Economic recovery

The economic recovery package was a major topic on This Week With George Stephanopolis, with a very civilized discussion of the problems and proposed solutions. Here are a few things I learned:

1. Paul Krugman counters arguments comparing the current situation with the recession of the 1980s, when Reagen economics emphasized manipulating monetary policy and tax cuts. He points out that today's economic situation is very different. Whereas the unemployment rate was even higher then (10%), interest rates were also high -- making it possible for Federal Reserve lowering of interest rates to stimulate growth. That's not possible now, because they have already lowered interest rates to almost 0% even before the worst of our current crisis. Thus, we are left with infrastructure investment as the most effective tool.

2. Carly Fiorini, sounding more logical and sane than when she was trying to defend McCain during the campaign, emphasized the need to get credit flowing to small businesses, in addition to stimulating the economy with spending and tax cuts. Of course that's what Bush's Treasury Secretary Paulson's plan was supposed to do; but it didn't work, because banks kept the money to balance their books instead of lending it. Carly says the government should not take equity in the banks, as many have urged so that tax payers get some return when things improve. She says, instead, we should put conditions on the money we give them: banks could be required to put the money into loans, instead of holding on to it.

3. Nancy Pelosi said that economists, across the liberal/conservative spectrum, agree that we will get more bang for the buck from infrastructure investment than from tax cuts. Which then puts the Democrats in the position of defending the tax cuts that they have put into the package. Is it just to appease the Republicans and get their votes? Nancy says that tax cuts, particularly for those who will spend them, help somewhat -- just not as much as the investments. So they're doing both.

4. Paul Krugman responded to critics who say that much of the spending won't be done until the end of 2011. He says we will still be in the recession that long; it's not a v-shaped recession that will spring back quickly. So longer range spending plans are fine. We'll be needing it then too.

Others also pointed out that the big fuss Republicans were making about a Congressional Budget Office report, which reputedly said the bulk of the money wouldn't get used for 18 months (and therefore bad, in their view), was based on a preliminary report that only looked at 40% of the proposed spending. It was not a comprehensive evaluation, and the Republicans were misusing it to bolster their arguments.

Everyone continues to remark on Obama's emphasis on bipartisanship. But Republican leaders continue to snipe and whine, and Obama has stood his ground on the basic principles. He's emphasizing listening to all views, openness to different ideas, but committed to doing what will work. He has the power to get his package passed. Let's give him the grass roots support so he will know he can use the power we have given him.

Ralph