What is the Republican alternative to the stimulus?

By Philip Zelikow

The Republican leaders in Congress have not yet been able to offer an effective alternative to the Obama administration's fiscal stimulus package. The responses so far look like general unease about big government, mocking particular spending ideas, and calling for more tax cuts. Thus the administration's approach looks earnest and coherent, even if flawed. The Republicans are just nipping at the margins. The dogs will bark; the caravan moves on.

Republicans should do better. Their congressional leaders should develop a package that, while not endorsed by the whole caucus, might enjoy a significant and critical spectrum of support -- putting Republicans at the center. After all, experts as varied as Alice Rivlin and Jeffrey Sachs have now weighed in publicly with serious expressions of unease about the emerging package. Surely Republican leaders (acting as a kind of shadow government!) can see an opening to offer a creative, coherent alternative.

Here are some illustrative elements. Warning: Some of these are bound to make many individual Republicans unhappy, yet they add up to four messages:

1. Where the administration puts the financial crisis in second place, the Republicans will offer bipartisan answers to put the banking and housing crisis first.

• Another major federal effort to help banks, including debt for equity possibilities.

• Let bankruptcy judges redo mortgage terms. The banking industry will hate this. Most ordinary Republicans, and Democrats, will like it. They want to help citizens who will come to grips with their problems and resent that the creditors haven't been able to come to the table and deal.

2. Where the administration is acting unilaterally, belying its internationalist rhetoric, the Republicans prefer a global answer to a global crisis.

• Coordinate U.S. financial and fiscal answers in a global setting, with China and other surplus countries doing their part, using the April 2009 G-20 meeting as the target for a set of real initiatives, not like the November 2008 show horse. Show the world that the responsible stakeholders of an open world economy will "man up."

• Pick up World Bank president Robert Zoellick's suggestion that 0.7% of the stimulus plans in all countries be dedicated to funds that will expand availability of global credit. Show that globalization will be sustainable, despite this crisis.

3. Where the administration is treating serious investments in our infrastructure as a form of "helicopter money," the Republicans are ready to address real needs.

• Investments in bridges/highways may make sense, so might a national electric grid, or medical technology. Take Alice Rivlin's advice in her testimony yesterday to the House -- don't rush these plans. Do them right. Good investments will enhance our economic growth and thus be smart fiscally.

• But don't do investments in a rushed, fragmentary way, opening up long-term obligations with no plan for how to sustain them.

• And don't treat the creation of new entitlement programs as "stimulus," unless there is some plan that automatically cuts them off after 2010.

4. Where the administration thinks we can borrow our way out of a debt problem, the Republicans want to restore confidence in our fiscal strength and long-term economic health.

• Allow the Fed to be a lender of last resort to state and local governments, at concessionary terms. Thus the Fed can make up for balky municipal bond markets while still obliging state and local governments to take the policy lead, coming up with creditworthy proposals.

• Cut payroll taxes, offset by a tax penalizing greenhouse gas emissions (as the CEO of ExxonMobil recently proposed, as well as Lawrence Lindsay and others). The net effects should be very positive, especially for the current account deficit over the long haul.

Folks may like or dislike each of these ideas. But they sure do not fit a preconceived ideological cookbook. This is real pragmatism.

If asked how much this alternative would cost, there is an honest answer: There is no arbitrary target because the spending is not motivated by the desire to reach one. But the net spending will be much less, probably less than half as much in 2009. There will be a big federal effort to help banks that should be mostly repaid when financial paper is resold to private hands. The federal government will offset temporary state and local borrowing weakness. It will make some substantial and overdue public investments and reallocate tax incentives in a more sensible way. It will be coordinated with other major economic powers.

The net effect is show solidity, not desperation; sustainability, not a quick fix. Global, not unilateral. Those are the themes that will restore the confidence of Americans and of investors around the world. Our recovery, and our national security, may depend on it.