Stop Apologizing for the Stimulus

The president needs to make the case for his economic policies, not hide from them.

By Eliot SpitzerPosted Monday, June 6, 2011, at 4:19 PM ET

Barack ObamaThe White House may hope to dismiss last week's dismal jobs data as a "little bump,"
but the reality is that the state of the economy is dire. President
Obama must acknowledge the economic malaise. Then he can make the
powerful and true case that the policies he has been pursuing are
correct while the Republican alternatives are horrendous canards.

It's
alarming that once again we are letting the Republican candidates'
rhetoric and near-hysterical fear of government spending distort the
national debate and keep us from the more dramatic economic changes we
still need.

The lessons of the Great Recession and the semi-recovery are clear:

1. Keynes was, and is, right.
   Though much-maligned by Greenspan neo-libertarians, government spending
   in the absence of private sector demand can resuscitate an economy. The
   stimulus bill worked. It saved millions of jobs, generated demand when
   there was none, and kept the economy from near total collapse. The
   unemployment rate kept going up, but it would have been so much worse
   without it. Take a look at the data. There is no doubt that the jobs picture stabilized and then improved after the stimulus kicked in.
2. Targeted government intervention works. Carefully
   calibrated government intervention in individual sectors can return
   those sectors to solvency and also force needed reform when done
   properly. The auto bailouts are a case study in wise use of capital both
   to overcome a short-term cash flow crisis and to impose necessary
   structural changes. The bank bailout was only a partial success, because
   although the sector was returned to solvency, the needed reforms were
   not imposed. Hence the social gains have been much more limited. But
   both sectors prove that government can play a hugely important and
   positive role as a lender of last resort.
3. An individual health insurance mandate works.
   Look at the Massachusetts example. The requirement that people pay for
   their coverage when they can do so overcomes an enormous free-rider
   problem, as both Newt Gingrich and Mitt Romney have admitted, and it
   saves the government huge sums of money. The president should offer a
   full-throated defense of the mandate invoking both Romney and Gingrich.
4. Making the Bush tax cuts permanent has not created jobs.
   The lack of job growth is driven by inadequate demand and excess
   capacity. Marginal tax rates at this point have a minimal impact.
5. The housing crisis still needs to be addressed head-on.
   Too many homeowners—especially unemployed homeowners—have mortgages
   they can't afford, and this will be a drag on the economy for years to
   come. We know we can't depend on the housing sector to provide
   significant growth during the next few years, but we also must ensure
   that it doesn't drag us down. The failure to require significant
   mortgage reform as part of the bank bailout was an egregious policy
   error.
6. Joblessness—not the deficit—should be our immediate policy concern.
   The debt crisis is real—but in the medium and long term, not the short
   term. The market is still saying to the U.S. government: We want to lend
   to you. While the issue of long-term entitlement costs looms, it will
   not metastasize for a decade or so. The immediate crisis is joblessness
   and the resulting anemic growth rate. If growth remains in the range of
   1.8 percent to 2 percent, we will never generate enough revenue to
   balance our books. If growth accelerates to 4 percent, then deficits
   will organically decline. Priming the pump to increase growth is the
   imperative. Leave the deficit to next year.

All this argues
for a more robust presidential response. He should trumpet the success
of the stimulus, not just the bailout of Chrysler. He should starting
pushing back against the Tea Party's rhetoric.

The
president should go to bat for Keynes, for Roosevelt, for the policy
tools that have worked. He should again challenge the deregulatory,
Hoover-based-thinking that created the mess we are in. We need a
full-throated defense of the policies of the past several years, not
meekness and apology.

The stimulus worked: The president needs to make the case for his economic policies, not hide from them. - By Eliot Spitzer - Slate Magazine