Didn't Like the Stimulus? You Might Hate It When It's Gone

To people across the country who live in states in crisis, and who were sheltered from the full impact of economic downturn in the last two years, the stimulus should be looking pretty good right about now.
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The stimulus program passed by the Obama administration in February 2008 never got much respect. Neo-Keynesian voices argued that it was not nearly large enough, and I agree with those criticisms. But, more often, right-wing talking points seemed to influence mainstream beliefs. Too many people seemed to accept that the stimulus was a waste of money and that much less should have been spent.

The wrongheadedness of that view should now be clearer than ever. With states cutting budgets to the bone, we are seeing how painful the economic crisis is without federal funding to help soften the blow. Those who argued for a larger stimulus can connect the dots here and make a key point: to people across the country who live in states in crisis, and who were sheltered from the full impact of economic downturn in the last two years, the stimulus should be looking pretty good right about now.

While the stimulus was not large enough, it did keep between 1.4 million and 3.3 million people employed, and it had a significant anti-poverty effect. As the New York Times notes:

What analysts have found is that the antipoverty effect of government intervention in 2009 was profound. Calculations by the Center on Budget and Policy Priorities, a liberal-leaning research group, show that specific stimulus provisions--including expanded federal jobless benefits, new and improved tax credits for workers and bolstered food stamps--kept 4.5 million people out of poverty in 2009. Only Social Security and the earned income credit did more to fight poverty.

Despite this, the stimulus is widely unpopular. To draw just one example of the negative polling it has generated, a Pew research poll conducted in the summer of 2010 showed that 68 percent of Americans believe that the middle class has received little or no help from government policies passed in the last two years.

Defending the stimulus before the public has not been altogether easy. The economy is clearly in bad shape, and much of the argument for the positive impact of federal action boils down to "it could have been much worse." But frightening counterfactuals only go so far. In lieu of a strong economic recovery, the Obama administration is stuck doing something akin to proving a negative.

This was one of the central arguments for having a larger stimulus in the first place: a smaller amount of government spending would not produce adequate gains, and the whole thing would be perceived as a failure. Unfortunately, "I told you so" is another saying that tends not to get you very far.

Even in terms of selling its own program, the Obama administration has not done itself many favors. Some of the negativity associated with the stimulus is the result of confusion: many people do not distinguish it from the rightly criticized bailout to the Wall Street firms that caused the economic crisis to begin with. Paul Krugman blames the White House for a poor sales job on this front:

[T]here's widespread public confusion between the fiscal stimulus plan--which should, on its face, be very popular--and the bank bailouts, which are deeply (and understandably) unpopular. Spending on infrastructure commands broad support; rescuing bankers from the consequences of their own folly, broad revulsion.

And the Obama administration hasn't done much to make the distinction--and the result is much less public support for the stimulus plan than we should have.

The Bush administration was brilliant at linking really elitist stuff to small middle-class benefits--pay no attention to the huge cut in the top marginal rate, look at those child tax credits!--as a way of getting its agenda through. Right now, the Obama administration seems to be doing the opposite: dragging down its pro-worker stimulus plan by creating a linkage in peoples' minds to the outrageous bank bailout.

Elements of the stimulus were designed with wonks in mind instead of political presentation. For instance, rather than offering tax rebates to individuals in well-publicized, lump-sum payments, the funds were disbursed in much smaller installments that were gradually tacked on to peoples' paychecks. This was done based on the theory that we recipients would be quicker to spend money received in smaller increments, thereby more efficiently spurring the economy.

The theory may have been sound. But the consequence was that most people didn't even know they were getting a tax break -- something that is obviously not ideal from a political standpoint. When asked, a great majority of conservatives thought they were being taxed more by the Obama administration. As Bill Maher joked:

Federal taxes last year went down for 98 percent of people, but when asked about this, only 12 percent of the Tea Baggers thought this was the case. Eighty-eight percent of them had it wrong. And a spokesman for the Tea Baggers said, "We don't want to just be taxed less. We want to be taxed less by a white guy."

A failure to defend the stimulus has now put us into a foul situation. At the national level, the Obama administration had totally capitulated to right-wing arguments that government spending needs to be cut. And at the same time, in the states, we're entering a moment in which "it could have been worse" is becoming a reality.

The idea of life without stimulus is no longer just a hypothetical. We are seeing what it actually looks like at the state level, and it is not pretty. The Wall Street Journal reported in June 2010:

Already, state and local governments have cut more than 230,000 jobs since August 2008, or about 1.2% of overall payrolls, according to the Bureau of Labor Statistics, while thousands of other positions have gone unfilled. The private sector has shed more than eight million jobs since the recession began in December 2007. Mark Zandi, chief economist at Moody's economy.com, said states could lose an additional 400,000 to 500,000 jobs over the next year without additional aid.

The Arizona Republic also did a good job describing the dilemma:

If people didn't like the federal stimulus, they may hate when it's gone.

As the year winds down, the $862 billion plan to rescue the economy from the depths of the recession enters a new phase in which tax cuts and credits expire and countless hard-to-replace construction projects will end. Thousands of workers in some states could lose their jobs....

In Arizona, lawmakers face at least an $800 million "funding cliff" as stimulus aid for Medicaid begins declining in January and ends by July. The extra aid expires as states operate under new federal health-care mandates that block coverage cuts in Arizona. The combination effectively exacerbates the already-bleak budget outlook, said John Arnold, state budget director for Gov. Jan Brewer.

The end of federal stimulus will also mean deep cuts for schools in many states, the Times explains:

In the fiscal years 2009 and 2010, the federal stimulus money propped up state spending for basic payments to schools by about $1 billion per year. Districts also received stimulus money for special-education initiatives and for programs to help students living in poverty. That money runs out this fiscal year.

The right-wing response to all this is predictably callous: the stimulus, they argue, was bad because school closings and job cuts should have happened sooner. Their preferred solution is equally predictable: more corporate tax cuts.

There's not too much that's hopeful that I can see to take away here. If misperceptions about stimulus spending continue to go unchecked, and if these conservatives get their way, it will be worse still.

Cross-posted from the "Arguing the World" blog at Dissent magazine.

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