Stimulus 3.0? - by Jacob Laksin

President Obama promises to spend the country out of recession – again.


Almost a year into his first term and ten months after a Democratic Congress passed his administration’s economic rescue package, a budget-busting $787 billion “stimulus,” President Obama has come up with a curious explanation for the sorry state of the economy. Apparently, it’s all the Republicans’ fault.

That was the takeaway from the president’s economic address yesterday at the Brookings Institution, in which Obama sought to account for the country’s swelling deficit and persistent double-digit unemployment by blaming them on the party that is out of power. Pausing to lament what he called the “bitterness of partisanship,” the president provided a textbook example of the wedge politics he had in mind by assailing the GOP for creating the economic crisis. Obama complained that “[w]e were forced to take those steps [to jump-start the economy] largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that had led to the crisis, decided to hand it over to others to solve.” No bitter partisanship there.

It’s not clear, however, that the administration has “solved” the problem that Republicans supposedly created. The administration’s stimulus package has done little to lower the jobless rate in the country, which now stands at 10 percent – this despite the rosy predictions of Obama’s top economic advisors that unemployment would not exceed 8 percent if a stimulus were passed. In November, hyped by the administration as a more hopeful month on unemployment, some 11,000 jobs were lost. Against this bleak background, the administration’s repeated claim that the stimulus has “created and saved” over one million jobs – itself a highly dubious metric, as Edward Lazear, the former chairman of the President's Council of Economic Advisers, has documented – is bound to come as cold comfort.

Then there is the deficit. The president has long maintained that he inherited massive deficits from the Bush administration. The charge is not entirely without merit. Whether it was the Medicare prescription drug benefit, federal education spending or the early financial industry bailouts, the Bush administration certainly contributed to the $1.3 trillion deficit that greeted Obama in office. Clouding the exculpatory narrative is that the Obama administration has since increased the massive spending of the Bush years. It’s no coincidence that the federal budget deficit has soared to record-high $1.42 trillion for 2009 – the largest deficit in American history, relative to the size of the economy, since World War II. Even that does not factor in the cost of the administration’s health care overhaul, whose estimated ten-year price tag could top $1 trillion.  

But if the administration realizes that it has a spending problem, it has an odd way of curbing its excesses. In response to criticism of the growing federal deficit, the administration has simply promised to spend more, with the president yesterday highlighting his plan to “spend our way out of this recession” with a new round of stimulus spending. Yet the new stimulus – a term the president tellingly avoided using this week – is unlikely to be more successful than previous incarnations. Whatever the merits of the administration’s plans to boost spending on everything from infrastructure projects like bridges and highways, to social spending on seniors and veterans, and public sector jobs, it’s hard to see how they will energize the private sector that, in his own telling, the president deems crucial to reviving the economy.

The more pressing question is how the administration will pay for a new round of stimulus spending that could cost $170 billion or more. For instance, the administration’s proposal to use leftover funds from the much-maligned bank bailouts – the $700 billion Troubled Asset Relief Program (TARP) – has already incited ire on Capitol Hill. Republicans spent yesterday pointing out that the funds from the TARP were originally intended to go toward reducing the national debt. Channeling the funds to pay for a scarcely disguised new stimulus program, they charge, would be illegal. At a minimum, appropriating taxpayer funds aimed for a narrow economic purpose to subsidize the administration’s spending priorities is bound to prove controversial with the public.

That’s something the administration can ill afford. Obama’s newest stimulus plan comes at a time when public confidence in his stewardship has fallen to an all-time low. According to the latest Gallup poll, Obama's approval rating has fallen to 47 percent, the lowest for any president at this point in his first term. Revisiting the same strategy that has failed to revive the economy to date will hardly allay those concerns. “Our work is far from done,” the president announced yesterday. A growing number of Americans fear exactly that.