Obama's Hidden Stimulus

| Mon Sep. 13, 2010 2:02 PM EDT

Why does the American public seem to be convinced that the 2009 stimulus bill hasn't had any effect? Republican attacks are one reason, of course, as well as the fact that it failed to get unemployment down to the 8% level the Obama administration originally aimed for. But James Surowiecki suggests another factor as well. There was a lot of talk back when the bill was moving through Congress about the "smartest" way of implementing stimulus spending, and Surowiecki suggests that Democrats might have been too smart for their own good:

Paradoxically, the very things that made the stimulus more effective economically may have made it less popular politically. For instance, because research has shown that lump-sum tax refunds get hoarded rather than spent, the government decided not to give individuals their tax cuts all at once, instead refunding a little on each paycheck. The tactic was successful at increasing consumer demand, but it had a big political cost: many voters never noticed that they were getting a tax cut. Similarly, a key part of the stimulus was the billions of dollars that went to state governments. This was crucial in helping the states avoid layoffs and spending cuts, but politically it didn’t get much notice, because it was the dog that didn’t bark—saving jobs just isn’t as conspicuous as creating them. Extending unemployment benefits was also an excellent use of stimulus funds, since that money tends to get spent immediately. But unless you were unemployed this wasn’t something you’d pay attention to.

The stimulus was also backloaded, so that only a third was spent in the first year. This reduced waste, since there was more time to vet projects, and insured that money would keep flowing into 2010, lessening the risk of a double-dip recession. But it also made the stimulus less potent in 2009, when the economy was in dire straits, leaving voters with the impression that the plan wasn’t working. More subtly, while the plan may end up having a transformative impact on things like the clean-energy industry, broadband access, and the national power grid, it’s hard for voters to find concrete visual evidence of what the stimulus has done (those occasional road signs telling us our tax dollars are at work notwithstanding). That’s a sharp contrast with the New Deal legacy of new highways, massive dams, and rural electrification. Dramatic, high-profile deeds have a profound effect on people’s opinions, so, in the absence of another Hoover Dam or Golden Gate Bridge, it’s not surprising that the voter’s view is: “We spent $800 billion and all I got was this lousy T-shirt.”

Good policy, unfortunately, isn't always good politics. If Democrats had really been trying to get the biggest political bang for the buck, they probably would have proposed $800 billion in programs like cash for clunkers. Everyone loved cash for clunkers! But it didn't really do much to stimulate the economy. Aid to states did, but the money mostly went to government workers, and these days everyone hates government workers. I dunno. Maybe Obama should have insisted on a big slug of money going to a plan to buy every man, woman, and child in America a free weekly lottery ticket. At least people would have noticed it.

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