Friday, September 16, 2005

Not the New Deal

September 16, 2005

Now it begins: America's biggest relief and recovery program since the New Deal. And the omens aren't good.

It's a given that the Bush administration, which tried to turn Iraq into a laboratory for conservative economic policies, will try the same thing on the Gulf Coast. The Heritage Foundation, which has surely been helping Karl Rove develop the administration's recovery plan, has already published a manifesto on post-Katrina policy. It calls for waivers on environmental rules, the elimination of capital gains taxes and the private ownership of public school buildings in the disaster areas. And if any of the people killed by Katrina, most of them poor, had a net worth of more than $1.5 million, Heritage wants to exempt their heirs from the estate tax.

Still, even conservatives admit that deregulation, tax cuts and privatization won't be enough. Recovery will require a lot of federal spending. And aside from the effect on the deficit - we're about to see the spectacle of tax cuts in the face of both a war and a huge reconstruction effort - this raises another question: how can discretionary government spending take place on that scale without creating equally large-scale corruption?

It's possible to spend large sums honestly, as Franklin D. Roosevelt demonstrated in the 1930's. F.D.R. presided over a huge expansion of federal spending, including a lot of discretionary spending by the Works Progress Administration. Yet the image of public relief, widely regarded as corrupt before the New Deal, actually improved markedly.

How did that happen? The answer is that the New Deal made almost a fetish out of policing its own programs against potential corruption. In particular, F.D.R. created a powerful "division of progress investigation" to look into complaints of malfeasance in the W.P.A. That division proved so effective that a later Congressional investigation couldn't find a single serious irregularity it had missed.

This commitment to honest government wasn't a sign of Roosevelt's personal virtue; it reflected a political imperative. F.D.R.'s mission in office was to show that government activism works. To maintain that mission's credibility, he needed to keep his administration's record clean.

But George W. Bush isn't F.D.R. Indeed, in crucial respects he's the anti-F.D.R.

President Bush subscribes to a political philosophy that opposes government activism - that's why he has tried to downsize and privatize programs wherever he can. (He still hopes to privatize Social Security, F.D.R.'s biggest legacy.) So even his policy failures don't bother his strongest supporters: many conservatives view the inept response to Katrina as a vindication of their lack of faith in government, rather than as a reason to reconsider their faith in Mr. Bush.

And to date the Bush administration, which has no stake in showing that good government is possible, has been averse to investigating itself. On the contrary, it has consistently stonewalled corruption investigations and punished its own investigators if they try to do their jobs.

That's why Mr. Bush's promise last night that he will have "a team of inspectors general reviewing all expenditures" rings hollow. Whoever these inspectors general are, they'll be mindful of the fate of Bunnatine Greenhouse, a highly regarded auditor at the Army Corps of Engineers who suddenly got poor performance reviews after she raised questions about Halliburton's contracts in Iraq. She was demoted late last month.

Turning the funds over to state and local governments isn't the answer, either. F.D.R. actually made a point of taking control away from local politicians; then as now, patronage played a big role in local politics.

And our sympathy for the people of Mississippi and Louisiana shouldn't blind us to the realities of their states' political cultures. Last year the newsletter Corporate Crime Reporter ranked the states according to the number of federal public-corruption convictions per capita. Mississippi came in first, and Louisiana came in third.

Is there any way Mr. Bush could ensure an honest recovery program? Yes - he could insulate decisions about reconstruction spending from politics by placing them in the hands of an autonomous agency headed by a political independent, or, if no such person can be found, a Democrat (as a sign of good faith).

He didn't do that last night, and probably won't. There's every reason to believe the reconstruction of the Gulf Coast, like the failed reconstruction of Iraq, will be deeply marred by cronyism and corruption.



Bush Plan Spans Political Spectrum

September 17, 2005; Page A6

WASHINGTON -- In his bid to repair the Gulf Coast and his own standing, President Bush has set out to blend liberal-sounding, big-government ambitions with conservative-sounding, small-government solutions.

The president's call, in his speech to the nation Thursday night, for heavy investments in infrastructure, health, housing and worker training evoked memories of Democratic predecessors Bill Clinton, Lyndon Johnson and even Franklin Roosevelt. His plans to use tax breaks, vouchers, and incentives for entrepreneurship reflected longstanding dreams by conservative icons Ronald Reagan and Jack Kemp. Mr. Bush insisted yesterday in a news conference he won't support tax increases to finance his proposals.

Yet welding both models in a bitterly divided Congress poses one of the most difficult challenges of Mr. Bush's five years in office. The Republican right is balking at costs that have already topped $60 billion, while the Democratic left welcomes ideological policy fights on which they often prevailed before Hurricane Katrina. Saddled with his lowest-ever approval ratings, Mr. Bush will have little time for trade-offs when his proposals hit resistance on Capitol Hill.

"There's not the time for the normal partisan games," says Republican Rep. Bobby Jindal of Louisiana, who represents part of New Orleans.

Mr. Bush can't escape huge costs for rebuilding Gulf Coast infrastructure. But details that emerged yesterday indicate that Mr. Bush is trying to achieve a balance by designing some of his policy proposals -- at least initially -- to be of more modest cost. Economic adviser Allan Hubbard said the Gulf Opportunity Zone program -- likely the most expensive of the economic-revival initiatives -- will cost only about $2 billion.

Aid to school systems that are accepting evacuee children will cost another $2 billion, but officials said some of that money might simply be shifted from federal aid that previously was earmarked for the schools children were attending before Katrina struck.

[Bush in New Orleans]
President Bush concludes his remarks after a televised address from New Orleans on Thursday.

Mr. Bush's Katrina relief plan also includes $227 million for higher education, including student-loan assistance for displaced adults and money for colleges accepting an infusion of displaced students. The health-care measures -- largely reimbursing states for costs of treating evacuees -- will cost about $350 million.

The Gulf Opportunity Zone would revive the concept of bonus depreciation for business investment that many economists say boosted a shaky economy in 2002. As a further incentive for rebuilding businesses, the new bonus-depreciation measure will apply to structures, and not just equipment. "You're going to see a very, very quick response," Mr. Hubbard said.

Mr. Bush's proposed Worker Recovery Accounts revive another idea the administration sought to pass during his first term to encourage unemployed people to locate new jobs. The accounts would give hard-to-place job seekers as much as $5,000 for training and education, and allow them to keep part of the money if they find work quickly. The increased aid for education also would allow local school districts to be reimbursed for vouchers for private schools.

Some Republican leaders are signaling limits to the federal effort amid projections, like one from the conservative Heritage Foundation yesterday, that Katrina could help push the budget deficit past $500 billon in 2008 to $873 billion in 2015. "We don't want to create the idea that somehow the federal government is going to recreate everything destroyed by Katrina," says House Majority Leader Roy Blunt of Missouri. "People who didn't have insurance shouldn't come out as well as those who did."

For their part, Democrats aim to exploit what President Clinton's former domestic policy chief Bill Galston calls the "mismatch between the policy details and the tone poem" of Mr. Bush's speech. With his plan to implement school vouchers while bypassing some union wage rules in the Gulf, they say, Mr. Bush is vulnerable to continued defections from independents and centrist Republicans.

Mr. Bush said in his news conference that some of Katrina's costs may be financed with unspecified spending cuts in other programs. Some of those cuts might not have to be too large initially, because other aspects of the package also carry relatively modest price tags. The administration's new homesteading initiative would give low-income people federally owned property through a lottery, in return for their pledges to build homes on it. But officials yesterday suggested that the most readily available source will be about 4,000 homes in the affected areas that were financed by federal programs but have since been foreclosed upon.


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