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An end to fiscal stimulus?

The focus in Washington has turned to reducing the deficit, and states with high unemployment can't count on support from other states for job-creation measures.

June 24, 2010|Doyle McManus

When the Senate voted last week on whether its latest jobs bill would move forward, one Democrat, Ben Nelson of Nebraska, broke ranks and stood with Republicans to block the measure from getting a final vote.

"I've got bailout fatigue," Nelson explained. " Washington needs to put a plug in deficit spending."

A bill to extend unemployment insurance and save teachers' jobs shouldn't be this hard to pass. But this one started as a $140-billion stimulus package, was whittled down last week to $118 billion and is now headed below $100 billion. It seems likely that unemployment benefits will be extended again, but with $25 cut from every monthly unemployment check — a measure that would save the federal government $6 billion.

A tide has turned on Capitol Hill. A Democratic Congress that once passed a $787-billion stimulus bill, the largest in history, is now haggling over $25 to struggling families. The recovery is tepid — with unemployment stuck at almost 10% nationwide and much higher in some places ( California is at 12.4% and Nevada at 14%) — but the hot issue in Washington has shifted from job creation to getting the federal deficit under control.

Even liberal Democrats agree that the federal government needs to bring the deficit under control. The argument is over how soon to start doing it. Is the recovery strong enough that we can stop spending borrowed money to stimulate faster growth? Is the deficit growing so fast that we need to rein in spending now to avoid a fiscal crisis later?

President Obama and his chief economic adviser, Lawrence Summers, have offered a sensible answer: Spend more on stimulus now, but make a clear commitment to deficit reduction later.

And many economists agree. "Long-term deficit reduction is necessary, but it isn't something that needs to happen right now," said Bruce Bartlett, a former economic aide in the Ronald Reagan and George Bush administrations. "There's still a strong case for additional stimulus." The ideal course, Bartlett said, would be to pass a stimulus bill — plus a binding commitment to cut the deficit later.

But that's economics, not politics. And when it comes to politics, Obama and the Democrats are on the defensive — which is why their bill has had such an uphill climb.

It's partly Obama's own fault. He hasn't convinced Americans that last year's giant stimulus actually created many jobs. Nonpartisan economists say the stimulus saved or created at least 1.2 million jobs and probably more, but many voters don't believe all that spending had any effect at all.

That's partly because so much of the stimulus was invisible, in the form of tax cuts and aid to states. But it's also because our wonky president, for all his policy-designing brilliance, tends to neglect the mundane blocking and tackling of politics. Sure, Obama has talked a blue streak about the importance of the stimulus — but when was the last time you saw him in a hard hat, talking with a construction worker who got a job thanks to the plan?

In 1994, coming out of a smaller recession, then- President Bill Clinton passed a bill that called for the hiring of 100,000 additional policemen. As he ran for reelection that year, Clinton never missed an opportunity to have his picture taken with a cop. The program never got near its 100,000 goal, but it sure was popular. Obama has found no equivalent image to prove that his stimulus worked.

A second part of the problem: Obama says he wants to reduce the deficit, but he hasn't said how in any convincing way. As a result, many voters — including the constituents of Democratic members of Congress from relatively conservative districts — don't think he's serious.

To be fair, this isn't really the president's fault; it's the fault of our adversarial political system. Over the long run, reducing the deficit is going to require some combination of cuts in projected Medicare spending, cuts in Social Security benefits and increased taxes. But in this hyper-partisan election year, it's suicidal for any politician to propose any of those bitter medicines. So Obama has handed off the problem to a bipartisan commission that includes retired politicians like Sen. Alan Simpson (R-Wyo.) who are brave enough to speak unpleasant truths.

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