Obamanation?

As we ring in the New Year, the incoming Obama administration and congressional Democrats are preparing a truly massive economic recovery plan that likely will run more than $700 billion dollars.  The President-elect says that enacting the measure is his top priority and Speaker Pelosi hopes to have it on his desk by January 20.  Bang!  Kapow!  Holy federal expenditures, Batman!  That sounds like real money!

Obviously, this whole process is serious, serious business.  The recovery bill probably will be unprecedented in magnitude and its effects will endure for decades.  Liberal and conservative economists generally agree that a large economic stimulus package is critical for jump-starting our lagging economy.  But the best studies of the American legislative process also raise warning signals about a spending bill of this size.  Let me get a little “political sciency” on you, because I think doing so might shed light on what’s coming.

In a nutshell, here’s the argument.  Along with disparate goodies like free speech, the right to pack a sidearm, and privacy (whatever the heck that is), the U.S. Constitution provides that members of the House and Senate are elected to represent districts that have definable geographic boundaries.  Your congresswoman or Senator may claim that she is a national legislator, but in reality she primarily serves as your local representative and go-to person in Washington.  As a result, there are strong incentives for representatives and Senators to spend a lot of their time crafting and then claiming credit for bills that primarily channel federal largess directly back to the folks in their districts.

The reasons are straightforward.  It is a lot easier for a member to claim personal credit for funding a new highway at home or keeping open a local military base than it is for her to claim credit for promoting peace in the Middle East or improving the national economy.  For these more general accomplishments, credit has to be shared with about 434 other House members and a hundred Senators, give or take an indictment or two.

I routinely pontificate ad nauseam to my students at William and Mary that the local roots of the national legislative process are bedrock.  The problem, though, is that while the benefits of the resulting “distributive” policies and projects are easy to see for local citizens, the costs are generally buried within the larger federal budget and thus readily ignored come election time.  And if every single member of the House and Senate plays this game – and most of them do – we end up with a federal budget that is rife with wasteful spending and inefficient programs.

Some prominent policy scholars even argue that, ideally, the federal government should focus on national defense, big “redistributive” programs such as Medicare and Social Security, and on providing an appropriate regulatory framework for the economy.  And as much as possible, it should stay away from “infrastructure development” and other overtly distributive policy areas. Instead, infrastructure development should be left to state and local governments, which have more expertise about where the spending is actually needed, and are more easily held accountable by voters because they are closer to home.

Now back to Obama’s economic recovery plan.  Democratic leaders are saying that the package will be comprised of three main parts:  tax cuts for the middle class and working poor, direct aid to the states, and infrastructure investment.  It is these last two parts that could be especially distorted by legislative parochialism, potentially wasting billions of dollars and producing frightening deficits without countervailing benefits for our economy.  Thus my angst.

Fortunately, there are indicators that the President-elect and congressional leaders may be able to hold the parochial impulses of Congress in check, at least for a while.  Public support for implementing real change in Washington is wide and deep.  The new administration and the leadership have spoken forcefully for keeping the recovery plan free of wasteful projects.  And over the past three decades, power has shifted toward party leaders like Pelosi and away from the standing committees of Congress, typically hotbeds for porkbarrelling in Washington.

Indeed, according to recent media reports, the specifics of the infrastructure investments will not be stipulated in the legislation.  Instead, allocation formulas will give state and local governments a lot of discretion about such details, which is a really good sign.  Along those lines, the portions of the recovery plan giving direct assistance to states apparently will target items like Medicaid and education spending, which traditionally have been less distorted by pork barrel impulses than the highway program and other, overtly distributive policies.

So there are grounds for cautious optimism that the nearly trillion-dollar economic recovery plan truly will be legislation in the national interest.  A generation of scholarship about the U.S. Congress may turn out to be a poor predictor of the outcome here.  I really hope so, but am not yet ready to bet what little is left in my 401K on it.  Stay tuned and Happy New Year.