Last week in his big economic stimulus speech, President-elect Barack Obama promised less waste and a sunny new climate of transparency. Obama says, "We'll invest in what works." This week, we're asking, "So, what works?"
The simplest stimulus plan is a temporary cut in the Social Security payroll tax. This would leave workers with more take-home pay and reduce employments costs, at once boosting consumer spending and encouraging jobs. It can be enacted with a stroke of the pen, and just as swiftly reversed. This kind of targeted tax cut works better than an influx of government spending to lift an economy from recession.
While he did call for some tax cuts, Obama pushed even harder for massive new public infrastructure spending, which is very complicated, and not at all quick. Maybe it's a good idea in the longer run, but it's just too slow to work as stimulus.
And it's worse than "won't work." New roads, bridges, and electric grids requires the government to sign thousands of contracts and cut thousands of checks. Now think about the missing billions in Iraq. Big-ticket government contracting is just the kind of process where political corruption thrives, where regulatory oversight fails, especially if we're going for speed. If infrastructure is worth doing, it's worth doing smartly, deliberately, and with scrupulous oversight.
Lord knows we need more transparency and less graft. But some policies, like the payroll tax cut, are easily and transparently administered. Others, like blitzkrieg infrastructure spending, create the dark institutional mazes where Halliburtons scurry and thrive.
Maybe Obama does want to let the sunshine in, but little on his policy wish list really works as stimulus. Trying to push it all through under the cover of crisis threatens to leave already abused taxpayers holding another whopping bill.
Will Wilkinson comments on the Obama economic stimulus package on Marketplace Radio (January 14, 2009) [MP3]