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A New New Deal? | The Nation

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A New New Deal?

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When Richard Nixon announced that we are all Keynesians now, stagflation was confounding liberal economists, and conservatives were about to take over the commanding heights. Similarly, when Bill Clinton announced that "the era of big government is over," economic conservatism was about to take us off the cliff. Now "the era of big government is over" is over.

About the Author

Eric Lotke
Eric Lotke is research director of the Institute for America's Future.
Robert L. Borosage
Robert L. Borosage
Robert L. Borosage is president of the Institute for America's Future.

Also by the Author

Liberals are pushing a range of measures that challenge Obama administration policy.

The “fiscal cliff” is being used to demand cuts that would otherwise be politically impossible.

Garry Wills says Americans think of government only as a "necessary evil," a last resort. Well, folks, all the other resorts are boarded up. In November, America shed more than 500,000 jobs, the worst single-month record in thirty-four years. We lost more than 2 million over the course of 2008--and the crash is accelerating across the globe.

At the same time, America is falling apart, literally. We've witnessed the ghastly spectaculars: failure of the levees in New Orleans, collapse of the I-35W bridge in Minneapolis, bursting of the steam pipe that shut down ten square blocks of Manhattan. But these tragic catastrophes are a small part of the growing costs of a conservative-era failure to invest in our future.

Conservative scorn for government has produced a crippling public-investment deficit. America's core infrastructure--roads, bridges, sewers, airports, trains, mass transit--is overcrowded, outdated and crumbling. The evidence, assembled by Eric Lotke in The Investment Deficit in America, issued by the Campaign for America's Future, is stark. Poor road conditions cost Americans billions in repairs and countless hours in delay. Though China opens a new subway system every year, and Europeans travel from Paris to Frankfurt on high-speed rail, American railroads don't have the funds needed even to maintain their outmoded infrastructure. Cities are suffering an epidemic of broken pipes and sinkholes, with the Environmental Protection Agency estimating more than 40,000 discharges of raw sewage into our drinking water, streams and homes each year from collapsing and overwhelmed sewage systems. The Education Department found that one-third of our schools are in such a severe state of disrepair that it "interferes with the delivery of instruction."

While the old basics are crumbling, twenty-first-century needs are being ignored. We maintain our addiction to oil while forfeiting our lead in renewable-energy technologies that will drive the green markets of the future. As two-income and single-parent families spread, we are failing to provide the high-quality childcare and pre-kindergarten programs vital to educating the next generation. Even as college or advanced training are deemed essential in the modern economy, more and more Americans find them priced out of reach. Our healthcare system is broken, consuming too many resources while providing care for too few. We invented the Internet, yet we rank about fifteenth among developed countries in access to broadband. In Japan, the average broadband speed is many times faster than our own. US federal investment in research and development is half what it was as a percentage of GDP in the 1960s.

It is time to invest in America. Recovery from this crisis provides the imperative; the investment deficit the targets. But turning the crisis into opportunity isn't sufficient. The fundamental question is whether the short-term response will lead to a new New Deal, a permanent expansion of the social contract.

'Substantial, Strategic and Sustained'

In December more than twenty union presidents, 120 economists and 100 progressive leaders, organized by the Institute for America's Future (IAF), released a statement calling for a "substantial, strategic and sustained" recovery plan for Main Street. The alliteration was an intentional contrast to the "timely, temporary and targeted" stimulus bill passed by Congress this past February. That mantra led to a timid plan focused on tax rebates. With Americans reeling from the collapse of housing prices and the stock market, stagnant wages, increasing debt and growing pessimism, the rebates had little effect. Less than 30 percent actually went into spending, as consumers sensibly used the bulk of the money to pay down debt. A good portion of what they spent went to goods imported from China or elsewhere. "Wal-Mart gift certificates," as the Rev. Jesse Jackson dubbed the rebates, had only a marginal and temporary effect on the economy.

The recovery plan has to be substantial--much bigger than the $150 billion spent on tax rebates last spring. Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz call for $1 trillion over two years; the IAF statement says the "floor" should be $900 billion over the same time span. The numbers floated for the Obama plan rise with each passing week as the downturn gets worse.

The reason is simple: government spending is the last resort. Interest rates are already near zero; in December fearful investors were essentially paying the Treasury interest to hold bonds. Consumers are cutting back; businesses are laying off workers and postponing investments. Exports will decline as the global economy turns down and the dollar moves up. States and localities are facing deep deficits and beginning to lay off police and teachers. The government is all that is left. The danger, as Krugman says, is that we'll do too little rather than too much.

Many recognize the need but worry about the deficit, headed toward $1 trillion for 2008. But a $14 trillion economy won't get the necessary boost from a small program. And with investors rushing to the dollar, the United States has no problem financing its ballooning deficits. Moreover, if the economy continues to sink, deficits will rise anyway, as tax revenue plummets and the costs of unemployment, welfare foreclosures and crime rise. Better to run the deficit of putting people to work than pay the price of their ruin.

The recovery plan should be strategic: spending on public works has a far greater effect on the economy than tax cuts. More money is spent; more jobs are created here rather than abroad. And if we invest in vital areas like energy, transportation and education, we can make a down payment on a more productive and competitive economy.

Finally, the recovery plan should be sustained. It will take a prolonged effort--two years is optimistic--to get the economy moving. Conservatives argue that New Deal spending failed to solve the Depression. In reality, Roosevelt's program dramatically reduced unemployment until, eager to return to balanced budgets, he raised taxes and cut spending in 1937 and immediately sent the economy back into a tailspin, which ended only when the deficit-financed mobilization for World War II kicked in. Again, the greater danger is to stop too soon, not to continue too long.

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