The Fiscal Stimulus Bill That Nobody Seems To Like

It’s a foregone conclusion that the stimulus bill is going to come out of Congress pretty much in its current form but surfing around the Web today, it’s hard to find many excited about it. Except of course the old bulls in Congress.

The Wall Street Journal, unsurprisingly, flayed it today on its editorial page. The primary thrust of their argument was that precious little money is being spent for stimulus and a great deal funding pet Democratic projects. They did support their arguments well with data. 

We’ve looked it over, and even we can’t quite believe it. There’s $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There’s even $650 million on top of the billions already doled out to pay for digital TV conversion coupons.

In selling the plan, President Obama has said this bill will make “dramatic investments to revive our flagging economy.” Well, you be the judge. Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There’s another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities.

Add the roughly $20 billion for business tax cuts, and by our estimate only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus. And even many of these projects aren’t likely to help the economy immediately. As Peter Orszag, the President’s new budget director, told Congress a year ago, “even those [public works] that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”

You may quibble with some of their numbers but even giving the plan more benefit of the doubt, it’s hard to come up with a meaningful stimulus component. The journal asks towards the end of the article a very important question. “How much of this plan is going to get locked in as part of the budget baseline? The Journal says that Democrats insist that won’t happen. When a similar question was put David Obey, the Chairman of the House Appropriations Committee, by a Republican Congressman, Mr. Obey refused to answer.

But concern about the plan is being voiced by others far closer to the Democratic Party. The Washington Post is also out with an editorial featuring thoughtful skepticism. Among others it quotes is Alice Rivkin, Bill Clinton’s former Budget Director.

“Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away,” said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that “money will be wasted because the investment elements were not carefully crafted.”

Other Democrats quoted in the article express frustration along the lines found in the Wall Street Journal article. The recurrent theme being that the chance to truly make meaningful investments in things that will provide a return for years to come has been sacrificed to the scatter-shot approach embodied in the bill.

The Financial Times also weighed in with an article reflecting much of what was contained in the two other articles cited here, but they take it a step further and argue that there needs to be a comprehensive plan that encompasses the reality that the stimulus plan does require payment at some time.

What we need is a medium-term fiscal framework, one that lays out an anticipated schedule of taxes and spending consistent with the needs of the economy and government functions. Rather than soundbites about ending pork-barrel projects or scouring the budget for waste, or about the relative multipliers of tax cuts versus spending increases (both of which depend on expectations about the future, a point mostly overlooked in the debate), we should be reflecting on certain basic fiscal facts, the most important of which is that the US government faces huge and potentially debilitating structural deficits as far as the eye can see.

In reading lots of articles today, I get the impression that there is very little excitement about the prospects for this plan. I many be imposing my biases but the general feeling seemed to be that we will be very lucky if it accomplishes a great deal.

Perhaps the most insightful comment was left on a post I wrote a couple of days ago and that was picked up and published by Seeking Alpha. The commenter, his handle is “Old Limey”, is obviously from Britain. Here is his take:

You folks in the US really underestimate your politicos. Let me have a stab at the time-line:

Mind-blowing monetary laxity + natural course of events –> recovery 2010, with the green shoots well on their way to blooming by the November elections –> bubble in something or everything in 2011 through 2012 in time for the presidential election, helped along by the lagged effects of mind-blowing fiscal laxity –> next crash 2013 or 2014 (at which time you can REALLY expect the world to give up on the USD – this time’s just a dry-run).

And we all assume they don’t know what they’re doing! Pity poor old Gordon Brown over here though: election due by May 2010.

Cynical, but maybe there’s more truth there than we would like to believe.

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