Al From: Safeguards needed for stimulus

Safeguards needed for stimulus, by Al From
Politico, January 14, 2009 03:43 PM EST

The size of the stimulus package seems to grow with each day’s headlines — it could total nearly $1 trillion before Congress finishes with it.

That’s why designing the stimulus carefully and overseeing its spending with vigilance should be a top priority of the next president and his economic team.

With the stock market and the economy in near collapse, unemployment rising, consumers not spending, lenders not giving credit, and state and local governments contemplating massive cutbacks, there’s good reason for alarm. Not surprisingly, there’s not much concern — nor should there be — about the deficit this year, even as we talk of spending federal dollars in amounts that would have been unimaginable even a few months ago, with the potential for a deficit of as much as $2 trillion next year.

The deficit may not matter in the short run, but the economy will recover, and the size of the deficit will matter again. So even as we pour money into the stimulus, we need to avoid unnecessary waste and keep the long-term fiscal health of the nation in mind.

The hope, of course, is that a massive infusion of federal dollars will jump-start the recovery — and smart investments in infrastructure, health care, technology and energy will build a strong foundation for long-term sustained economic growth and prosperity.

Here are three ideas that would increase the prospects of those outcomes.

First, we should create a National Infrastructure Bank to ensure that infrastructure investment is made wisely, with the long-term growth of the economy in mind. There’s always a great desire to get the money out quickly through “shovel ready” projects that the states have ready to go. To be sure, some worthy projects can quickly provide work for many people. But history should tell us that infrastructure spending is seldom fast — most projects take months or longer to start and years to complete. So it’s critical that the projects have a lasting positive effect on the long-term health of the private economy.

President-elect Barack Obama got it right in his recent interview on “Meet the Press”: “The key for us is making sure that we jump-start the economy in a way that doesn’t just deal with the short term, doesn’t just create jobs immediately, but also puts us on a glide path for long-term, sustainable economic growth.” Unfortunately, with the natural desire of Congress to spread the projects around, it’s a short distance from sound infrastructure investments to pork barrel spending and bridges to nowhere. A National Infrastructure Bank could be essential to spending the infrastructure money in the interest of the country’s long-term economic health.

Second, we need a new version of anti-recession aid to help states and local governments avoid layoffs of key employees such as police officers and firefighters and cutbacks in key services. Such countercyclical aid would complement infrastructure spending. While the infrastructure investments slowly work their way through the pipeline, the counter­cyclical funds would get into the economy immediately and help state and local governments avoid budget catastrophes. To ensure these funds are not wasted or do not continue after the recession is over, this anti-recession — or countercyclical — revenue-sharing program should have a national trigger so that it shuts off when the recession ends and should be carefully targeted to jurisdictions that are in the most distress.

Third, even as we move quickly to stimulate the economy, we should increase our vigilance over the federal budget. The best way to do that would be to establish a new Sunset Commission, with a mission of rooting out wasteful and outmoded government spending and unproductive tax subsidies. Similar to the Base Realignment and Closure Commission, the Sunset Commission would be charged with annually recommending to Congress expenditures or tax subsidies that could be curbed or eliminated. Congress would then have an up or down vote on the commission’s recommendations. So even as the deficit necessarily increases as the stimulus dollars are doled out, we will eliminate unnecessary and wasteful spending that would only add to the deficit in the long run.

These three steps will help get maximum benefits from the stimulus program. For in the end, the success of the stimulus will be determined not by the number of jobs it creates directly through federal projects but rather by whether it leads to long-term private-sector growth and job creation. The president-elect’s goals for the stimulus are quite modest — creating or saving 3 million jobs over the next four years. For America to prosper, our private economy must create several times that number, and a successful stimulus program can set the foundation for that.

Al From is founder and CEO of the Democratic Leadership Council.