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September 24, 2017

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Obama must salvage lives, homes, lending, and banks

President Obama is warning all who would listen that if the Congress does not act now on his recovery plans, the U.S. economy, "already in crisis, will be faced with catastrophe."

Few economists and politicians still doubt the need for a stimulus package. Though there is apprehension about the cost of the American Recovery and Reinvestment Act being debated in Congress, the real battles we have been seeing in the House and Senate have not been just about whether US$100 billion should be cut or added to the administration's US$800 billion proposal. What we are seeing is volatile mix of deep philosophical differences and cynical political posturing.

For liberal Democrats, the ideal recovery package would fund unemployment benefits, local government services, and programs they have advocated for years. Tax cuts for most Americans are added as a sweetener.

Republicans have tremendous difficulty swallowing all this, because they believe that spending programs do not lead to recovery from recession. They say tax cuts do, and want them to be directed at business, capital gains, and interest income.

Since the U.S. national debt doubled during the tax-cutting Bush years, ask why tax cuts are not considered to be a form of government spending. Perhaps then unfunded tax cuts would be abhorred by Republicans just as surely as taxpayer money dedicated to infrastructure or education. With that perspective, we can see that the real battles over stimulus and bailouts will be over who gets the money.

The President and the Democrats claim they offered bi-partisanship and concessions to Republicans. The Republicans weren't offered quite the tax cuts they wanted, or the cuts in the Democratic stimulus spending package they sought. The Republicans banded together and voted unanimously against the bill in the House of Representatives. As of this writing, no deal has been reached in the Senate.

No doubt the politics overrides debate on the economics. A 100% party-line vote against a bill in Congress is a power struggle more than a philosophical battle. Republicans are testing the new President. Mr. Obama and the Democrats are fighting back. The President made it clear that he will not accept Republican policies that got the country into this mess, that he (not they) won the election, and that he will get on his blackberry and go straight to the American public if the Republicans don't get that message.

Mr. Obama has history, the economists, and the American people on his side. The Bush stimulus last spring put money into people's pockets, but did not stimulate the economy. There is convincing evidence that spending programs push money through the economy far more effectively than tax breaks, which are often saved. With more than five million Americans now collecting unemployment insurance and over 500,000 losing jobs each month, there is widespread support for experiments in job creation and public spending.

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