Still, many of the cuts in the Senate compromise were extremely disappointing. I'm especially thinking of the whole $40 billion in state fiscal stabilization that was cut out by moderate negotiators like Susan Collins (R-ME), Arlen Specter (R-PA), and Ben Nelson (D-NE). State and local governments are huge employers (about 5% of the total work force) and state government expenditures also support a lot of private business (mostly education and construction in Kentucky). In his first response to the Senate bill, Paul Krugman rightly emphasizes what would have been the stimulative value of helping the states.
In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.However, I'm not sure why Krugman and liberal bloggers like Digby are so despairing about coming back to Congress for another stimulus package. Digby is especially pessimistic in thinking that the game is rigged so that conservatives can blame the government if the stimulus package fails and not credit the government if the package succeeds.
My own view is that the current economic and political situation is too fluid for foreordained outcomes of any kind. Instead of seeing a game that's already lost, I view the current economic crisis more as a test of the viability of the American political system. It's evident that the American political system as a whole is not flexible enough at the present time to produce an adequate stimulus package in the first go-round. Free-market sentiment among politicians and media elites is too strong, filibusters give the Republicans have too much leverage in the Senate, and the Obama administration hasn't realized the extent to which they'll have to fight to get reasonable policies enacted. As a result, the Senate version of the stimulus is 50-75% of what's needed.
But there's no reason to think that the political climate will stay the same if the economy continues to deteriorate as rapidly as it has been. Massive layoffs by big business have been announced but have yet to settle into the unemployment numbers, consumer numbers, housing numbers, and other measures of economic decline. The same with the layoffs from state and local government that will be coming through the pipeline.
Given that big unemployment numbers and the even larger symbolic impact of large-scale unemployment is likely to have a tremendous impact on American politics, it's highly possible that the Obama administration will come back for another stimulus package.
The question is whether the American political system has enough flexibility to go through another stimulus battle. My own guess is that it does.