Once the Stimulus Kicks In, the Real Fight Begins

As early as next year, the business cycle may hit bottom and begin climbing. At that point, cyclists and structuralists will want two different things -- and which side the president chooses will be, as Will Marshall of the Progressive Policy Institute puts it, the "central drama" of the Obama administration. The president recently sought to placate the cyclists by promising to focus on controlling the future costs of Social Security and Medicare. Perhaps Obama has in mind a "grand bargain" that would allow him to continue his structural agenda after the business cycle turns upward in return for limiting spending for those two giant entitlement programs.

Let's hope he has something more in mind, something more fundamental: a debate about public investment and sustainable growth. For structuralists, the size of the federal debt itself is irrelevant. Debt has to be considered in proportion to the economy as a whole. According to government projections, the national debt will exceed half the nation's gross domestic product by the end of this year -- not including the stimulus package. That's certainly high, but not close to a record. The debt was far more than 100 percent of GDP at the end of World War II. That mammoth debt, not incidentally, put Americans back to work, financed industrial production, underwrote a new generation of science and technology and created a wave of demand for consumer goods when the war ended. In short, it got the economy on a new and faster track, thereby allowing the United States to pay down the debt and ushering the country into a new era of widely shared prosperity.

Even a high ratio of debt to GDP isn't especially worrisome if much of that debt comes from investments that put the economy on a path toward solid growth. One recent study from Columbia Teachers College, for example, shows that cutting high school dropout rates in half would generate $45 billion in new tax revenues and savings on expenses such as welfare and incarceration.

We cannot assume, however, that gains from these sorts of public investments will grow the economy enough to reduce the relative size of future debt. We must consider the tax code's structure as well. Should marginal taxes be raised on the most affluent? That could help finance what must be done to put the economy on a sustainable growth path.

But I don't think that our new president should wade into this debate right away. He has his hands full. He needs to implement the stimulus package and reverse the downturn. Bill Clinton had to choose sides almost right away -- and had little choice but to cave in to the cyclists and forfeit most of his long-term economic agenda. The severity of the current crisis gives Obama more time.

But he will need to open the larger debate sooner rather than later. This downturn is revealing the U.S. economy's underlying flaws. Once the business cycle turns up, the public and its representatives may be less inclined to tackle the things that truly drag us down. Clinton was, after all, reelected in 1996 on the wave of a cyclical upturn in the economy. But the structural problems that he failed to address -- widening inequality, sagging median incomes, a broken health-care system, crumbling infrastructure and global warming -- are that much larger now, making the current crisis all the worse.

Robert B. Reich, secretary of labor under President Bill Clinton, is a professor of public policy at the University of California at Berkeley.