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The single most important thing Democrats could do for jobs

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The arcane rules and regulations governing the 51-vote budget reconciliation process made it a tricky path for health-care reform. But they make it perfect for stimulus. After all, what's dearer to the budget than spending money and changing tax rates?

There are three ways to use the budget reconciliation process for further stimulus. The first is to include a reconciliation "directive" in the next budget. The second is to use the directive that was included in the 2010 budget for health care. And the third is to pass a new directive into the 2010 budget. Because I don't want your eyes to glaze over before you reach the conclusion, I'll put it up at the top: If Democrats want to do this, they can. They can do it on their timetable, and they only need 51 votes.

Using the 2011 budget: The first path, and the most straightforward, would be to include a "budget reconciliation directive" in the 2011 budget. The problem with that path is that it's slow: The next budget is the 2011 budget. It doesn't come up for consideration until April. The stimulus package couldn't really be considered until June or so, and it couldn't take effect until the new year.

The upside is that it preserves Democratic flexibility into 2011. There's a good chance that Democrats will lose seats in the 2010 election, and there's a good chance the economy will need more stimulus in 2011. Democrats would be smart to give themselves the option to pass a stimulus bill with less than 60 votes, even if they don't end up using it. "It ought to be a no-brainer," says Bob Greenstein, director of the Center on Budget and Policy Priorities.

Using health care: Let's say you want to move faster, however. The stimulus was too small from Day 1. Then the recession got worse, making it much too small. There's no reason that Democrats should wait till 2011 to launch a second assault on unnecessary joblessness. But if you want to pass it through reconciliation, you need a budget directive.

Luckily, there happens to be one lying around. The 2010 budget included an unused directive that was meant for health-care reform. But directives aren't subject-specific. They specify committees, and they specify changes in the deficit, but nothing beyond that. In the Senate, the available budget directive activates the Finance and HELP committees. In the House, it's Ways and Means, Energy and Commerce, and Education and Labor. In both chambers, the directive demands that the legislation improve the deficit by $1 billion over five years. That ties your hands quite a bit, both in what you can do and how much you can spend.

A shiny new directive: The budget reconciliation process originally arose to, well, reconcile budgets. Every year, Congress would pass two of them, one in April and one later in the year. That's fallen by the wayside, and Congress only passes one these days. But Congress still has the option of passing a second budget. They could simply pass a second budget resolution -- which only needs 51 votes, natch -- including a reconciliation directive built specifically for the stimulus package.

To be sure, Democrats have tied their hands a bit. After the Bush administration used budget reconciliation for tax cuts, Democrats passed a rule barring the use of reconciliation to increase the deficit. "Democrats play by the rules," sighs budget expert Stan Collender, "and Republicans play to win." But even here there's flexibility: The directive could order deficit neutrality over a 10-year time frame, which is much easier to do than the five-year window included in the health-care directive.

That leaves Democrats with a menu of options ranging from moving quick to help the economy, all the way to simply preserving the option to pass more stimulus in the future, even if they lose a couple of seats in 2011. To reject all the options, however, would be to willingly disarm in the face of high unemployment and a polarized Senate. "The evidence from 2009 is pretty strong," says Greenstein. "If you want to move a fairly comprehensive agenda in the current environment, you need reconciliation as one of your tools."

There's been a lot of talk lately about the need for Democrats to pivot from health care and demonstrate their seriousness about jobs. There is no first step they could take on that front that would be more important than opening the reconciliation process.

Photo credit: Michael Williamson/The Washington Post.

By Ezra Klein  |  December 30, 2009; 6:30 PM ET
Categories:  Budget , Stimulus  
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Comments

Whatever rules that are finally decided to be utilized I guarantee one thing.

That is Nancy Pelosi and Harry Reid will allow all sorts of programs to move forward that the liberal/progressive agenda demand and that will add to the deficit and the national debt and eventually increased taxation and inflation.

The current government's policies are not "change you can believe in" they are tax and spend!

Posted by: mwhoke | December 30, 2009 7:34 PM | Report abuse

Here is a crucial paragraph:

"To be sure, Democrats have tied their hands a bit. After the Bush administration used budget reconciliation for tax cuts, Democrats passed a rule barring the use of reconciliation to increase the deficit. "Democrats play by the rules," sighs budget expert Stan Collender, "and Republicans play to win." But even here there's flexibility: The directive could order deficit neutrality over a 10-year time frame, which is much easier to do than the five-year window included in the health-care directive."

What this means is that the Democrats can pass a very large stimulus, say $1.5 trillion, where the money flows into the economy in the first 5 years (especially the first two years). Presumably, by then the recession would be over, and permanent tax increases, on the wealthy, on pollution, would begin (if not, start another stimulus), and they could be made large enough to pay for the $1.5 trillion in spending that occurred in the first 5 years. In fact, they could be made larger than that, so that the whole thing actually lowers the national debt by a few hundred billion over the 10 year period – and by over $1 trillion in the 20 year CBO score. This could make for a powerful political selling point, as well as being very good for the economy long term (increasing national investment, decreasing national consumption).

I had a post suggesting this in November, although I thought the package would have to be deficit neutral over 5 years – it's very difficult to get good current information on Senate rules. The post is at:

http://richardhserlin.blogspot.com/2009/11/how-to-simultaneously-pass-stimulus.html

Posted by: RichardHSerlin | December 30, 2009 8:04 PM | Report abuse

Do you understand that borrowing money to make today better makes tomorrow worse?

Posted by: staticvars | December 31, 2009 10:59 AM | Report abuse

Aid to the states. Teachers, cops, etc getting laid off -- a cheap way of saving jobs.

Good to know staticvars never took out a mortgage, car loan, student loan, etc.

Morons everywhere!

Posted by: AZProgressive | December 31, 2009 11:04 AM | Report abuse

AZProgressive: It's good to know that you consider increasing future taxes to provide temporary government jobs to be equivalent to asset backed loans. I am guessing you don't run a business.

Posted by: staticvars | December 31, 2009 11:10 AM | Report abuse

REal jobs, private sector jobs, can only be created when there is an increase in the demand for goods and services. That demand is currently lacking, hence no need to hire more people.

What we need to do is cut taxes so that people have more discretionary income to buy the goods and services, thereby increasing demand for them, and the need for new hires.

This is elementary, and yet Dems can't seem to figure it out...

Posted by: boosterprez | December 31, 2009 12:01 PM | Report abuse

In my opinion, the Dems should ditch the deficit neutrality. Increasing the deficit won't result in increased taxation for our children or grandchildren. The government doesn't need to collect taxes to cover all its spending, and the government does not need to issue debt to pay for spending. The government can spend more as necessary as long as inflation is not a problem, and this does not increase future liabilities.

Please check out http://bilbo.economicoutlook.net/blog/ if you are interested in this...

Posted by: DetroitDan | December 31, 2009 12:47 PM | Report abuse

For those who are still brainwashed by failed Voodoo economics, 33% of the current deficit and the $5 trillion dollar additional debt added during the Bush administration is attributed to Bush tax cuts to the top 5% which totally failed to produce jobs. Get over it. Taken to extremes, tax cuts do nothing except increase debt as taxes are the revenue source used to carrying on our miltibillion dollar wars and run the government.

The private sector discovered following its paniced response to the crisis that they could get mean and lean and increase productivity utilizing far fewer employees and they are still antsy about rehiring perminant employees only to have to let them go. That being said, productivity is so high that even modest growth will necessitate hiring.

There is no political or public will for what would actually be a third stimulus. The checks mailed out in the Spring of 2008 by the Bush administration was a failed stimulus. They had no positive effect on the economy and had no hope of off setting the devastation that our national greed created. The American public on average was spending 125% of earnings and saving nothing. That isn't sustainable and has consequences.

Posted by: xclntcat | December 31, 2009 1:44 PM | Report abuse

Do you understand that borrowing money to make today better makes tomorrow worse?

Posted by: staticvars

If only Bush understood this. Thats how we got into this mess. Blaming Obama is insanity at its best. But thats what we do day in and day out. Just pass a stimulus package and get this country out of this recession! GET SOMETHING DONE DEMOCRATS!

Posted by: McSameChalin | December 31, 2009 2:22 PM | Report abuse

staticvars:

Two key things:

1) Much of the stimulus is in very high social return investments of the kind that the pure free market will provide at far less than the efficient level due to well established in economics free market problems like inability/impracticality to patent, externalities, asymmetric information, etc., etc. This includes alternative energy, infrastructure, basic scientific and medical research, and education. These investments pay a far higher social return than the government cost of borrowing, especially with interest rates so low right now.

2) The economy wide Keynesian effect of a stimulus right now is simply that a lot more is produced. You simply end up with tens of millions of people producing things of value, including infrastructure, education, etc., who would instead be producing nothing, being unemployed. The stimulus just causes GDP to be much higher, now as well as in the future, and that's what the forecasts overwhelmingly show. Because the economy is in recession, without the stimulus, tens of millions produce nothing; it's hugely inefficient, and the government collects no, or little, taxes from them, and pays unemployment, Medicare, food stamps, etc. With the stimulus, it saves on all of these things and collects far more taxes. In addition, much of what these people who would have sat around doing nothing produce is extremely high return like alternative energy, smart infrastructure, education, etc. The money that's loaned out that the government has to pay back is either, (a) paid back to other Americans who lent it; so money is just shifted around in the country, not lost, and there is a large net gain due to more total goods being produced, less idle capacity. Or (b) paid back to foreigners who use the American currency they get to eventually buy American goods; so what essentially happened? It's like foreigners paid unemployed Americans to produce things for them. That's a win-win. The unemployed workers, who would otherwise have stayed unemployed, got a paycheck, and the foreigners got the goods that they produced. This is a lot better than the unemployed workers just sit around idle.

Posted by: RichardHSerlin | December 31, 2009 3:42 PM | Report abuse

well thanks to RichardHSerlin especially, and all the others who shot down that "tax & spend" refrain seeping out from under rocks.

One additional benefit from this action could be the nation's witnessing fiscal policy working within the national attention span. See enough tangible results and the country can start believing in real economics again, and lay the Reagan legacy to rest finally.

I hope the Democrats realize that boldness on sufficient scale here carries little risk and can bring this very cultural and political change - long overdue, and of great future benefit to them.

Posted by: rosshunter | December 31, 2009 4:07 PM | Report abuse

RichardHSerlin:
Thanks for the info. What so many people seem to be missing is the oughts were a decade of stimulus, misapplied to the housing sector, paying full price for prescription drugs, the war machine, and other things that we didn't really need and had the capacity to pay for in any case without cutting taxes asymmetrically.

This time, we are seeing stimulus applied to the housing sector to drive up prices. If we had cheaper housing, we could actually have people working for wages that would allow us to be globally competitive, yet fraudulent economic policy dictates reflating these prices and using tax dollars to pay people for them.

Recessions are necessary corrections to overvalued assets. By letting them take their effects quickly, the economy can get more quickly reorganized to reflect changing circumstances. We do need unemployment insurance, investment in the basic sciences, etc., but we can't expect spending more money we don't have to solve all of our problems.

There are serious questions about how the Treasury auctions have been run this year, where the $500B household sector investment came from, and who's going to buy the next trillion worth. If the answer to all of the above is Bernanke's magical printing press, we are going to be in some weird recessionary inflation period.

I know it's New Year's Eve, but 2010 is time to sober up.

Posted by: staticvars | December 31, 2009 5:05 PM | Report abuse

I think the solution to many economic challenges the nation faces may lie in the hands of the 50 state governors in the United States. Each state historically has had, in years past, a history which reflects an ability to manufacture specific things, or grow specific crops, or offer specialized services of a highly technical nature. Buying and selling transactions between the various states should therefore be enhanced/strengthened/formalized among the 50 states, and yes, at the expense of NAFTA. If for example a state(s)is identified as a qualified manufacturer among the 50 states for steel manufacturing, a individual and or company in any state the needs steel buys steel from that state or states even though the Chinese may offer a better buy. The advantages? You not only keep the business in the U.S.A. but also the jobs and the money generated in the transactions in the U.S.A. Business continues as usual for things that are not available in the U.S.A., examples. coffee, bananas,teak, but otherwise state manufactured items are given the edge with few exceptions. Secondly, the federal government is, to a degree, removed from making these far reaching decisions. The federal government is far to intrusive as it is,and is becoming more so annually. Stronger State economies, therefore, may well translate to a stronger United States of America.

Posted by: joe100821 | December 31, 2009 5:41 PM | Report abuse

Common man, i thought you're better than a typical tax and spend liberal. For you to even consider another stimulus when the one passed has not been fully spent is irresponsible. How do you pay for the new stimulus? We've gotten two stimuli between 2008 and 2009, yet, Democrats are arguing for a new round. At what point do we say enough is enough.

Who is going to pay for another stimulus? You can't tell me the rich will pay for it because they’ve already been overloaded with tax. Obama will be wise to ignore the call for new stimulus or else he can kiss his re-election good bye.

Posted by: gbuze007 | December 31, 2009 6:28 PM | Report abuse

staticvars,

I don't think we should stimulate demand by propping up housing prices. There are much better ways, like governemnt spending on alternative energy, education, etc. High housing prices do far more harm than good. They are one of the biggest reasons for personal financial distress.

I had a post on this that was featured in Mark Thoma's Economist's View, at:

http://economistsview.typepad.com/economistsview/2008/08/wishful-thinkin.html

A key point, though, is that a stimulus will only employ the unemployed if we are below the full employment level (except for natural job search time unemployment), about 5%. Then it's best to not deficit spend. If you do increases in smart, worthwhile government spending, you pay for it with increased taxes. The Republicans, unlike Clinton, didn't do this in the 2000s. They just had massive tax cuts predominantly for the rich, causing a huge shift in national spending away from investment and into instead Rolexes, mansions, etc., and turning giant surpluses into giant deficits.

Posted by: RichardHSerlin | January 1, 2010 4:31 PM | Report abuse

I should be clearer. You can push unemployment below the natural, or "full", or frictional rate, or NAIRU (non-accelerating inflation rate unemployment rate), but when you push unemployment that low, the economy can overheat causing excessive inflation. It's actually unclear exactly what the NAIRU is, but I should have said a range like it's somewhere between 2.5% and 5%, obviously far from the double digit unemployment rate today.

You can never get unemployment to zero, because there will always be people switching jobs or careers, or companies going out of business, etc., and it takes some time to interview and find a new job.

Posted by: RichardHSerlin | January 1, 2010 4:49 PM | Report abuse

We should put people to work.

We could hold huge bonfires across the USA and pay unemployed Americans to shovel dollar bills into the flames.

It would employ more people than Obamas stimulus plan, and probably end up costing less.

Posted by: cautious | January 2, 2010 2:32 AM | Report abuse

If you don't do something about trade with communist China and end anti-worker US regulations like H-1B then jobs will never come back.

So when they say "these jobs are gone" they mean "we want them gone and aren't willing to bring them back". And the Dems are just as guilty as the GOP of selling this nation's workers out!

Posted by: themashby | January 2, 2010 3:09 AM | Report abuse

I'm an economic progressive, which means that I champion policies and ideas that allow for an ever-increasing portion of the citizenry to move up the socio-economic scale. Apparently, regressives hate the idea of this, even though most of them who don't really understand the concept would benefit directly from said policies and ideas. I am all for an increase in the top economic tax bracket. I think 50% should be about right. It's funny how most regressive don't know that when the top end tax bracket was at 90%, J paul getty, Jp morgan, Henry Ford, Andrew Carnegie, and John D. Rockefeller were at their financial peaks. I am also for an increase in the capital gains tax, closing of many of the loopholes that allow for corporations to currently pay an income tax of around 5% effectively,a .25% tax on stock transactions, and a VAT tax. From these transparently applied and structured taxes, I believe that the federal government should 1. Create a high speed rail network 2. Create a new version of the Civilian Conservation Corp (Centered around a green energy economy.). Create a Works Project Authority for the 21st Century.4.Create an infrastructure bank. And 5. Begin to pay down our t-bills.If a regressive even knows that these concepts have already shown an ability to generate stable, moderately well paying jobs in the past would not surprise me. They don't do history, or reality well.

Posted by: onlinesavant | January 2, 2010 6:37 PM | Report abuse

memo to Klein, firedoglake, and president's servants in the print media, Dionne and so on: never has one of our message directives been more taken up and repeated, chorus like, as the one where we told y'all to use the word PIVOT. D.A. is beyond gratified by the mass cry that the president will PIVOT in the upcoming months. I have to say, the word was a good choice on the part of our operation, carrying as it does the sense of the grace of an athlete or dancer. Now once again, all together: he will pivot. invite to white house superbowl party in the mail! D.P.

Posted by: truck1 | January 3, 2010 9:55 AM | Report abuse

Considering that American civil engineers estimate that the US has a $2.5 trillion deficit in infrastructure repairs on roads, bridges, rail and the electrical grid, spending money on infrastructure is not stimulus, it's just common sense. The decaying infrastructure will begin to erode our economic engine if we don't maintain it.

Add to that this that the US has one of the least effective passenger rail system in the world, and the slowest, most expensive internet access among industrialized nations, and we have a lot of catching up to do. Spending money on rail, internet access and more traditional infrastructure is essential to the long-term economic growth of the US, and the fact that it adds jobs today is just a positive externality.

Posted by: AxelDC | January 4, 2010 8:57 AM | Report abuse

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