This entry is actually a continuation of the entry "The best act of ventriloquism of these times." The Obama administration, for which many of us have feverishly volunteered, should not sacrifice substance on its main challenge, the economy, in the name of bipartisanship, seeking the support of people who take turns to kiss the ring of "giants" like Rush Limbaugh and Sean Hannity (who have publicly vowed to work for the failure of the Obama administration) or like Newt Gingrich, whose irresponsible obstructionism after the Republicans took the House in 1994 gave him a place of honor in the Republican Pantheon.
It is disappointing to see the Obama administration looking unexplainably shy to defend its stimulus package. The vote yesterday at the House of this bill, without a single Republican vote but full of concessions on tax cuts, could be an omen of what is coming.
- There has been too many samples of willing Republican ignorance and practically no one economically reasoned response on the Democratic side. House Republican leader John Boehner declared that "the bill on the floor today is a bill that has too much spending (...) and buries our kids and grandkids under a mountain of debt." When Boehner labeled the stimulus package as "wasteful", he did not remember either Paulson's ineptitude and how he introduced holes through regulation in the $700 TARP so companies benefited with those funds could still pay bonuses and dividends at the taxpayer's expense. I understand that the President should not be the attack dog of his own administration but could have somebody in the Democratic Party reminded Boehner that the three records deficits after World War II belong to Ronald Reagan, George H. W. Bush and, breaking all records, George W. Bush, who has doubled the American debt in just 8 years?! Could have somebody in the Democratic Party noticed how Republicans attacked the contraception and the Endowment for the Arts expenses, which were finally taken out the bill, while demanding more expense in infrastructure but, when asked whether they would vote for a bill with more infrastructure expense, magically ignored the question and jumped to tax cuts, as if that was not the policy that they have supported all the Bush’s 8 years with the results we all know? Fortunately we still have programs like Countdown, where Olbermann exposed the way Eric Cantor, Minority Whip, initially only known for his anti-immigrant rants and recently upgraded from Gingrich’s ventriloquism doll, mischaracterized a Congressional Budget Office report in what seemed to have been, at best, a confusion between calendar years and fiscal years. On her side, Rachel Maddow brought us an interesting Moody’s report about the stimulus effect of alternative uses of the same dollar.
- Republicans have attacked the stimulus package because good part of the expense is not going to be made this calendar year. The lack of a response is unforgivable on the Democratic side. Actually much more money should have been put in long-term projects. The reasons go beyond the short-term expense. Let me put you an example. If you were a lender and, in these times of uncertainty, when every remedy seems to fail and everybody has daily nightmares of pink slips, I went to you showing you my tax credit, rebate or whatever other form of tax cut, would that be enough to move you to make me a loan? Of course not unless you could be sure that I will have income by the time my installments are due. Nevertheless, if I show you that I am a subcontractor who is working for a long-term project, it is easier for you to reasonably project my cash inflow and reasonably know whether I am going to be able to pay the installments of my debt when they are due. Being able to project is extremely important in a credit market frozen by negative expectations about the solvency of its clients and immersed in uncertainty. Risk is always present in normal conditions and can be reasonably estimated; uncertainty cannot.
- But then we have the Republican fantasy of the almighty tax cut and of giving back the money to those who have earned it. The Moody’s report brought to light by Maddow shows that for every dollar spent in a stimulus package for
Food stamps, $1.73 returned to the economy.
Infrastructure, $1.59 returned to the economy.
Tax cuts, $1.03 returned to the economy.
Corporate tax cuts, $0.30 returned to the economy.
What does this mean? Let’s see it from another angle. If you tried to revive the economy Republican style, reducing the rate of the higher income bracket, that people would immediately save each dollar or even send it abroad. We are talking of people who have more information and who can move pretty easily to international markets when the return, net of risk, is to low in the domestic market. In this case, it is worse because we are facing uncertainty. At least risks can be reasonably calculated. Those who can risk in a jungle of uncertainty, like Warren Buffett, are making long-term bets. Most people will just save in secure securities or commodities. That is why the banks who have received the TARP money have basically sat on the money and even after the Fed rate fell to practically zero, only selected clients have been blessed with the modification of their loans.
If we tried a tax cut to the lower income bracket, most of that people would spend that money almost immediately but then that money begins to circulate in the economy and at one moment it ends in the higher income tax bracket, which answers to the uncertainty as we have described above. Of course, that money circulates more than in the first option and that is why expense of $1 in food stamps implies a return of $1.73 to the economy. In the case of infrastructure, of course, we can also introduce predictability of the income of many economic agents, improving importantly their access to credit. Not just that. While more infrastructure expense implies a more balanced effect on both the demand of final goods and services and the demand of capital goods, the other options imply a pressure almost exclusive over the demand of final goods and services, what increases the risk of inflationary reactions in the short term. The fact that the return is just $1.59 in the Moody’s report for the case of infrastructure could be a result of the horizon considered in the study but I would dare to say that longer projects would have a better return, not to mention their effect in the credit market. Of course, those willing to debunk me can verify whether that premise has been considered by the Moody’s report or not. I have had not time to do it.
- Then it is the question of why just about $100 billions out of the $819 billions of the whole package. The American Society of Civil Engineers, mentioned in the Maddow’s show and in these entries before, has recently rated our infrastructure down again and is proposing an expense in infrastructure of $2.2 trillion in five years. If there is such a pool of projects from which to choose and if we are conscious of the importance of infrastructure to maintain our competitiveness (not to mention the stimulus, inflation and credit related reasons mentioned above), why has the Obama administration not been able to replace debatable projects (like those related to contraception and the Endowment for the Arts, finally taken out of the bill by the own Obama administration anyway) with less debatable ones? It cannot be due to the lack of them. Instead, the Obama administration has made continuous concessions to a radicalized Republican Right and at the end the bill has kept the concessions in exchange of zero Republican votes in the House. Unfortunately for the Obama administration the indebtedness capacity of the United States is not infinite and every concession implies resources that may not be available later.
- After the defeat of 2006, isolated voices like those of John McCain and Jeff Flakee, Senator and Representative of Arizona respectively, publicly admitted that the Republican Party had been punished by the voters and that it had to adjust. Nevertheless, most Republicans insisted that what they needed to do was to radicalize their conservative positions even more. Unfortunately John McCain, the leader of what could have been a very much needed healthy moderate wing inside the Republican Party, stepped back in all the positions that made us respect him and thus made a great favor to the radical Right wing which always loathed him: If he won, he would have had to be a puppet of that wing or become a Republican Jimmy Carter, isolated from his own party; if he lost, that would have weaken any moderate movement inside the Republican Party because McCain would have fathered the defeat. If you have followed the election results by districts, you will see the consequence of this: the districts in which Republicans have gotten better results are places where a Democrat would not be have been able to win, no matter what: places where there is no recession or war that could be more important than guns, gays, abortion or immigration. In other words: From the House Republicans you cannot expect but Gingrich 1994 all over again. It is pretty symbolic the apology made to Rush Limbaugh by a Republican congressman because he had dared to criticize him. It is symbolic not only because it reflects the fears of that congressman to the effect of Limbaugh over his constituents but also because of the three people he labeled as "giants" of the conservative movement: Limbaugh, Hannity and Gingrich. We know the animosity of the first two, who have committed to the failure of this administration, and the record of the third one during the Clinton administration. Feel conciliatory?
In the Senate, where candidates depend on more extended constituencies, the results could improve in 2010 for the Democratic Party but only if good part of their voters understand the counterproductive positions of their current Senators. That will be hardly possible if nobody in the Obama administration or in the Democratic Party expose the cheap Republican obstructionism and willing ignorance for what it is. Ideas do not grow overnight. They need time. Will 2010 be another year in which Olbermann, Maddow and Jon Stewart are the only ones who expose the Republican vacuum of ideas? Is bipartisanship in the main challenge of the Obama administration, the economy, a good bet? Or it would be much more intelligent to push the vulnerable Republican Senators to explain their vote before their constituencies? This will be hardly achieved if the Obama administration limits itself to silently accepting the more bizarre Republican critics with the hope that somehow a divine light will enlighten those voters without any need of human intervention.
- If you want to get rid of parts of the bill of doubtful effectiveness, get rid of the credit for first time homebuyers. There already exists a refundable credit for first time homebuyers, though it actually works as a zero rate loan, and its effect are pretty predictable if you take into account what happened after the Federal Reserve cut its rate to practically zero: modifications were available but only for those with outstanding FICOs. The credit already in the laws is up to $7,500. To make that credit work according to its original intention, you would have to increase the amount to such level that would be much more simple and intelligent for the government to make or guarantee the loan itself. In other words: It would be a subsidy to those who already can access the credit market. What is the word for this? Stupid. Yes. Stupid.
- Bipartisanship is good and your chances of getting bipartisanship are better in the Senate than in the House. Furthermore, you do not need them in the House. Of course, confrontation could be profitable in 2010 if Republican Senators are exposed to the embarrassment of their own votes but it could mean to spend quickly good part of the political capital Obama has won in November. With all the mess left by the Bush administration on so many issues this is not a reason to be taken lightly but there are battlefields and there are battlefields. The economy is, by far, the most important challenge for the Obama administration and risking a failure in the economy just to gain insincere Republican support at the cost of substantial concessions (as we have seen yesterday in the House) is very, very naïve. For too long the Republican Party has described the Democratic Party of a party of pansies. Maybe that is why the day Obama accepted the Democratic nomination, that "Enough!" of his speech was so special. Mr. President, we need to hear that "Enough!" again.