What I like about President Obama's Stimulus 2.0 is what all the partisans and ideologues hate about it — its restraint and its willingness to embrace seemingly contradictory ideas.
The restraint comes in acknowledging that government can only do so much to help a market economy rebalance itself so it can grow again. The seeming contradiction relates to his approach to budget deficits. The best idea for reducing them, he argues, is to take steps to shorten a recession — but only if they don't significantly raise long-term borrowing costs. After all, when you're $9 trillion in the hole, every extra percentage point added to interest rates translates into an extra $90 billion in interest payments, much of it to foreigners.
As the president explained Tuesday, there is nothing irreconcilable about paying down the deficit and investing in economic growth. The choice between them is a false one, but figuring out the right balance is as much art as science.
It is the unfortunate reality of any recession that the burden of right-sizing the economy and industries is borne disproportionately by those who lose their jobs, often through no fault of their own, while others suffer very little. Stimulus 2.0 recognizes that it is the government's role to compensate the losers by extending unemployment benefits to those who qualify — and provide health insurance and food stamps even to those who don't qualify for jobless benefits.
The new proposal also restores tens of billions of dollars in infrastructure spending that was cut from the first stimulus bill to make room for across-the-board tax cuts that didn't pack much of an economic punch.
If saving jobs is the goal, there's nothing more effective than sending another big slug of money to the states, which claim to face a collective shortfall of more than $140 billion next year. I'd feel a whole lot better, however, if I knew the money weren't being used to fund pay raises or pension-benefit increases.
Those are the big-money items in the president's proposal, and the ones likely to create and save the most jobs in the shortest amount of time. The same can't be said for the various tax breaks that the president added to the mix.
The one that has garnered the most attention, and is likely to be the least effective, is the temporary tax break to small businesses that add to their payrolls. For every 10 new jobs, we will be lucky if one results from that break.
More intriguing is the president's idea of offering a capital gains tax rate of zero for investments made in small new startups over the next year or two — if only we could be sure that it wouldn't lead corporations and venture capitalists to discover ways to turn existing activity into a "new" business.
Under the category of truly bad ideas, the president has proposed to increase from 80 to 90 percent the share of small-business loans that the government will guarantee. It was loose lending that got us into this pickle, and a recession hardly seems like the ideal time to encourage banks to lower underwriting standards by having less skin in the game.