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Believe It or Not, Rush Limbaugh Was Right on Stimulus

Believe It or Not, Rush Limbaugh Was Right on Stimulus

By Mort Kondracke - February 12, 2009

I can't believe I'm writing this, but Rush Limbaugh actually has (or had) a good idea on the stimulus. Or, at least the germ of one.

On his radio show Jan. 26 and in the Wall Street Journal Jan. 29, America's arch-polarizer -- amazingly enough -- proposed the outlines of a reasonable bipartisan stimulus package of both spending and tax cuts.

It may be moot now, given an apparent House-Senate-administration agreement, but Limbaugh's contribution illustrates how decision-making on the stimulus might have proceeded usefully -- and how to think about fighting recessions.

The proposal was couched, of course, in Limbaugh's customary disdain for government spending ("porkulus") and disparagement of Democratic Party motives, but it contained a genuinely bipartisan idea.

Which was: President Barack Obama won 53 percent of the two-party vote last year and Sen. John McCain (R-Ariz.) won 46 percent, so Obama would dictate the contents of 53 percent of the stimulus and Republicans -- Limbaugh said, "me" -- would dictate 46 percent.

Well, it was never going to happen exactly that way, since the election handed control of both political branches of government to the Democrats.

But, if Obama truly wanted to establish a post-partisan atmosphere in Washington, he would have not only met and had cocktails with Republicans, but would have given them a real say in drafting the stimulus.

Limbaugh shouldn't be dictating the form of tax cuts, of course, but Republicans had some ideas that Obama could have accepted, such as a payroll tax holiday and cut in the capital gains tax for small business.

Such deal-making would have put Republicans to the test. Are they willing to compromise for the common good, or are they simply set on obstructing Obama and playing to their base?

As it is, cut out of any role in drafting the stimulus package beyond offering amendments that were promptly voted down, Republicans voted en masse against it.

So Obama is launching this supposed new era just as Bill Clinton and George W. Bush did -- on a virtual party-line basis.

At one point, House Republicans seemed gratified that tax cuts were going to make up 40 percent of the stimulus. Then, that number fell to 33 percent.

In the Senate version, it arguably went up to 44 percent, but that included an expensive "fix" for the alternative minimum tax that no one regards as stimulative and that should have been swapped out for other tax cuts.

Meanwhile, tax credits for car and home buying were cut, bringing the tax-cut percentage down to 35 percent.

The reasons for adopting a Limbaugh-like idea go beyond post-partisan atmospherics.

The fact is that, in spite of the certitude expressed by politicians and op-ed writers, no one can be certain if the best way out of this Great Recession is Keynesian government spending or supply-side tax cutting.

So why not, as Limbaugh suggested, try both?

The Keynesian case, as expressed by Obama and liberal economists such as Robert Reich and Paul Krugman, is that, with businesses unable to sell their products to private buyers, government has to step in -- big time -- to create demand and jobs by building and buying things and putting money into the hands of people who will spend it.

The supply-side case is that the way to boost an economy is to cut taxes, preferably permanently, for investors and producers, who will hire workers and buy plants and equipment, producing growth.

Both Republicans and Democrats are citing work by Obama's chairwoman of the Council of Economic Advisers, Christina Romer.

She wrote in a 2007 paper that tax cuts "have very large and persistent output effects" and Republicans assert her model shows that $1 of tax cuts produces $3 of growth.

However, in a paper on the White House Web site, she asserts that $1 of spending produces $1.50 in output, whereas tax cuts produce $1. Who knows which is right?

Then there's history. Republicans claim that Franklin D. Roosevelt's 1930s spending did not end the Great Depression, but World War II did. Of course, World War II was the greatest explosion of government spending in history -- and the top income tax rate was an astronomical 94 percent.

Conservatives also cite supply-side Reaganomics as a model, but a case can be made that Reagan's Keynesian defense spending and deficit financing -- the national debt doubled during his presidency, as a percent of GDP -- ended a recession and produced a boom.

So, some intellectual humility is in order. If we want a short-term boost to the economy, let's try spending and tax cuts.

Or, as that momentary exponent of bipartisanship, Limbaugh, wrote in the Wall Street Journal, "In this new era of responsibility, let's use both Keynesians and supply-siders to responsibly determine which theory best stimulates our economy -- and if elements of both work, so much the better.

"The American people are made up of Republicans, Democrats, independents and moderates, but our economy doesn't know the difference. This is about jobs now."

Obama couldn't have said it better.

Mort Kondracke is the Executive Editor of Roll Call, the newspaper of Capitol Hill since 1955. © 2007 Roll Call, Inc.

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