipe Calderón this afternoon signifies more than long-standing protocol; it also reflects the realities of deeply rooted economic, cultural and political ties betweenthe two countries.

"Never before has a U.S. President been elected by such an overwhelming number of Hispanics in the United States," Rosenberg said. "The United States now has the third largest Latin population in the Americas and the futures of the United States and Mexico are bound together as never before. Hemispheric relations have taken a backseat for too long. Today's meeting is the first step to a genuine and sustained partnership that addresses pressing regional and global challenges. It  is the start of a new day for U.S.-Mexico relations."

"This meeting follows the commitment expressed by President-elect Obama and his advisors throughout the 2008 presidential campaign and during the presidential debates to make it a priority to build a more profound and engaged bilateral relationship with Mexico," Ramirez said. "This meeting also occurs at a time when Mexico is better positioned as a partner of the United States. Since the 2000 election in Mexico, that country has demonstrated major progress in governance, in its democratic institutions and it has developed increasingly diverse international economic and political relations."

Click here for additional background information on NDN's work in studying Latin America foreign policy.

Monday Buzz: A Party of One, Real Realignment, Keys to Economic Recovery, and More

NDN had some great mentions in the media this week. Simon was quoted in the cover story of  New York Magazine, "A Party of One," on the unique character of this election and its implications for the future. From the exellent New York Magazine piece by John Heilemann, which echoes many of NDN's most important arguments:

Obama is difficult to pigeonhole not simply because he’s new but because of the newness of the moment that he—and we—inhabit. It’s a moment dominated by an economic crisis that’s shaken bedrock beliefs about the infallibility of free markets. A moment when a revised architecture of power is arising globally, challenging America’s status as an unrivaled superpower. When the networked age has finally arrived, inciting the implosion of the broadcast paradigm that governed politics in the Industrial Age. When the country is being transfigured demographically, hurtling toward becoming a majority-minority nation.

This crescendo of forces produced Obama, made his ascension possible. Now he has a chance to shape the new era, to leave his stamp on it. “This really is the first presidency of the 21st century,” says Simon Rosenberg, head of the Democratic advocacy group NDN. “Those who try to hold on to twentieth-century descriptions of politics are going to be disappointed and frustrated by what’s about to emerge in the new administration, because American politics no longer fits into the old boxes—and neither does Obama. For better or worse, what he is doing is building a new box.”

Simon was also quoted in The Washington Times, and his essay on the need for "Progress, Not Motion" was featured in The Hill.

Rob was quoted in The National Journal, Washington Post Global, and The Street, and received a great shout-out from Overstock.com CEO Patrick Byrne in ECommerce Journal. From the National Journal article:

For Obama, who is in no position to tighten fiscal policy, trade liberalization is today's best analog to Clinton's gamble. "If Obama thinks that Doha could contribute to an economic recovery and expansion that will be in full flight as he's running for re-election, he'll do it," says Robert Shapiro, a Washington-based economic consultant and a veteran of the Clinton administration's Commerce Department. "Just like Bill Clinton raised taxes because he was convinced that would be the effect."

In 2007, Shapiro notes, almost one-third of everything produced in the world was exported across a border, up from less than one-fifth as recently as 1990. America, he adds, is one of the world's two most globalized countries (the other is China). Like it or not, globalization, meaning cross-border commerce, now drives the world's economic growth.

Finally, new NDN fellows Morley Winograd and Mike Hais were featured in the USA Today on the realigning character of this election. From the article, by Chuck Raasch:

And so, a 30-year era is ending, an era in which one political party, the Republicans, saw government as the problem. Whether or not it is smart to run $1.2 trillion deficits and massively expand government's control over private enterprise, the course has been set.

Morley Winograd and Michael D. Hais, co-authors of "Millennial Makeover: MySpace, You Tube, and the Future of American Politics," say the United States is undergoing the sixth major political realignment in its history. The nation is transforming, they say, from the worn-out arguments of an idealistic but fractured baby boom generation to a more civic consciousness exemplified by "millennials" born between 1982 and 2003. Civic generations, Hais and Winograd say, are primarily interested in strengthening government and political institutions.

Times Offers Excellent Analysis of the Emerging Economic Debate

Edmund Andrews and David Herszenhorn of the New York Times today offer a very good overview of the how the debate over the economy is shaping up.  It begins:

WASHINGTON - The fresh evidence on Friday of the economy's downward spiral focused even more attention on two questions: Is the stimulus package being pushed by President-elect Barack Obama big enough? And will the component parts being assembled by Congress provide the most bang for the buck?

With the Federal Reserve having just about reached the limit of how much it can help the economy with cuts in the interest rate, Washington's ability to end or at least limit the recession depends in large part on the effectiveness of the big package of additional spending and tax cuts that Mr. Obama has made the centerpiece of his agenda.

And with the economy facing what now seems sure to be the sharpest downturn since the 1930s, the financial system balky and the government facing towering budget deficits, economists and policy makers acknowledge that there is no playbook.

"We have very few good examples to guide us," said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization. "I don't know of any convincing evidence that what has been proposed is going to be enough."

In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.

It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support. It includes a big expansion of safety-net programs like unemployment insurance, which Democrats say makes both economic and social sense. It includes more money for highways, schools and other public infrastructure; more money for "green" energy projects; and more money to help state governments pay for health care and education.

Republicans, as always, are advocating for more and broader tax cuts. But the evidence is ambiguous about whether tax cuts will really spur economic activity at a time when consumers and businesses alike are frozen in fear and reluctant to let go of their money.

The risk is that Mr. Obama and the Congress will weigh down their effort with measures that cost many billions of dollars but may not have much impact on economic activity.

Tax breaks, for example, usually produce less than $1 of stimulus for every dollar they cost, economists say. Spending on public construction projects, like highways and bridges, produces the most economic activity - but there is a limit to how many projects are "shovel-ready," and even those take time to generate jobs and ripple through the economy.

You can read the rest here.  For more on our take on all this you can find many posts from recent weeks on the blog, and be certain to review this recent compilation of our economic writings over the last few years.  Be sure to review what has become one of our more influential works, A Stimulus for the Long Run.

Politics and the Economic Crisis

Barack Obama's historic election as a new, national agent of change will face a daunting test as the economic crisis continues to accelerate, and the political pressures arising from what must now be called “The Great Recession” begin to reshape the response.

The latest evidence is today’s unemployment data: one million jobs lost in two months; the sharpest eight-month rise in the jobless rate since 1945, when tens of millions of soldiers and sailors were demobilized; and losses across every sector and every region. Jobs are in freefall along with the markets, investment, consumer spending and household wealth. And economists are now genuinely frightened by the course the Great Recession is taking, because there’s been nothing like it in anyone’s experience.

That’s why long-time advocates of fiscal probity now call for stimulus topping $1 trillion, and why every spending and tax idea floating around Congress for the last decade is back on the table again. The political pressures and real concerns are so overwhelming that there’s talk of large tax cuts, despite the consensus among economists that when people and businesses are as economically downcast as they are today, tax relief has little stimulus power. That’s not only politics at work; it also reflects a sense of grave foreboding among many of those same economists.

We do need unprecedented stimulus – but all of the stimulus in the world won’t change the course of this crisis until we also address its underlying forces. The wealth of American households and the portfolios of American financial institutions will continue to tank until the housing market stabilizes -- or at least until foreclosure rates return to normal. And the most aggressive, easy policy in our history won’t be enough, and financial institutions won’t begin normal lending again, until they’re more confident that the hundreds of billions of dollars in mortgage-backed securities and other derivatives they still own aren’t headed for the drain as well.

The new Administration can take on these challenges directly, as candidate Obama pledged to do with extraordinary foresight. For example, we can impose a 90-day moratorium on foreclosures and use the time to renegotiate the terms of tens of thousands of distressed mortgages held by Fannie Mae and Freddie Mac. One idea promoted by many economists is to convert those mortgages to 30-year fixed at 5.25 percent, which happens to be long-term mean rate for Fannie and Freddie mortgages. It won’t stop foreclosures, but it should bring down foreclosure rates to near-normal levels, which would do more to stabilize the financial system than the bailouts in the Bush Administration’s own Wall Street version of tsunami stimulus. And some tough love from the new Treasury Secretary could help restart the lending process: having done what we can to stabilize the value of their portfolios, we should consider requiring institutions receiving federal aid to use a real share of that assistance to restart their lending.

We need large-scale stimulus, but it will only work if we first address the underlying problems. Otherwise, 18 months from now, we could be $1 trillion poorer and have little to show for it.

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