Address Health Care in a Second Stimulus

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Chairman Pallone, Ranking Member Deal, and distinguished Members of the Subcommittee, I thank you for the opportunity to testify on the topic of economic stimulus and health care. I am speaking today in my role as Senior Fellow for Economic Policy at the Center for American Progress Action Fund. Previously, I served in the Clinton Administration as Deputy Director and then Director of the National Economic Council and National Economic Advisor. The ideas I am expressing here are solely my own and do not necessarily reflect those of any institutions or people whom I work with or advise.

My testimony today focuses on six main points:

1) A demand crisis. Today we must understand that in addition to a financial and capital market crisis, we face a demand crisis in the real economy both in the United States and globally.

2) A Powell doctrine for the stimulus package. The breadth and potential depth of that demand crisis require us to undertake a bolder “Powell Doctrine” on stimulus in which $300 - $400 billion—or at least 2 percent of GDP—should be the starting point with an understanding that more could be needed and that we will need to call for a coordinated global stimulus.

3) High bang for the buck for long duration. The depth of the potential demand crisis requires us to enact a stimulus with a higher percentage of high-bang-for-the-buck elements than in the previous stimulus. While much of it should be fast-acting, it also should be capable of adding demand for a 12-18 month duration.

4) Aim for more win/wins on stimulus and long-term priorities. We should be looking for win/wins: places where investments can both have a strong stimulative impact and be an important down payment on major long-term priorities. We should be looking for sweet spots that can both jumpstart jobs and jumpstart the future.

5) Triple benefit of addressing health care. Health care initiatives can be a triple-benefit in this context. First, increases in the Federal match for Medicaid can be one of the quickest and most effective means to stimulate the economy. Second, an expansion of SCHIP can be a win/win in that it can provide stimulus while moving us forward on the path to universal coverage. Third, an upfront investment in health information technology can also provide stimulus and be a down payment on the goal of reducing long-term health care costs.

6) A grand bargain on fiscal discipline. While Congress and the new administration should seek to marry long term fiscal discipline with short-term stimulus, the wrong way to do this is by simply doing less on crucial national priorities like universal health care, climate change and education. A far better way to proceed is through a “grand bargain on fiscal discipline,” in which we move forward on major provisions yet do so in the context of addressing long term entitlements like Social Security and lowering health care costs.

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