Behind the $825 billion poker game playing out in Washington this week is a tacit understanding on both sides: Republicans know Congress must act to address the sinking economy, and President Obama and Democrats know what they are doing had better work or they're in trouble a year from now.
The giant stimulus package is easily the largest such effort ever in the United States. As the first big policy battle of Obama's presidency, the legislation will set the political tone of his administration and serve as a benchmark for its success.
Obama's efforts to reach out to the opposition party are unlike anything witnessed in the last administration or even those before it. He has already incorporated large tax cuts in the stimulus to lure GOP support. Obama is looking for two things: at least partial Republican ownership of a risky, costly policy experiment, and avoidance of the kind of partisan rupture that nearly killed a much smaller and less critical effort by President Bill Clinton in 1993.
"We don't have any pride of ownership," said White House press secretary Robert Gibbs.
Republicans face risks of their own. While attacking what they call pork and overspending, they do not want responsibility for killing what is now the government's last, best hope to reverse or at least slow an alarming worldwide economic decline.
The Federal Reserve already has slashed interest rates to near zero and flooded credit markets with cash and loan backstops, throwing out the rules in a muscular intervention. Monetary policy has reached its limit, leaving old-fashioned Keynesian fiscal policy as the last best hope.
"I worry this is the beginning of the most severe downturn of postwar economic history," compounded by the contraction in demand across the globe, said Brad Setser, a macroeconomist at the Council on Foreign Relations. "There is no choice other than trying to counteract a very sharp contraction in private activity" through government spending, he said.
If Republicans blocked the stimulus, they would risk even more blame for the economic wreckage many tie to the Bush administration.
Senate Republican leader Mitch McConnell of Kentucky has struck a much more accommodating tone than has House Republican Leader John Boehner of Ohio. Democrats have plenty of votes to pass the Obama plan on their own in the House; Republicans theoretically could block the bill in the Senate, but are unlikely to do so.
A bipartisan vote for the Obama stimulus would "set the tone for the next 10 bills," said Princeton University political scientist Julin Zelizer. "If he gets a straight party-line vote, it's likely that the rest of his legislation is going to be treated in a much more partisan fashion."
Republicans object less to the stimulus itself than to its spending component; they have no objection to cutting taxes.
The problem with tax cuts when consumer and business confidence is so low, however, is that households save most of the money, said Bruce Bartlett, a former Reagan administration Treasury official. Past tax rebates, including the up to $600 checks sent out last year by the Bush administration, were mostly saved or used to pay down debt, affirming the theory of the late conservative economist Milton Friedman, who first pointed out that people do not alter their spending permanently in response to temporary changes in their income.
That's why the Obama administration chose to adjust withholding tables to reflect a $500 tax credit instead, hoping workers would spend more if they saw larger weekly paychecks. The administration also focused most of its attention on direct government spending to assure that the money is actually used.
Yet it is surprisingly difficult to get an immediate spending boost even with so-called shovel-ready projects.
"Contrary to popular belief, there are very few projects sitting there waiting to break ground tomorrow the minute the check arrives," said Bartlett. Spending over and above what would have taken place anyway by consumers, businesses and governments, he said, "very, very hard. No one's yet figured it out."
The Congressional Budget Office said Monday that roughly two thirds of the $825 billion would be spent in the next 18 months.
E-mail Carolyn Lochhead at clochhead(at)sfchronicle.com. For more stories visit scrippsnews.com
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