U.S. Economy Needs Steady Rehab, Not ER Treatment
I see much of my grandparents in the current fight over how to cure the economy. They thought of every medicine as a physic: They expected one dose to work immediately and became angry when a prescription (they called it a script) didnt instantly begin to take care of whatever ailed them.
[IMGCAP(1)]If they didnt start to feel better immediately, they would say the doctor didnt know what he (it was always a he back then) was doing, the pill or injection (the jab) was the wrong thing to do, or modern medicine simply didnt work. They would then refuse to take any more of what had been prescribed, and my father would have to win another argument before they would go back to doing what the doctor recommended. Of course, after they let the medication work, they soon became much better, although their opinion of the doctor never seemed to recover.
Behaving just like my grandparents, many of those involved in and commenting on the stimulus debate seem to expect the bill will be a fiscal physic that will provide immediate relief with one dose. If it doesnt, they will have to be reconvinced that its worth doing, but their opinion of the doctor may not change.
The truth is that its extremely unlikely that a one-dose/one-time fix will work. Rather than a disease that can be cured with single treatment, the U.S. economy is suffering from something akin to massive injuries for which it needs a steady series of visits to a physical rehabilitation facility. The treatment also will have to change as the patient progresses and needs something new.
The good news is that, for one of the few times since it was created, and unwittingly to be sure, the Congressional budget process is in the right place at the right time to provide almost the exact type of help the economy will need. Indeed, if we were going to design a system to deal with the current problems that allowed for a continuing series of economic rehab activities, whats already scheduled is what we likely would be putting in place.
In other words, the final version of the stimulus bill, which some say is too small to deal with the problem by itself, is not likely to be the last economic recovery/stimulus effort considered and enacted this year.
The stimulus is about to be followed by a new, and what seems to be a far more thoughtful, effort that will make it likely that the financial services sector will increase its lending and allow policymakers to get ahead of the continually morphing mortgage situation. Even though it will happen with a strong assist from Washington, D.C., the additional private-sector lending will increase economic activity and, therefore, needs to be considered part of an overall economic recovery effort.
The financial services/mortgage package will then be followed by action on the 2009 appropriations that were not enacted before the fiscal year began Oct. 1.
This is one of those rare times when Congress and the White House not getting the work done on appropriations by the start of the fiscal year is a good thing. The continuing resolution currently funding much of the federal government expires March 6, so the action on the appropriations will be occurring at exactly the time when some additional economic push from Washington may be considered necessary. Additional spending for the states, which many consider to be desperately needed, could be included then as well.
Its very likely that the spending levels in these bills will be higher now than they would have been in September 2008. The extent of the economic downturn was just starting to be understood as Congress returned to work after Labor Day, and eight weeks before the elections, the White House and others were attempting to downplay the magnitude of what was happening. The Bush administration was still pushing spending limits at that point, and any attempt to use the remaining appropriations for stimulus purposes would have been shouted down. Thats one of the main reasons that the appropriations were kept at the fiscal 2008 levels.
Contrast that with the current understanding that short-term outlay restrictions are not appropriate, and its hard to see how anyone will be talking about the need to cut spending as these bills are considered. There will be talk about the need to restrain outlays as soon as the economy is recovering, but few will seriously insist that should start immediately. That will allow the 2009 appropriations to be part of a stimulus effort if Congress and the White House think more is needed.
That will be followed by the release of the administrations fiscal 2010 budget. Although the spending and taxing proposals in the budget are for the fiscal year that will begin in October, the release of the preliminary Obama budget at the end of February and the full budget in April will provide several additional opportunities for Congress and the White House to do other fine-tuning on the economy and adjust medication levels as needed. Its conceivable, and perhaps even likely, that a budget reconciliation bill, which would not be subject to a filibuster and therefore would not need 60 votes in the Senate, will be part of the 2010 budget process if additional recovery efforts are needed.
The Congressional budget process easily could be used to make adjustments in the opposite direction. If, for example, the economy began to recover faster than expected, the 2010 budget and reconciliation could allow the stimulus efforts already in place to be scaled back faster than might otherwise occur. In other words, if the patient is suddenly able to jog without assistance, the process will make it easy to discontinue the two-a-day rehabilitation sessions already planned.
Stan Collender is managing director at Qorvis Communications and author of The Guide to the Federal Budget. His blog is Capital Gains and Games.