President-elect Barack Obama
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The main downside of tax cuts and benefit increases will be their tails; pity the politician who tries to taketh away what he's already giveth. That's why the best test of any cash stimulus will be whether it makes sense on its merits. Obama's aides have already dropped a proposal to give businesses a $3,000 credit for every job they create--an invitation to game the system. But payroll-tax relief will reward work and put money in the hands of the people who need it most. And there's no time like the present.
The rest of Obama's stimulus will be New Deal--style government spending on needed goods and services, often with modern twists. That means smart meters and weatherization programs to prevent wasting energy; transmission lines and solar panels to promote alternative energy; green school buildings and sewage-treatment plants; wetlands restoration in the Everglades and coastal Louisiana; repairs for aging dams, bridges and airports--plus broadband networks, research, job training and, as Obama has suggested, anything else that seems like a good idea. This is an ideal time for the government to spend money on infrastructure, because labor and equipment are cheap. And improving our shameful infrastructure will improve our competitiveness.
The ideal focus of infrastructure spending would be green projects that help reduce our addiction to fossil fuels, but there's only so much of that ready to go. Nathaniel Keohane of the Environmental Defense Fund started ticking off his wish list in an interview: $1 billion for homeowners to install energy-efficient windows, $750 million for truckers to use fuel-efficient equipment, $600 million for smart boiler controls. "Still $998 billion to go," he said with a sigh. "Really, I spent time on this, and it's a reach to get to $100 billion." Obama and his team are starting to sound irked by demands for more. Why retrofit only 75% of federal buildings? Uh, it's not exactly cost-effective to retrofit a particle accelerator. What about more high-speed rail? Wonderful, if there were more projects ready to go. Why stop at weatherizing 2 million homes? Sorry, there are only so many guys who know how to use caulk guns.
It will be tempting for Obama to let Congress and the states fill the gaps with their own wish lists. But as Obama adviser Larry Summers has warned, a poorly designed stimulus "can have worse side effects than the disease that is to be cured." Handouts for clean coal, ethanol and other misguided energy technologies would be worse than inaction. With apologies to Keynes, incentives to "build houses and the like" could help inflate the same bubble that burst last year. And infrastructure spending has been one area where Congress has consistently exhibited an impressive bipartisan determination to do the wrong thing.