Sen. Judd Gregg is hardly the only American to have big problems with the $800 billion stimulus package coming from President Obama and the Obamacrats on Capitol Hill. Even after a major P.R. push by the White House, including the warnings of economic catastrophe if the package didn't pass, still only 44 percent of us approve of the plan vs. 40 percent who don't, according to Rasmussen.
But now that he's reengaged as part of the loyal opposition, Gregg may yet have a chance to shape a ginormous stimulus package more to his liking. Here's why:
1) There's a good chance that the Obama administration's $800 billion stimulus package won't be its last bite at the apple. Even when the economy starts growing again, unemployment will surely continue to rise no matter how successful the stimulus. According to Team Obama's own analysis, the nation's unemployment rate should peak at about 8 percent this year before falling to 6.8 percent at the end of 2010. To put it another way, three years after the recession started, the jobless rate would still be at levels not seen since the early 1990s.
2) What's more, many private forecasts are even gloomier. Goldman Sachs now thinks unemployment will surge to 9.5 percent by the fourth quarter of 2010. "Indeed, double-digit unemployment could well be reality sometime next year," the firm's econ team said in a recent research note. Think many Americans are going to be giddy about the economy come the next midterm elections? Probably not.
3) Also, a case could be made that the weakling recovery, with its persistently high unemployment, might downshift again in 2011. Here's the scenario that Northern Trust economist Paul Kasriel paints: The economy begins to expand by the end of this year. But all that hot money flooding into the economy, particularly from the Fed, sends inflation soaring. So in the first half of 2010, the Fed begins to aggressively hike interest rates. "This is what we believe will trigger the next official recession," Kasriel explains in recent report.
4) And don't forget about those Bush tax cuts from 2001 and 2003 due to expire at the end of next year. Granted, Obama pledged to let taxes on income and investments rise for only wealthier Americans. And he's left the timing fuzzy. But listen to what Treasury Secretary Larry Summers had to say on Meet the Press recently: "I don't think there's any question they have to be repealed. The country can't afford them for the long run. ... They can't be part of the long-run budget picture. ... The president's inherited a trillion-dollar deficit, and a deficit with a baseline that is terrible as far as the eye can see."
That didn't sound to me like Summers was just talking about rich people. After all, repealing just those taxes affecting higher-income folks only gets you around $40 billion a year vs. $300 billion a year if you repeal the whole shebang. (Those totals don't assume any injury to the economy causing tax revenues to fall short of estimates.) Using a computer model, Goldman Sachs ran a simuluation where it assumed all the Bush tax cuts expired, and watched how the economy reacted as 2011 began. What did the firm find? Well, in the first quarter of 2011 the economy dropped 3 percentage points below what it would have been otherwise. "Absent a tailwind to growth from some other source," the analysis concludes, "this would almost surely mark the onset of a recession."
Bottom line: Bad economy, and elections looming at the end of 2010. Kind of sounds like the sort of environment where, if you were a Washington politico, you might push hard for Son of Stimulus. Any such package might look a lot like a paint-by-numbers sequel to the 2009 version. And the White House itself keeps saying that the $800 billion stimulus is merely a "down payment" for future spending on things like green energy and healthcare.
But another option would be a growthier package that would improve the long-term productivity of the economy and help families in the near term. Here are a few ideas: 1) eliminate capital-gains taxes so that the income tax would be transformed into a de facto consumption tax that encourages investment; 2) dramatically cut or eliminate business taxes so that U.S. companies could better compete globally; 3) index Social Security benefits to inflation and extend the retirement age, allowing a big cut in payroll taxes for the middle class; 4) create government-funded "innovation prizes" for key technology challenges; and 5) give universities financial incentives to create more science geeks and offer grad students free-floating fellowships to choose the field with the best prospects.
Now, you wouldn't call this plan a "new New Deal," certainly. But wouldn't it be great if in 2010 we could call it "Obamanomics, New and Improved"?