Summers warned that a “poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured.” So his proposal had three clear guidelines.
First, the stimulus should be timely. The money should go out “almost immediately.” Second, it should be targeted. It should help low- and middle-income people. Third, it should be temporary. Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”
Now Barack Obama is president, and Summers has become a top economic adviser. Yet the stimulus approach that has emerged on Capitol Hill abandoned the Summers parameters.
In a fateful decision, Democratic leaders merged the temporary stimulus measure with their permanent domestic agenda — including big increases for Pell Grants, alternative energy subsidies and health and entitlement spending. The resulting package is part temporary and part permanent, part timely and part untimely, part targeted and part untargeted.
...[T]hey’ve created a sprawling, undisciplined smorgasbord, which has spun off a series of unintended consequences. First, by trying to do everything all it once, the bill does nothing well. The money spent on long-term domestic programs means there may not be enough to jolt the economy now (about $290 billion in spending is pushed off into 2011 and later)...
Second, by pumping so much money through government programs, the bill unleashes a tidal wave on state governments. A governor with a few-hundred-million-dollar shortfall will suddenly have to administer an additional $4 billion or $5 billion...
Third, the muddle assures ideological confrontation. A stimulus package was always going to be controversial, because economists differ widely about whether or how a stimulus can work. But this bill also permanently alters the role of the federal government, thus guaranteeing a polarizing brawl at the very start of the Obama presidency.
Fourth, Summers’s warnings about deficits have been put aside. There is no fiscal exit strategy. Instead, permanent spending commitments are entailed with no permanent funding stream to pay for them.
Fifth, new government expenditures on complex matters are being designed on a hasty, reckless timetable...
Wise heads are now trying to restore structure and safeguards to the enterprise. In testimony this week, Alice Rivlin, Bill Clinton’s former budget director, raised the possibility of separating the temporary from the permanent measures and focusing independently on each. “A long-term investment program should not be put together hastily and lumped in with the anti-recession package,” Rivlin testified. “The elements of the investment program must be carefully planned and will not create many jobs right away.”
The best course is to return to the original Summers parameters — temporary, targeted and timely — thus making the stimulus cleaner and faster.
Amen to that. As Rivlin's testimony shows, there can be a truly bi-partisan approach to enacting a needed and effective stimulus program.
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