No Half-Stepping Stimulus

Democratic leaders in the House are currently sketching out the details of an economic stimulus package designed to soften the blow later this year of the now-apparent recession.

But Robert Kuttner, founding co-editor of The American Prospect and the author of “The Squandering of America,” is warning that the Democrats should seize the opportunity – and take the political risk – of offering a bold and robust plan to not only stimulate the economy in the short run but reform the economy in the long run.

“I fear that the politics of the stimulus package risks identifying Democrats as well as Republicans with small-scale remedies” that will not be adequate to address the crisis, he told about 100 Capitol Hill staffers at an economic town hall meeting co-sponsored by the Congressional Progressive Caucus and the Campaign for America’s Future.

And how big is that crisis? Bigger, Kuttner says, than what is being reflected in the current mainstream political debate. Don’t think the downturn that followed 9/11, or the early 1990s. Think the 1930s.

That’s apt, Kuttner argues, because the same kind of freewheeling and ultimately irresponsible corporate behavior of the Bush era finds it parallel in the corporate schemes that set the stage for the 1929 stock market crash and the Depression.

“If you look at subprime and all its glory, it recapitulates all of the abuses of the 1920s in all their glory,” he said at the town meeting. When all of the parallels are drawn, as he does in “The Squandering of America,” he concludes that “we should be very alarmed.”

David Smith, chief economist for Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said that Democrats are discussing the details of a stimulus package that would be “north of $100 billion.” The elements are likely to include some form of tax rebate that can get into taxpayers’ pockets quickly, money to states to help them with Medicare and Medicaid expenses, and additional funding for such programs as unemployment insurance and food stamps.

That’s a start, but only a start. Kuttner suggested that an adequate stimulus package should perhaps be three or four times that size, given the size of the economy and the severity of the ripple effects of the housing market implosion on the rest of the economy. Plus, none of the remedies most prominently on the table would address investment in public infrastructure, which would create a broad range of jobs, or seed the growth of urgently needed green-energy technologies — to name just two of the suggestions for stimulus raised during the town hall meeting.

More importantly, Kuttner said, they would not address the fundamental need to, as he put it, “re-regulate financial capital,” tax it appropriately, and use the proceeds efficiently to meet national and human needs.

To hear the conservatives tell it, the American economy was in a Dark Ages of high taxes and stagnation before Ronald Reagan rode in on his white horse in the 1980s, slashed taxes and regulation and ushered in Morning in America.

Of course, that’s a lie. Some of the most spectacular growth of the American economy, and particularly the middle class, took place in the 1950s and 1960s, helped by progressive taxation, market regulation and spending policies.

The challenge, as the national debate heats up over how to address the looming recession, is to draw the right lessons from history — and from the present — and be bold about both the nature of the problem and the right solutions.

“Ordinary people know that the economy is not serving them,” Kuttner said. “They need leadership to connect the dots. They need leadership to take the political risks. … It is important that the politics of economic stimulus not be conflated with a vision of the transformative reforms that we need.”

Amen to that.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future