How to Craft A Stimulus

The stimulus package about to be unveiled is like an incredibly expensive experimental drug -- or, better yet, a cocktail of drugs -- to treat a serious disease. No one believes the medication will be a complete cure; indeed, it is not guaranteed to alleviate the symptoms. The side effects could be serious and long-lasting.

Also, 535 people get to determine the proper mixture of drugs and dosages. Very few of them are physicians.

Yet without the medication, the patient is almost certain to suffer. Although costly, it offers the promise of some relief for the duration of the illness.

As with the practice of medicine, the application of economic stimulus is as much art as science. Under normally bad circumstances, stimulus spending should be applied reluctantly and sparingly; the chances of wasting money by bad timing, not to mention bad policy, are high.

These are not normal circumstances.

The magnitude of the global economic downturn calls for erring on the side of doing more rather than less, and doing it quickly rather than perfectly. But lawmakers need to balance the imperative for action against the risk of haste, the desire for results against the dictates of bipartisanship. Here are some principles to keep in mind:

First, allow time that is sufficient for some legislative reflection but not so great as to slow recovery or endanger the package. The Democrats' original goal -- to have a measure on the new president's desk by Inauguration Day -- was overly ambitious; unlikely to succeed, given Senate rules; and likely to be deeply flawed if it did pass. Realistically, getting it done by the Presidents' Day recess would be, as one Obama adviser told me, a "tremendous achievement."

Second, treat the minority fairly. Wisconsin Democrat David Obey, who chairs the House Appropriations Committee, is said to be reluctant to hold additional hearings for fear, amply justified by experience, that Republicans will seize the opportunity to gum up the works. But the best way to breed obstructionism is to assume that it will occur and to give the minority grounds for griping.

Lawmakers have held ample hearings on the need for a stimulus and the mechanisms most likely to work. Given the immense sums involved, it is important to hear in detail from the president-elect's team about how it settled on the dollar amount, the mix of tax cuts vs. spending proposals, and the specific components.

Third, it's imperative to get a clear idea of how proposals for new spending on health care, energy and education would work and why they should be part of this package. Much of what the Obama team proposes is more -- much more -- of the same. Extending unemployment benefits, adding money for food stamps, giving states extra money for Medicaid -- all familiar moves.

By contrast, launching a new "green energy" plan or a program to computerize health records is a newer, more complicated endeavor, one that calls for more consideration than an up-or-down vote on the floor. In a perfect world, the better way to handle these "investments" would be to split them off from the more typical stimulus items to provide more time for crafting and debate. In practice, however, a two-stage solution would probably mean that the second stage would never get done. It is incumbent on Obama's advisers to explain how these programs would contribute to the recovery.

Fourth, and related to this last point, lawmakers need to consider whether they are passing a temporary stimulus or paving the way for permanent spending. Increases in Pell Grants or other education funding -- not to mention big middle-class tax cuts -- are the sorts of benefits that are hard to roll back once implemented.

North Dakota Democrat Kent Conrad, the chairman of the Senate Budget Committee, told me he wants to "avoid to the extent possible commitments that become permanent," whether tax cuts or new spending.

A new International Monetary Fund paper emphasizes how a fiscal stimulus can backfire if financial markets become worried about unsustainable debt. The IMF recommends "measures that are reversible or that have clear sunset clauses" and "pre-committing to identified future corrective measures," such as letting the Bush upper-income tax cuts expire.

The next several weeks will be a test, for the new Congress as much as for the new administration. The country cannot afford a 111th Congress as gridlocked as the 110th. Nor should it settle for a rubber-stamp Democratic Congress doing the bidding of the new Democratic president.

marcusr@washpost.com