The Economic Recovery Plan America Needs

By Robert Kuttner, The American Prospect. Posted February 15, 2008.

UPDATE: The Senate late Thursday afternoon passed a stimulus bill that adds tax rebates for 20 million elderly people excluded from the House version, as well as 250,000 handicapped veterans. Senate Democrats failed by one vote to get a stronger bill, with extended unemployment benefits, more money for food stamps, and emergency energy assistance for the poor.

Basically, the Democrats played a potentially strong hand badly. They began with a package too small and too feeble, so when it came time to split the differences with the Republicans they were vulnerable to the usual salami tactics.

Senate Democrats and Republicans are currently debating whether to pass a stimulus bill that spends $158 billion (the Senate Democratic package) -- or the $145 billion passed by the House. Senate Majority Leader Harry Reid is currently one vote short of the 60 Senate votes that he needs. The battle is certainly worth waging, because it compels Senate Republicans to either vote for a slightly better bill written by Democrats, or to oppose added support for the elderly, veterans, food-stamp aid, energy assistance, and extended benefits for the unemployed.

But the sums in both bills are far too paltry, given the severe downturn that the nation's economy faces. In December, House Democrats began negotiations with the Bush White House, proposing an even smaller number -- about $90 billion -- than the administration wanted. After the administration indicated a desire for fast action, House Speaker Nancy Pelosi and the rest of the leadership rushed to compromise with Bush, trading away additional aid for food stamps and increased unemployment compensation in exchange for a cap in the package on tax relief for the wealthy.

The bill that passed the House weighs in at just 1 percent of the gross domestic product, in a year when joblessness is rising fast and Americans are projected to lose $2.2 trillion dollars of the value of their homes. You know you have settled for too little when you are criticized from the left by Max Baucus, perhaps the Senate's most Republican of Democrats.

Democrats are already saying that they plan to come back for "Stimulus II," and that package needs to be a lot more robust, both for political reasons and economic ones. Their initial posture signaled nothing so much as thinking small, at a moment when the economy's problems are immense and long-term.

After their accord with the White House, the Democrats got nice prime-time TV treatment with Bush, chumming it up with the hugely unpopular president who gave us this mess. When the eventual bill is signed, the Democrats would be wise to skip the signing ceremony and hold their own event, on the recovery program that the country really needs.

Why did the Democrats initially settle for so little, and what should they be promoting? Two senior Democratic legislators told me that they were pleasantly surprised when Treasury Secretary Hank Paulson reached out to them and indicated that Bush was serious about wanting legislation. The Democrats felt they needed to reciprocate. For the first time in memory, Bush actually negotiated in good faith, and split the difference with the Democrats. But there wasn't that much difference to split, since the Democrats' opening gambit was so feeble.

In part, their caution reflected the influence of the fiscally conservative Blue Dogs who insisted on a very modest package as their price for coming along at all. Another lead weight on the Democrats' bargaining position was the widespread view that the stimulus should be "timely, targeted, and temporary," lest Bush use it for more permanent cuts in the revenue base. So instead of looking forward to November, or outward to what the country needs, Democrats looked backward to the big Bush tax cuts of 2001 and 2003 -- whose extension was never seriously in the cards in any case.

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Robert Kuttner is co-founder and co-editor of The American Prospect. He writes regularly for the magazine on political and economic issues. Bob has just completed a book, to be published in 2007, on the connection between political and economic inequality and systemic risks facing the economy. He is pursuing these issues as a distinguished senior fellow at Demos. Click here to read more about Kuttner.