What Part of ‘Stimulus’ Don’t They Get?

Imagine yourself jobless and struggling to feed your family while the governor of your state threatens to reject tens of millions of dollars in federal aid earmarked for the unemployed. That is precisely what is happening in poverty-ridden states like Louisiana and Mississippi where Republican governors are threatening to turn away federal aid rather than expand access to unemployment insurance programs in ways that many other states did a long time ago.

What makes these bad decisions worse is that they are little more than political posturing by rising Republican stars, like Gov. Bobby Jindal of Louisiana and Gov. Mark Sanford of South Carolina. This behavior reinforces the disturbing conclusion that the Republican Party seems more interested in ideological warfare than in working on policies that get the country back on track.

Fortunately, as President Obama prepares for his first address to Congress on Tuesday evening, voters of both parties have noticed. About three-quarters of those polled in a recent New York Times/CBS News survey — including more than 60 percent of Republicans — said Mr. Obama has been trying to work with Republicans. And 63 percent said Republicans in Congress opposed the stimulus package primarily for political reasons, not because they thought it would be bad for the economy. It should be sobering news for Republicans that about 8 in 10 said the party should be working in a bipartisan way.

The Republican Party’s attacks on the unemployment insurance portion of the stimulus package are a perfect example. States that accept the stimulus money aimed at the unemployed are required to abide by new federal rules that extend unemployment protections to low-income workers and others who were often shorted or shut out of compensation. This law did not just materialize out of nowhere. It codified positive changes that have already taken place in at least half the states.

To qualify for the first one-third of federal aid, the states need to fix arcane eligibility requirements that exclude far too many low-income workers. To qualify for the rest of the aid, states have to choose from a menu of options that include extending benefits to part-time workers or those who leave their jobs for urgent family reasons, like domestic violence or gravely ill children.

Data from the National Employment Law Project, a nonprofit group, show that 19 states qualify for some of the federal financing and that a dozen others would become eligible by making one or two policy changes. Unemployed workers are worst off in the Deep South, where relatively few people are eligible to receive payments. Louisiana, Mississippi and Texas stand out.

The governors are blowing smoke when they suggest that the federal unemployment aid would lead directly to new state taxes. No one knows what the economic climate will be when the federal aid has been used up several years from now. But by dumping billions of dollars into shrinking state unemployment funds, which puts money into the hands of people who spend it immediately on food and shelter, the stimulus could help the states through the recession and into a time when unemployment trust funds can be replenished. In other words, the stimulus could make a tax increase less likely.

But even if new taxes are required at some point, the new federal standards would protect more unemployed workers than ever before and bring states like Louisiana, Mississippi and Texas into the 21st century.

Governors like Mr. Jindal should be worrying about how to end this recession while helping constituents feed and house their families — not about finding ways to revive tired election-year arguments about big spending versus small government.

Decade at Bernie’s

By PAUL KRUGMAN, Feb 16, 2009, NY Times

By now everyone knows the sad tale of Bernard Madoff’s duped investors. They looked at their statements and thought they were rich. But then, one day, they discovered to their horror that their supposed wealth was a figment of someone else’s imagination.

Unfortunately, that’s a pretty good metaphor for what happened to America as a whole in the first decade of the 21st century.

Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?

Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices — notably in right-leaning publications like The Wall Street Journal, Forbes and National Review — promoted that belief, and ridiculed those who worried about low savings and high levels of debt.

Then reality struck, and it turned out that the worriers had been right all along. The surge in asset values had been an illusion — but the surge in debt had been all too real.

So now we’re in trouble — deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.

For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.

And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

Are policy makers ready to do what it takes to break this vicious circle? In principle, yes. Government officials understand the issue: we need to “contain what is a very damaging and potentially deflationary spiral,” says Lawrence Summers, a top Obama economic adviser.

In practice, however, the policies currently on offer don’t look adequate to the challenge. The fiscal stimulus plan, while it will certainly help, probably won’t do more than mitigate the economic side effects of debt deflation. And the much-awaited announcement of the bank rescue plan left everyone confused rather than reassured.

There’s hope that the bank rescue will eventually turn into something stronger. It has been interesting to watch the idea of temporary bank nationalization move from the fringe to mainstream acceptance, with even Republicans like Senator Lindsey Graham conceding that it may be necessary. But even if we eventually do what’s needed on the bank front, that will solve only part of the problem.

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

Herbert Hoover Lives

By FRANK RICH

HERE’S a bottom line to keep you up at night: The economy is falling faster than Washington can get moving. President Obama says his stimulus plan will save or create four million jobs in two years. In the last four months of 2008 alone, employment fell by 1.9 million. Do the math.

The abyss is widening. Of the 30 companies in the Dow Jones industrial index, 22 have announced job cuts since October. Unemployment is up in all 50 states, with layoffs at both high-tech companies (Microsoft) and low (Caterpillar). The December job loss in retailing is the worst since at least 1939. The new-home sales rate has fallen to its all-time low since record-keeping began in 1963.

What are Americans still buying? Big Macs, Campbell’s soup, Hershey’s chocolate and Spam — the four food groups of the apocalypse.

The crisis is at least as grave as the one that confronted us — and, for a time, united us — after 9/11. Which is why the antics among Republicans on Capitol Hill seem so surreal. These are the same politicians who only yesterday smeared the patriotism of any dissenters from Bush’s “war on terror.” Where is their own patriotism now that economic terror is inflicting far more harm on their constituents than Saddam Hussein’s nonexistent W.M.D.?

The House stimulus bill is an inevitably imperfect hodgepodge-in-progress. Obama’s next move, a new plan to prevent the collapse of America’s banks, may prove more problematic still, especially given the subpar record of the new Treasury secretary, Timothy Geithner, in warding off calamity while at the New York Fed. No one should expect the Republicans to give the new president carte blanche, fall blindly into lock step or be “post-partisan.” (Though that’s exactly what the G.O.P. demanded of Democrats with Bush: You were either with him or with the terrorists.)

But you might think that a loyal opposition would want to pitch in and play a serious role at a time of national peril. Not by singing “Kumbaya” but by collaborating on possible solutions and advancing a policy debate that many Americans’ lives depend on. As Raymond Moley, of F.D.R.’s brain trust, said of the cross-party effort at the harrowing start of that presidency in March 1933, Hoover and Roosevelt acolytes “had forgotten to be Republicans or Democrats” as they urgently tried to rescue their country.

The current G.O.P. acts as if it — and we — have all the time in the world. It kept hoping in vain that the fast-waning Blago sideshow would somehow impale Obama or Rahm Emanuel. It has come perilously close to wishing aloud that a terrorist attack will materialize to discredit Obama’s reversals of Bush policy on torture, military tribunals and Gitmo. The party’s sole consistent ambition is to play petty politics to gum up the works.

If anything, the Republican Congressional leadership seems to be emulating John McCain’s September stunt of “suspending” his campaign to “fix” the Wall Street meltdown. For all his bluster, McCain in the end had no fixes to offer and sat like a pet rock at the White House meeting on the crisis before capitulating to the bailout. His imitators likewise posture in public about their determination to take action, then do nothing while more and more Americans cry for help.

The problem is not that House Republicans gave the stimulus bill zero votes last week. That’s transitory political symbolism, and it had no effect on the outcome. Some of the naysayers will vote for the revised final bill anyway (and claim, Kerry-style, that they were against it before they were for it). The more disturbing problem is that the party has zero leaders and zero ideas. It is as AWOL in this disaster as the Bush administration was during Katrina.

If the country wasn’t suffering, the Republicans’ behavior would be a laugh riot. The House minority leader, John Boehner, from the economic wasteland of Ohio, declared on “Meet the Press” last Sunday that the G.O.P. didn’t want to be “the party of ‘No’ ” but “the party of better ideas, better solutions.” And what are those ideas, exactly? He said he’ll get back to us “over the coming months.”

His deputy, the Virginia congressman Eric Cantor, has followed the same script, claiming that the G.O.P. will not be “the party of ‘No’ ” but will someday offer unspecified “solutions and alternatives.” Not to be left out, the party’s great white hope, Sarah Palin, unveiled a new political action committee last week with a Web site also promising “fresh ideas.” But as the liberal blogger Markos Moulitsas Zúniga observed, the site invites visitors to make donations and read Palin hagiography while offering no links to any ideas, fresh or otherwise.

For its own contribution to this intellectual void, the Republican National Committee convened last week under a new banner, “Republican for a Reason.” Perhaps that unidentified reason will be determined by a panel of judges on a TV reality show. It had better be brilliant given that only five states (with 20 total electoral votes) now lean red in party affiliation, according to Gallup. At this rate the G.O.P. will be in Alf Landon territory by 2012.

The Republicans do have one idea, of course, but it’s hardly fresh: more and bigger tax cuts, particularly for business and the well-off. That’s the sum of their “alternative” stimulus plan. Obama has tried to accommodate this panacea, perhaps to a fault. Mainstream economists in both parties believe that tax cuts in the stimulus package will deliver far less bang for the buck than, say, infrastructure spending. The tax-cut stimulus embraced a year ago by the G.O.P. induced next-to-no consumer spending as Americans merely banked the savings or paid down debt.

We also now know conclusively that the larger Bush tax cuts, besides running up record deficits and exacerbating income inequality, were also at best a placebo on our road to ruin. In a January survey of economists, including former McCain advisers like Douglas Holtz-Eakin and Mark Zandi, The Washington Post determined that the job growth the Bush administration kept bragging about (“52 straight months!”) was a mirage inflated by the housing bubble. Job growth — about 2 percent — was in fact the most tepid of any eight-year period “since data collection began seven decades ago.” Gross domestic product grew at a slower pace than in any eight years since the Truman administration.

But even if tax cuts alone could jump-start a recovery, they couldn’t do the heavy lifting that Obama has promised and the country desperately needs: a down payment on a new economy to replace our dilapidated 20th-century model and bring back long-term growth. The Republicans don’t acknowledge the need for this transformation, or debate it in good conscience, preferring instead to hyperventilate over the contraceptives in a small family-planning program since removed from the stimulus bill. All it takes is the specter of condoms for the party of Vitter, Foley and Craig to go gaga.

The Republicans’ other preoccupation remains Rush Limbaugh, who is by default becoming their de facto leader. While most Americans are fearing fear itself, G.O.P. politicians are tripping over themselves in morbid terror of Rush.

These pratfalls commenced after Obama casually told some Republican congressmen (correctly) that they won’t “get things done” if they take their orders from Limbaugh. That’s all the stimulus the big man needed to go on a new bender of self-aggrandizement. He boasted that Obama is “more frightened” of him than he is of the Republican leaders in the House or Senate. He said of the new president, “I hope he fails.”

Obama no doubt finds Limbaugh’s grandiosity more amusing than frightening, but G.O.P. politicians are shaking like Jell-O. When asked by Andrea Mitchell of NBC News on Wednesday if he shared Limbaugh’s hope that Obama fails, Eric Cantor spun like a top before running off, as it happened, to appear on Limbaugh’s radio show. Mike Pence of Indiana, No. 3 in the Republican House leadership, similarly squirmed when asked if he agreed with Limbaugh. Though the Republicans’ official, poll-driven line is that they want Obama to succeed, they’d rather abandon that disingenuous nicety than cross Rush.

Most pathetic of all was Phil Gingrey, a right-wing Republican congressman from Georgia, who mildly criticized both Limbaugh and Sean Hannity to Politico because they “stand back and throw bricks” while lawmakers labor in the trenches. So many called Gingrey’s office to complain that the poor congressman begged Limbaugh to bring him on air to publicly recant on Wednesday. As Gingrey abjectly apologized to talk radio’s commandant for his “stupid comments” and “foot-in-mouth disease,” he sounded like the inmate in a B-prison-movie cowering before the warden after a failed jailbreak.

“It’s up to me to hijack the Obama honeymoon,” Limbaugh soon gloated, “and I’ve done it.” In his dreams. He has hijacked what’s left of the Republican Party; the Obama honeymoon remains intact. The nightmare is that we have so irrelevant, clownish and childish an opposition party at a moment when America is in an all-hands-on-deck emergency that’s as trying as war. To paraphrase a dictum that has been variously attributed to two of our most storied leaders in times of great challenge, Thomas Paine and George Patton, the Republicans should either lead, follow or get out of the grown-ups’ way.