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Avoiding Neo-Hooverism

The Center for American Progress: Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, and Ryan Powers:

Economy -- Avoiding Neo-Hooverism: Recently, several media commentators as well as politicians have been championing what the Center for American Progress Action Fund's Matthew Yglesias dubbed "neo-Hooverism" -- the notion that the next president should significantly curb spending due to the financial crisis. While it was certainly a mistake for the Bush administration to amass such huge deficits, the severity of the current economic crisis calls for loosening of fiscal restraint. Nobel Prize-winning economist Paul Krugman explained, "[R]ight now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold." "[I]t is clear that additional federal supports are required to help jump start our economic recovery and lay the foundation for long-term growth," said Gov. Arnold Schwarzenegger (R-CA) yesterday. Sen. John McCain (R-AZ), however, is defying the advice of the economists, proposing a drastic reduction in government spending. "And I'll cut spending. ... I will keep [Americans] taxes low," he trumpeted yesterday.

THE NEW HOOVERS: During the third presidential debate, McCain proclaimed that the public "wants a new direction. I can bring them in that direction by eliminating spending." McCain has advocated a freeze on all discretionary spending, a radical proposal that would in turn allow inflation to eat away at Head Start funding, Pell Grant funding, unemployment benefits, and food stamp programs, just to name a few. On Monday, McCain adviser Douglas Holtz-Eakin acknowledged that balancing the budget will be "harder" to do because of the economic downturn. Nevertheless, Gov. Sarah Palin (R-AK) still commits to a balanced budget by the end of the first term. Sens. Norm Coleman (R-MN) and Saxby Chambliss (R-GA) have also committed to aggressively pursuing a balanced budget during the economic crisis.

INVEST AT HOME: A consensus is emerging among economists that the recession has brought on the need for the next administration to, "initially, at least -- open its wallet, not tighten its belt." As Krugman noted, "There's a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren't forced into steep spending cuts that both degrade public services and destroy jobs." Even fiscal hawks recommend avoiding immediate deficit-reduction. "Right now would not be the time to balance the budget," said Maya MacGuineas, president of the conservative Committee for a Responsible Federal Budget. Robert Bixby of the Concord Coalition, a group that McCain said he goes to for economic advice, observed, "There is a real threat of a serious recession. ... So it's appropriate in those circumstances to loosen fiscal policy, so long as it is done on a targeted and temporary basis."

STIMULATE THE ECONOMY: As the Center for American Progress has outlined, a second stimulus package would stimulate the economy and stem the tide of job loss. The stimulus should jump-start a low-carbon economy, invest in infrastructure, expand unemployment insurance, increase energy assistance, and boost food stamp support. "America needs a job-creating recovery package to get our economy back on track and to restore consumer and investor confidence," said House Speaker Nancy Pelosi (D-CA), speaking in favor of a $150 billion stimulus. Fed Chairman Ben Bernanke also said this week that he supports a "significant" stimulus, saying that a "consideration of a fiscal package by the Congress at this juncture seems appropriate." The stimulus is a first step and should be proceded by a larger framework that includes housing stabilization, Green Recovery, infrastructure investment, and long-term growth. Data-driven discipline can help increase efficiency in government spending. McCain has derided the second stimulus as "wasteful spending" and "earmarked projects." Instead, he is offering an ineffective stimulus of his own: cutting the capital gains tax -- in essence, a tax cut for millionaires. The White House opposes extending jobless benefits and has hinted that it would oppose a second stimulus...