A Stimulus Everyone Can Love

Watching the economy unravel while the government dithers is like viewing an accident in slow motion. Or to change the metaphor, it is like one of those movies where the film begins with the tragic ending and the rest of the movie recounts the unfolding back story.

Consider: The Paulson rescue of banks is a failure. Credit is still widely frozen. Retail sales, according to the recently released October government statistics, are plummeting at a rate not seen in decades. Some big chain stores reported drops in excess of 20 percent. Unemployment is accelerating. It is now 6.5 percent (which understates involuntary part-time employment) and will very likely jump to double digits by early next year.

None of the indirect efforts to contain foreclosures has helped more than a small fraction of the 3 million homeowners at risk. State and local governments are cutting back spending and laying off workers. This slide has all the classic signs of a severe recession that feeds on itself as it deepens.

The ineptitude of the executive branch will not end until the new administration takes over, nine weeks from now. But in a deepening recession, nine weeks is a long time.

Obama was right to pass up the invitation to Bush's swan song, the upcoming international economic summit -- which was thrown together without adequate preparation and will achieve little. The president-elect was also right to fend off Paulson's invitation to get involved in the current treasury secretary's bailouts, which were flawed at conception.

However, the blockages of the transition period should not be an excuse for Congress to do nothing. Three weeks ago, House Speaker Nancy Pelosi was calling for an immediate economic stimulus package in the range of $250 billion to $300 billion. Since then, the prospect of a stimulus has attracted the usual Christmas tree demands. The automakers want a bailout. Other industries are lining up. The New York Times reports that even the makers of luxury boats want help. And now, Sens. Max Baucus and Ted Kennedy are considering the idea of adding health reform to an early stimulus.

But all this special pleading, whether defensible or not in substance, is leading to legislative deadlock that the economy can ill-afford, and Congress could well do nothing. Congress, with the support of the incoming president, should go back to something like the Pelosi plan, and get it done by Thanksgiving.

The easiest part, politically and substantively, is relief to state and local governments. New York's governor, David Paterson, just announced cuts of $5.2 billion in education, health, and human-service spending, because state revenues are tanking. Most other governors are in similar positions. And local social service agencies face steep cuts in private charitable donations as well as in public subsidies. What could be more perverse in a recession? But Patterson, like other governors and mayors, has no choice since states and localities cannot run budget deficits.

So first, there should be immediate relief for state and local governments, to the tune of at least $100 billion. The value of that approach is that it doesn't require complex strategies of new job creation; it simply prevents avoidable job loss. If Washington sends a check to cities, towns, states, and counties, not a single pending public project need be deferred and not a single public worker need be laid off.

Second, unemployment insurance should be increased and extended. And third, Congress can pick up the state portion of Medicaid, so that states can expand rather than reduce health coverage. Congress could also provide funds for energy audits and retrofits, so that existing programs can be expanded and homeowners can save on energy bills. This will also provide jobs for construction workers in a homebuilding industry facing a depression.

Congress can and should do this right now. It's still the old Congress, split down the middle. But with mayors and governors of both parties crying for relief, it is hard to imagine very many Republican legislators voting against this package.

Detroit will have to wait a few months. It's too hard to get this right overnight. Any effort to add an auto bailout to the stimulus would sink it. Figuring out how to help Detroit without just throwing money at dumb auto executives is really a challenge. These people can't seem to learn to make energy-efficient, well-designed cars that attract enough buyers. The terms of relief require hard questions. Republicans and many Democrats are right to resist pressure for an immediate subsidy.

And with the exception of an expansion of Medicaid or children's health, it's also too heavy a political lift to expect comprehensive health reform as part of a quick stimulus.

I'm all for a much larger recovery outlay early in 2009, after the new Congress takes office. The economy will surely need it, because conditions will keep worsening. But waiting to get that done right is no excuse for failing to pass an emergency stimulus now.

We've seen this movie before. It's called "1931." A financial crash slowly turned into a Great Depression, while the president and the Congress offered too little, too late. We all know the ending. There is still time to avoid having to sit through the sequel, but time is fast running out.

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