Obama, Dems Face Hard Sell on Stimulus

Faced with record deficits and a skeptical public, Democrats are doubling up efforts to sell their economic recovery plan, with President-elect Barack Obama taking the lead in a speech Thursday designed to lay out the case for government action.

Obama’s appearance in suburban Virginia follows on Democratic leadership hearings in the House Wednesday at which both liberal and conservative economists called for quick intervention. But public opinion still appears divided on the issue, and the Congressional Budget Office warned Wednesday that the government is already facing a $1.2 trillion deficit in the fiscal year ending Sept. 30.

Speaker Nancy Pelosi (D-Calif.) is fond of saying that Obama’s proposed $775 billion stimulus bill won’t be a New Deal-style public works package. But she and Democrats must also contend with what could be a very different public than the one President Franklin Roosevelt faced.

When FDR took the helm during the Great Depression, the prospect of any government action — even Roosevelt’s bank holiday — was welcomed as a shot in the arm. In Obama’s case, the prospect of action — by itself — may not be enough without him using speeches like the one Thursday to spell out some larger purpose.

FDR did not take power until March 1933, more than three years after the Great Crash of 1929. On the morning of his Inauguration, most of the nation’s banks had shut their doors, and even Wall Street and the Chicago Board of Trade had suspended operations.

Obama comes to power sooner after the downturn, and also after a period of extraordinary intervention already by Treasury and the Federal Reserve. The results of that activity have been mixed. And while most economists agree that the country is better off for having acted, the huge costs have also fed skepticism among the public.

“There’s a sense out there that we keep throwing more and more money at the problem,” pollster Neil Newhouse told Politico. “There’s a ton of skepticism out there whether this will make a difference.”

Even with the proposed stimulus, unemployment seems certain to rise in 2009, and after the experience with the financial markets rescue effort this past fall, Democrats say it is harder to convince voters that they would be worse off if Washington had stayed on the sidelines and let more banks go under.

The hearings Wednesday served to emphasize the perils ahead if nothing is done — or if action is delayed until later this spring.

“Confidence has been shattered,” said Mark Zandi, the chief economist for Moody’s Economy.com and a past adviser to Republican Sen. John McCain’s presidential campaign. “The only way out is through aggressive and quick government action. And to wait 2½ months, I think, would be a very serious problem.”

But Newhouse, a Republican respected across party lines, said that Democrats make a mistake if they don’t think the public sees the crisis now. The real challenge is to show the benefit of action.

Thursday’s speech will be a test for Obama, then. All week, he has tried to calibrate his remarks, promising to provide greater transparency on where the money will go and also to avoid the parochial spending earmarks that have become such an issue in Congress.
In the same vein, Obama promised Wednesday that reforming major government benefit programs such as Medicare would be a “central part” of his efforts to control spending.

“We expect that discussion around entitlements will be a central part of those plans,” he told reporters. “And I expect that by February, in line with the announcement of at least a rough budget outline, we will have more to say about how we’re going to approach entitlement spending.”

The House and Senate will have to begin action before then if Democrats are to meet their deadline for final passage of the economic recovery package by mid-February. The House Appropriations Committee appears to be working toward a goal of having a draft package by the end of next week, perhaps. But at this stage, it’s expected that the Senate will write its own version, which — however similar — will require time for negotiations before a final package is sent to Obama.

It’s not yet clear if Obama will present his own stand-alone package or simply work with the two sides toward a common agreement. But his imprint is evident. In dividing up transportation funds, there will be a greater emphasis on transit vs. highways than there has been in the past. And among the major education initiatives is a proposal to raise the maximum annual Pell Grant for low-income college students to $5,321, an increase of $500.

Defense spending will have a small part of the package, but some is expected to be included along with domestic programs. And in his own testimony before the House, Harvard economist Martin Feldstein argued that the bill could be an opportunity to address the need to replace and repair equipment strained by the war in Iraq.

“Both supplies and equipment will eventually need to be replaced,” Feldstein said. “Now is the time to do that.”

At a Capitol Hill meeting this week, Obama’s incoming vice president, Sen. Joe Biden (D-Del.), famously referred to the economic crisis as the equivalent of war. As if picking up on this metaphor, Feldstein also warned that in the case of the new spending, “there should be an exit strategy.”

“The spending should not create a political dynamic that makes it hard to stop,” he said.

Copyright POLIT - Politico
Contact Us