Obama's pitch for a second stimulus could be his FDR moment
With a sweeping bow to reality, President Obama unveiled his second economic stimulus program on Tuesday. He didn't call it that, of course, since "stimulus" has become taboo, but the proposals he sketched will considerably amplify the government's efforts to combat the worst economic downturn since the Great Depression.
The key elements of the plan are a series of tax breaks and, conceivably, redirected TARP funds for small business and a doubling-down of the federal investment in infrastructure. By placing such a heavy emphasis on aid to small business, Obama is essentially daring the GOP to make his day. Republicans have generally opposed his stimulus efforts and particularly oppose the redirection of funds from the Troubled Assets Relief Program to anything but deficit reduction. Organized small business is a core Republican constituency. Obama's plan essentially compels the GOP to choose between its ideology (or, at minimum, its strategy of opposing Obama at every turn) and its base.
In putting forth a second stimulus, the administration is acknowledging the limits (while not disputing the necessity) of the top-down economic revival strategy that Congress and the Bush administration adopted by enacting TARP -- chiefly, a program to aid major banks -- last fall. The Obama White House has made the same discovery that Franklin Roosevelt's White House made 75 years ago: that propping up banks is not sufficient to get the economy moving again so long as banks look at a deeply beleaguered economy and see nothing but a sea of risk. By adamantly refusing to lend to small businesses, banks -- for that matter, capitalism itself -- compel the government to create the economic conditions that would entice them to begin lending again. So the government becomes the de facto banker to a small-business sector abandoned by private-sector banks, even though those banks have received massive public assistance. A more frontal challenge to conservative ideology, and a more difficult one for conservatives to oppose, is hard to imagine.
Obama's speech left open the possibility that his administration may have to do still more to salvage the economy. It surely will. Recessions that result from financial crises are longer and deeper than the merely cyclical kind. With one-quarter of U.S. mortgages under water, it will be years before construction rebounds. Moreover, this is the first downturn we've experienced since China and India fully entered the global economy, epochal events that have created a huge oversupply of labor for multinational corporations and global supply chains. If we expect U.S. manufacturers to rehire all -- or even most -- of their laid-off workers, we'll be badly disappointed.
That's why the nation needs a public jobs program in addition to a policy of helping small businesses grow again. The infrastructure investments Obama proposed will go part of the way toward meeting that goal, but specific programs of public employment, such as those created by Franklin Roosevelt and that notorious radical Richard Nixon (who signed into law the Comprehensive Employment and Training Act, or CETA) are needed as well. Roosevelt in particular understood that major infrastructure projects took time and a major investment in materials, which is why he established two programs in the depths of the Depression: the Public Works Administration (PWA) for projects such as the construction of the Bonneville Dam, and the Works Progress Administration (WPA) for more labor-intensive projects that were quicker to get up and running. He directed more than five times as much funding to the WPA as he did to the PWA, for the simple reason that Americans were clamoring for work and the private sector wasn't generating any.
When Roosevelt became president in 1933, he brought with him plans that progressives had developed over the preceding 30 years for public power and social insurance. When it came to public jobs, however, FDR was improvising -- progressives hadn't envisioned the Depression or how to deal with it. Obama entered office with a similar disconnect: His dance card was filled with health-care reform and climate-change legislation, but nobody had planned for how to deal with the most severe downturn since the 1930s. Roosevelt showed his mettle as a great political leader by pivoting to remedy mass unemployment. This is Obama's turn to do the same.
There's one more lesson Obama should learn from FDR. In the words of Anna Burger, the secretary-treasurer of the Service Employees International Union, "we need a hammer" -- one government official whose sole mission is to oversee the efforts to create more jobs. Roosevelt's hammer was WPA chief Harry Hopkins. If Obama had a hammer, his new stimulus would be more credible still.