Be Careful Where You Get Your Stimulus

The consensus among the blogosphere seems to be that Obama's proposal for a $300 billion tax cut is intended as a preemptive concession to the right in order to build bipartisan support for his economic stimulus initiative. Obama, certainly, has a lot of incentives to get Republicans on board with his bill. As his first major initiative out of the gate, building a "bipartisan" stimulus might allow Obama to maintain the pretense of being post-partisan (something which, for all the left's skepticism of it, probably helps his approval ratings and thereby his political capital). It might insulate him from taking all of the criticism if the stimulus fails to stimulate. Arguably, a larger majority might also do more to bolster consumer and investor confidence. Still, the feeling on the left is that Obama is mistaking this for an opportunity to build political capital, when it should be one of the times that he spends it.

What this analysis seems to be taking for granted is that the tax cuts are something the Obama administration does not want on their own merits. This, however, is far from self-evident. Obama's economic team is fairly centrist, number one. Obama campaigned on a tax cut, number two (albeit a tax cut paired with a tax hike for the wealthy). And number three, even most liberal economists seem to think that some measure of tax cuts are a decent idea, although there are questions about which taxes should be cut and in what amounts. (Likewise, most conservative economists seem to think that some measure of spending increases are a good idea -- it's just a question of how much).

Basically, I would resist the temptation on either side to see the stimulus in too overtly ideological terms. The ordinary rules are suspended during a severe recession: what matters is -- empirically, theoretically -- What Works. Instead, I would encourage everyone to cut down on their consumption of political blogs for the next few weeks and instead read more of Brad DeLong and Greg Mankiw and Paul Krugman and Tyler Cohen. Those are the sorts of people I'm interested in listening to on this; all others must bring data.

Where I think there is more room for partisanship is in discussing how we spend what we spend, and how we cut taxes where we cut them. An $800 billion stimulus package that consisted of $500 billion in alt.energy investments and $300 billion in FICA tax cuts would be quite progressive -- and quite different from one that contained $500 billion in defense spending and $300 billion in capital gains tax cuts, even if the proposals happened to be relatively similar in terms of the immediate-term objective of ending the recession.

This is not to say that the how much questions are entirely within the domain of economic analysis, nor that the how questions are entirely within the domain of political analysis -- there are obviously some overlaps between the two. But the trade-off between, say, building bridges and building solar power grids is easier for political folk to understand than the relative abstraction of whether to spend a marginal $100 billion at the cost of running up the deficit. For the latter sorts of questions, I would tend to defer to the economists in the audience.