Posts Tagged ‘Grand Bargain’

Real Fiscal Responsibility & Deficit Politics: Democrats

Tuesday, December 15th, 2009

This is part 3 of a 4-part series of posts. Part 1 provided an introduction and description of the groups that benefit from the government spending status quo: the elderly, the military, the poor, and big corporations in that order. The overall societal status quo clearly favors all these groups except the poor. Part 2 described the main political dynamics behind what the Republicans are doing, along with their solutions; it explained why Republicans oppose government intervention in principle, and yet protect the status quo because it benefits those interest groups that support their party – the elderly, the military, and the big corporations. The solution to this political dilemma is to “starve the beast,” to protect the status quo until it becomes so catastrophically unstable that it has to be dismantled; which explains why, when in power, Republicans have both cut taxes and increased spending – protected today’s elderly at the expense of tomorrow’s elderly while trying to force Democrats to take responsibility for the undoubtedly unpopular solutions to the deficit problems created by Republican administrations.

Given this, the next question is: what is the Democratic approach? Do they seek to dismantle the programs that benefit the Republican interest groups? Have they figured out the political answer to the politics of “starving the beast” that so benefit the Republican Party? In short, the answer to both is no. Social Security and Medicare do benefit the elderly – who were the only demographic group to go Republican, even in the aftermath of Bush – but they are historic Democratic programs. They represent in some sense liberalism at its best* – an attempt to soften the roughest edges of capitalism, to ensure that our grandparents and parents are taken care of in their old age. It’s not clear that the Democrats have the political will to go about rescinding subsidies of various sorts to big corporations or to dramatically cut military spending. This doesn’t simply motivate Democratic voters, but the backlash caused by doing so could hurt the party. And the Obama administration’s approach of blaming the short- and mid-term deficit on Bush’s irresponsibility is of decreasing political utility, even if it has the benefit of truth.

What the Democrats offer is at best a partial solution in the hope that before the time is too late, the Republicans will abandon their destructive “starve the beast” strategy. In short, the Democrats are finessing the issue – to avoid the hard clashes that the Republicans claim are inevitable, and that Republicans while in power have made almost inevitable.

What the Obama administration offers now is a 3-part plan – one that is, to some degree, a Hail Mary pass, a desperate attempt to ease long-term deficit before it is upon us.

Step 1: Keep the Economy Going. Part of the urgency for the stimulus early in Obama’s term was the knowledge that if the economy was not growing, then the staggering short term deficits incurred by the Bush administration could prove crippling to the economy. The only way to pay off the debt without causing significant social problems at home or defaulting on the debt is to have a growing economy. This is how stable nations have gotten out of deficit holes such as the one we are in, and how we almost painless paid off massive debt following World War II, following the stagflation of the 1970s, and again in the 1990s. (A constantly growing economy also happens to be an implicit part of the social bargain at the heart of the American dream.)  The stimulus was needed because keeping the economy growing was essential to easing the fiscal pressure on America’s mid-term debt.

Step 2: Health Care Reform. Policy wonks – led by Office of Management and Budget Director Peter Orszag – have seen this fiscal timebomb coming for some time. They can see the two root causes of the rapid growth in projected federal expenses:

(1) the aging of our population and

(2) the rapidly rising cost of health care, which has been growing faster in America than in any other nation in the world for the past several decades.

As they cannot change the former, they decided to address the latter. The Obama administration has made clear that their primary goal is reducing the growth of health care costs, even at the expense of extending coverage, and the plans consist mainly of a hodge-podge of measures that would tinker with how health care is paid for and how people obtain health insurance, using some previous Republican proposals which focused on cutting costs as models.

As a necessary precondition for rationalizing our current system, the plan would also significantly extend health insurance – following Milton Friedman’s observation that as health insurance approaches universality, political incentives change to allow for more cost control (even in wholly private systems.) In part this explains how the current health care bills has become not only the most significant effort to expand coverage, but the most significant attempt at cost control in a generation. Mark McClellan, director of the Center for Medicare and Medicaid Services under George W. Bush, for example, called the bill “the right direction to go” while suggesting medical malpractice reform would also be good. (However, as Ron Brownstein observes, “since virtually, if not literally, none of [the Republicans] plan to support the final health care bill under any circumstances, the package isn’t likely to reflect much of their thinking.”) The bill includes pilot projects for almost every other cost control program that those interested in health care believe has promise.

The hope is that if we act now before the imminent wave of Baby Boomer retirements, we will soften the impact of the fiscal timebomb that is entitlement spending. Then, programs can be adjusted without being slashed – as proponents of the “starve the beast” approach would prefer. Our debtors, including the Chinese government, have thus taken a keen interest in the steps we are taking to curtail the growth in health care costs. As one prominent Chinese economist has said, “At some point, if you refuse to contain health care costs, you’ll go bankrupt.”

Step 3: The Grand Bargain. These first two parts were the easy ones. This part is where it gets tricky. If the first two parts of the plan work, the pressure for massive change will be relieved. The mid-term deficit incurred during Bush’s term and during the early Obama years will be less painful in the face of a growing economy. The long-term deficit will still be a problem, but not an insurmountable one if health care costs stop growing so rapidly. Each of these will take tremendous pressure off of our fiscal situation – but neither are enough to make the status quo sustainable. At this point, Obama has said he hopes to strike a “grand bargain,” putting everything on the table, and engaging in a frank discussion of tax reform and entitlement reform, of how America collects money and what it spends the money on. At the moment, with the idiocrats dominating the public debate, this doesn’t seem a very promising route.

Tackling these issues would be many times more explosive than health care as so many groups have a stake in maintaining the status quo. And the biggest flaw in the plan is that by relieving the pressure, the Obama administration may simply put off the day it will be dealt with – no matter how determined they are to deal with these issues. But breaking the grip of the idiocrats was at the core of the promise of Obama’s campaign. And these are core issues Obama was elected to address.

*Contemporary Democrats do not – contrary to the caricature Republicans push – think government and centralized control is the solution to everything; but they do believe that government can be a force for good, that through democracy we can make modest steps and institute policies that improve our society. And despite an organized campaign to suggest otherwise, history has demonstrated this to be true, from the the founding of our nation, the building up of our infrastructure, to that giant social engineering project called abolition, to Social Security and bank regulation, to the Civil Right Movement.

The 7 Layers of Opposing Obama’s Response to the Financial Crisis

Wednesday, March 4th, 2009

Opponents of Obama’s response to the financial crisis have taken a number of approaches their disagreement. As with all political opposition, these approaches begin with a seemingly common-sense question or objection – and use it as a lever to attack their opponents. Governor Bobby Jindal for example used a bit of each of the following approaches to go after Obama – though not quite committing to any of them fully. I’ve paired many of these approaches with the most prominent individuals who have become associated with them – and tried to respond to them. What is common among them all is a desire to tap into the inchoate rage that this crisis is engendering among all Americans – and to try to focus that rage on Barack Obama. What is lacking among these approaches is a compelling or plausible alternative.

I. Do we need to do anything at all? (James K. Glassman)

George Will memorably attacked this point as a strawman on This Week. But it’s not, even if it is unfair to attribute this view to most Republicans. James K. Glassman (hereinafter called “Dow 36,000” after the book he coauthored) wrote a much-talked about piece for Commentary making the argument that nothing need to be done. The article was cited by House Minority Leader John Boehner among others – and was perhaps the first anti-Obama argument to gain traction in the stimulus debate. Mr. Dow 36,000 made the argument that the Austrian business cycle best explained our current mess – and that our best option would be to do nothing and hope things got better, that we trust the market to provide if only we have enough faith in it’s benevolence and restrain our sinful (government) interference.

What Mr. Dow 36,000 failed to account for was that the stability of societies around the world is dependent on economic growth and the opportunity this brings. The opiate of the masses unhappy with their governments is no longer religion – it is the hope that results from economic growth, the miracle and curse of rising expectations.

Mr. Dow 36,000 believes that if our economic heart seems to have stopped beating, the answer is to have faith that our blood will continue to flow. “We don’t need stimulus – we need to calm down,” he says. But the only rational response is to shock the heart back into action, to stimulate it.

II. But do we need to spend all this money?

Yes, if not more. The basic theory of Keynesian stimulus is that when the aggregate market demand for goods and services enters into a decreasing spiral.

Less demand = Lower prices = Less supply = Less jobs = Less demand = Lower Prices = etcetera

When an economy enters this cycle, Keynes believed, the government must step in and increase demand by spending more than it receives in taxes. (If it taxed to make up for it’s increased spending, it would not be adding demand but merely redistributing it.) Projections indicate that the US gross domestic product will fall by $2.1 trillion in the next two years. Which is why some Nobel-prize winning economists were frustrated that Obama’s plan was so small that it will not be able to make up for the drop in demand.

Joe Scarborough pointed out on Meet the Press last Sunday that, as all deficit spending is stimululative, the last eight years of the Bush presidency have been Keynesian stimulus too:

Scarborough uses this point to make out Obama’s stimulus to be more of the same, except with the stimulus directed towards the bottom 95% of Americans instead of the top 2%. He’s not entirely wrong, but to continue the metaphor above – if someone’s lifestyle choices have put enormous pressure on their heart, as they snort cocaine or take speed or otherwise constantly overcharge their heart, the first step to getting them healthy is usually to get them to stop putting so much pressure on their heart. But if their heart beat is dropping rapidly, or their heart has stopped, then the first step is no longer to remove the cocaine from their system but to inject them with someone that will energize their heart. This is a stimulus. And this is the reason Obama’s economic team is increasing our deficit in the short term.

III. What about tax cuts? (Eric Cantor)

The Republicans proposed a $3.1 trillion dollar permanent tax cut as their alternative to Obama’s $780 billion dollar spending/tax cut stimulus. That they continued to criticize Obama for fiscal irresponsibility and accused him of “generational theft” while supporting this bill aptly demonstrates that this was a pure political play. But if nothing else, the sheer size of the Republican alternative stimulus suggests what the reports of the nonpartisan Congressional Research Office concluded: tax cuts work slower and have less stimulative effect than almost any kind of spending measures. This is why more than half of Obama’s bill is spending.

IV. Fine. But even if this works, the deficit will be out of control! (John McCain)

Damn right it will. Hell – after eight years of rapidly decreasing taxes coupled with the largest increase in domestic spending since the War on Poverty and two large and seemingly unending wars, the deficit was already out of control. Even before that, as Bush failed to respect the “lockbox” that Al Gore promised to protect with the extra funds raised by Social Security taxes, we were in trouble. But even if we had saved all of this money paid into the Social Security program which is owed to me and you in a few dozen years (or less) the rapidly escalating cost of health care would leave our government with a deficit of over $60 trillion dollars over the next few decades.

Which is why Obama has been talking about dealing with America’s long-term fiscal problems since he was on the campaign trail – and especially since he was elected. In the weeks before his election, Washington was taken with his idea of a “Grand Bargain.”

But none of this will matter if the economy doesn’t begin growing again. If the first step to recovery is deficit spending to get the economy going again – continuing the above metaphor, using paddles, injections, whatever to get our economic heart functioning again – the next step is to clean up our act and take a fiscally responsible approach to governing and entitlement spending – in other to stop the irresponsible behaviors that helped create the crisis. If our economy is still stagnant, we will need to dismantle a good portion of our federal and state governments. But if the stimulus works, and the economy begins to grow again, adjustments can be made. Another point that Obama and his Director of the Office of Management and Budget Peter Orzag have made clear is that the first step to solving America’s long-term fiscal problems is tackling the problem of our rapidly escalating health care costs – which thanks to their rapid growth make up an ungodly percentage of our unmet future commitments. This is why Obama sees health care reform as one of the first steps that needs to be taken – to stop the rapidly escalating costs of health care.

V. Do we really need to help all these losers? (Rick Santelli)

Yes, we do. Obama has described his economic team as a bunch of mechanics who are trying to fix the machine that is our economy. When a mechanic sees that a spring or a lever or a cog isn’t functioning properly – and this piece is preventing the machine from working – the mechanic knows the problem will not be fixed by lecturing the piece or letting it fail for not properly doing it’s job. The correct thing to do is to replace it or glue it or do whatever is necessary to make the piece function as it must. Yes, the bankers whose job it was to properly calculate risk and make money instead spectacularly failed to understand the risks they were taking and lost money; and yes, the liars and idiots who took our mortgages they couldn’t afford should be punished too. But while one bank failing is just, a failure of our banking system could paralyze the economy. And while an idiot who took out a loan he couldn’t afford should get his house foreclosed upon, too many foreclosures will take down a neighborhood. Both of these are part of systemic problems which has resulted in downward spirals.

Obama, in taking this approach, seems to be combining some elements of Hayek’s warnings about the limits of the discipline of economics and the failure of the best-laid plans with Keynes’s fierce urgency of now – a kind of trial-and-error, scientific approach to financial crisis management as opposed to a more ideological, morality-driven approach associated with partisans of the left and right.

VI. Obama’s plan sucks. It isn’t working yet!

The stimulus money hasn’t begun to be spent. And the banking and mortgage fixes have yet to be fully implemented – so  of course it’s not working yet. Obama recently explained that the ups and downs of the stock market are a flawed indicator – just as the ups and downs of campaign polling is often flawed. Obama bet his campaign on a strategy of ignoring the day to day and conceding the daily media wars and never trying to boost his daily poll numbers. Instead, he focused on the fundamentals. And he won. His economic team’s approach to the financial crisis is similar. The falling stock market is merely a symptom of the crisis. It is a waste of time to treat a symptom when the root cause is not being addressed – but if one is able to treat the root cause, the symptom will be cured as well.

Obama has elected to do what needs to be done to fix the economy as a whole – and this means helping people whose decisions were poor, people who were greedy, people who were stupid, and yes, losers too. No matter how distasteful, the situation bankers and mortgagees must be helped in order to fix the economy.

To reiterate, the Obama plan has several steps:

  1. Fixing the mortgage and banking mess.
  2. Arresting the downward economic spiral touched off by these messes with government spending to stimulate demand.
  3. Put our government on a fiscally sane path by tackling the enormous gap between our spending promises and revenue generation in the area of entitlements – and at the same time, reigning in deficit spending as soon as this crisis has passed. (These steps are necessary to prevent those who we currently owe from panicking.)

VII. I hope he fails! Socialist! Communist! Marxist! Terrorist! Black Hitler! The Antichrist! Nobama! (Rush Limbaugh)

In fairness to Rush, he’s only publicly expressed a few of these sentiments. I’m not sure that he’s called Obama a black Hitler yet – but I’m sure he’s joked about it. This approach presumes that Obama has a quasi-secret agenda he is trying to impose on America – and that this agenda is so awful, it would be better to suffer another Great Depression or worse than to capitulate. Rush has described Obama as acting in bad faith, as being deranged, as having a mental illness (which Rush diagnoses as liberalism), and as all manner of awful and un-conservative things. Rush is a true propagandist and ideologue – and he has become the rallying point for movement conservatives.

His critiques now have power as the anticipatory fear of what Obama might do overwhelms the sense of what Obama is doing – and if Obama fails, Rush will be hailed as a visionary and a leader. But if Obama continues to display the conservative temperament and pragmatism that won him the election, then he will be as little remembered as Father Coughlin with his anti-Roosevelt screeds.

Rush – like proponents of failed ideologies everyone – continues to maintain that the conservative movement did not fail, but rather that it never truly had the power to achieve it’s agenda.

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The Larger Narrative

Tuesday, February 24th, 2009

David Brooks:

The crisis was labeled an economic crisis, but it was really a psychological crisis.

Republican pollster David Winston:

[Obama]’s going to have to fit other issues into the larger narrative of the economy.

Michael D. Shear and Paul Kane in the Washington Post:

Whichever side proves to be right, the sharp, partisan lines over the stimulus bill make it plain that both parties intend to exact a political cost over last week’s votes. And their leaders are looking to history for inspiration as they consider how to maneuver in the weeks and months ahead…

Republicans have made it clear that they intend to try to shift the economic debate toward concern about the federal deficit.

Obama is now completing the three-step jig he planned from the beginning, with his address to Congress tonight focused on the Grand Bargain needed to shore up our economy for the forseeable future.

The first step of this jig was supposed to be easy, nonpartisan, and uncontroversial – a spending and tax cutting bill to stimulate the economy. The second step was supposed to be harder but still nonpartisan – dealing with the mortgage and banking messes. In both cases, Obama has approached these problems as a mechanic trying to figure out what has gone wrong and taking whatever steps are necessary to fix it. Just as a mechanic does not make moral judgments about springs and gears but focuses instead on doing what is necessary to get the machine working again, so Obama approached the economy. Most Americans appreciate this, as polls show that while many dislike the specific measures he has had to take, they approve of the job he is doing. The question was: how to get growth started again – greedy bankers and lying loan applicants and wasteful consumers all are being bailed out – because the problems they have caused are “gumming up the works.” And the consumers at least are being encouraged to continue in their spendthrift ways – at least for now, as Dana Milbank explained:

[Ben Bernanke] even indulged in a bit of economist humor when talking about the paradox of encouraging people to spend even though overspending caused the problem: “Somebody once called this the Augustinian principle, which says something like, ‘Let me be moral, but not quite yet.’ “

The third step is more complicated and politically fraught – as Obama seeks to tackle the third-rail of American politics – Social Security; and at the same time, health care reform; and deficit reduction; and tax reform; and possibly climate change legislation. Obama argues that this economic crisis – and the borrowing to stimulate us out of the economic crisis – have created a “fierce urgency of now” – and that all these issues must be tackled at once. 

John Harwood of The New York Times spoke with Senator Judd Gregg about this:

To protect America’s currency and its borrowing capacity, Mr. Gregg said in an interview, “the world has to be told that we’re going to be fiscally disciplined in the out years.”

Efforts to tame long-run entitlement spending may find more Republican support than Mr. Obama achieved on the stimulus. “He has extremely fertile ground in the Senate,” Mr. Gregg said, crediting the president’s early outreach and “courageous position of saying the can’s been kicked down the road long enough.”

Yet despite the bipartisan consensus that these issues must be tackled, here is where the real disagreements should be. Contra George F. Will who argued constantly that the stimulus bill and banking and mortgage bailouts should be opposed by Republicans and supported by Democrats on based their principles, the initial stimulus and other emergency measures should only have raised principled objections from those with an unflagging belief in the free market – which describes only a minority of Republicans. These measures violate the ideologies of both parties – as big business is bailed out and the market is intervened in. There were issues to be raised as to what the most effective methods of dealing with the crisis were – but to oppose measures wholesale as the Republicans did – indicates a lack of seriousness.

The real debate should come now as we decide the shape of things to come and address the moral and political and long-term issues instead of the emergency measures taken to attempt to stimulate the economy.

But in this challenge is an opportunity, as Richard Florida explained in The Atlantic:

The Stanford economist Paul Romer famously said, “A crisis is a terrible thing to waste.” The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?

David Brooks writes with both concern and a carefully measured dose of hope:

[Obama’s] aides are unrolling a rapid string of plans: to create three million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools — and to do it all while cutting the deficit in half.

If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. The crisis demands a large response. The people around Obama are smart and sober. Their plans are bold but seem supple and chastened by a realistic sensibility.

Brooks is still concerned about how this may turn out. As are we all. 

With tonight’s speech, Obama will begin to craete his legacy – beyond fixing the problems accrued during Bush’s tenure. He will begin to, at long last, deal with the stability issues raised by the combination of FDR’s New Deal revision of the social contract and Reagan’s counter-revolution, as he sets a fiscally sane course for the future. In the midst of this crisis, if Obama is to be the leader we need him to be, he needs to see the opportunity to re-write the social contract and create a more stable economic, financial, and international system. Tonight is his chance to make that case. 

Here’s hope it is not wasted.

The Obama I Remember

Monday, February 9th, 2009

This is the Obama I remember – the one I’ve been waiting to appear since his election back in November:

If you wonder where his urgency comes from, check out the following graphs:

This first one is from Nancy Pelosi’s blog, The Gavel:

[Click on the above image for a full size version.]

CNN released this graph at the beginning of this year, attempting to place 2008’s job losses in historical perspective:

What’s scarier is that before September, 2008 was not shaping up to be a bad year in terms of job losses. Instead, in the last four months of the year, almost 2 million jobs were lost. 

This final graph is from Stephen at Live Granades:

As you can see, the 1974 decline was steeper – and the economy was able to bounce back from that quickly – although that recession was controlled all the way by the Fed – which now has exhausted it’s power.

The escalating rhetoric out of Washington today actually reminds me a great deal of the Bush administration’s reaction to September 11. After the attack, Cheney and Bush and the rest of the team demanded unfiltered intelligence briefings regularly – and as they saw the scope and depth of the dangers that might be facing us, they panicked. Every moment, they were staring into the abyss – and they decided to take any measures possible to prevent “the next attack” which everyone saw as imminent. Their fear was an existential fear – which led them to mistake the threat from Al Qaeda for an existential threat. They weren’t entirely wrong – but where they went extremely wrong was in how they refused to back down from their emergency measures after it became clear that another attack was not imminent – or that we were not under constant assault. 

Today, Obama faces a similar crisis – one that seems – with it’s precipitious declines in economic and financial measures – to be existential. It may be so. No one knows exactly what to do to fix this problem – but they know they must do something. As with the George W. Bush administration, mistakes will be made – and given the size of the government, they will probably be large mistakes. 

But the difference will come in the next step. Responding to an unprecedented crisis, any administration will likely screw up. If you get it right, it will largely be by accident. But following the crisis – when things are beginning to improve and the imminence of the threat to the nation is no longer pressing – we must reevaluate our entire strategic framework, see what worked and what didn’t, what backfired and what might be able to be improved. The great tragedy of the Bush administration was that they refused to do this for the War Against Terrorism. They never took a step back from the emergency mentality that set in after September 11 to evaluate if our strategy was actually working – and instead attacked as weak and even traitorous anyone who suggested doing so. 

Obama will do well to remember that the measures he is taking now are emergency measures to rescue the economy – and to be prepared to re-think America’s financial and economic model as soon as this crisis has passed. He has indicated he plans to do so – with his talk of a Grand Bargain. We need to make sure he follows through.

Obama’s Grand Bargain

Tuesday, February 3rd, 2009

From Obama’s Inaugural Address:

There are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public’s dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.

This brings to mind what George Stephanopoulos was so excited about last Sunday on This Week:

(Yes, I need to work on improving my DVR to computer quality.)

It seems that Obama is preparing to bet his presidency on a Grand Bargain – that will allow him (and us) to rewrite the social contract in a more extensive way than any president since Franklin Delano Roosevelt. Even during Obama’s campaign, he spoke of tackling the challenges that were necessary – and not putting off hard discussions about our country’s long-term stability. But the financial crisis – which at first prompted the endlessly parroted conventional wisdom that whoever won would need to cut all of their projects and focus narrowly on the crisis itself – has instead proved to be an opportunity.

The amount of spending needed to stimulate the economy is enormous – with the numbers being thrown around today dwarfing that of any previous government intervention (save perhaps for our major wars). What Obama understands is that this type of spending, while necessary in the short-term, poses a serious long-term threat. Which is why he is now speaking of the second step – after the financial crisis has passed – of tackling entitlement reform and tax reform, and finally putting America on sound financial footing after years of prolifigacy.

None of these insights are exceptional. What is exceptional is how Obama is already shaping the arch of his first term, using this crisis to set up his next objective, and shaping the conventional wisdom.

The problem I see though is that the Obama administration has not done a good job of conveying to the public the place this stimulus bill has within Obama’s agenda. The word is that in the next week or so, Tim Geithner will present “a ‘comprehensive’ plan that [he] hope[s] will command market confidence.” My hope is that this comprehensive plan will lay out a broad legislative agenda based on Obama’s campaign. Based on the campaign plans and signals sent during the transition, here’s what I see:

Step 1 (The First 100 Days)

  • Release the rest of the funds from TARP.
  • A large stimulus package to demonstrate the government’s commitment to addressing the crisis, especially in alleviating it’s effects on the majority of Americans.
  • A banking and mortgage bill that takes whatever steps are necessary to shore up these sectors of the economy, including new regulations, new oversight, and possibly additional funds.
  • An infrastructure bill that would create a National Infrastructure Bank.
  • Health care reforms that would extend health care benefits and attempt to control the escalating health care costs.
  • A combination of a cap-and-trade program and funding for green energy.

The goal of this first period would be to begin to make both short-term and long-term investments into those sectors that will lead to long-term growth – which will stimulate the economy in the short-term. This is the spending stage. After this burst of legislating, Obama would be able to focus on tinkering with education programs and seeing what works, as well as addressing the simmering foreign policy issues which are constantly threatening to take over the agenda.

Step 2 (Post-Crisis)

  • Entitlement reform (Social Security, Medicare, Medicaid.) Everything is on the table.
  • Tax reform. Not much has been said about this. This will certainly be a wild card – but Obama has criticized our corporate tax rate for its irrationality. It’s very high – but due to the enormous number of exemptions and credits, the effective rate for those businesses able to lobby for benefits, it is very low. This should be rationalized.
  • Universal health care.
  • Education reform.

This is the “cutting back” stage and consolidation stage. The goal of this second stage would be to put America on a solid financial footing again – to eliminate the unsustainable domestic policies that undermine our stability and power.

This is obviously an enormous agenda. And it’s far from clear that Obama can accomplish this. But if he does not lay out the vision – which I have pieced together from numerous statements – then it’s hard to see how he can accomplish it. Of course, Geithner was just confirmed last week – and Obama’s only been in office for two weeks – so he does have a bit more time to lay this out. But he doesn’t have long.

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