I Can’t Support The Stimulus Bill
And the Democrats are ruining things for themselves and the country by pushing an awful bill that will fail to improve things and make people even more anti-government at the worst possible time. I think we’re going to have tough times ahead and we need people to be united and strong, so the impact of this failure will go far beyond the specifics of the bill itself.
I made up my mind reading this post:
The programs that would meet the bill’s 90-day restriction are, for the most part, an unappealing mix of projects that were either shelved after being fully designed and engineered, and have since become outmoded or irrelevant, or projects with limited scope and ambition. No one’s building a smart electric grid or revamping a water system on 90 days notice. The best example of a shovel-ready project, and what engineers believe could become the biggest recipient of the transportation-related portion of the bill’s funding, is road resurfacing—important maintenance work, but not a meaningful way to rein in a national infrastructure crisis.
Look, there are some critical things in the bill that we desperately need to pass. I’ve stated what they are time and again and they need to be larger in scope than this bill gives. However, the tax cuts won’t do anything, and I have yet to see one — one! — infrastructure project that looks like it will truly help our country over the long run. On the flip side people have pointed out tons of awful pork in the comments. This isn’t an “OK” bill that should be passed because it is 75% good and 25% bad and that’s politics…it’s at most 15% good. Not only is that a gigantic waste but it’s also going to make the structural problems worse. The worst part is that I can agree with the three pronged intent (emergency relief, increased employment on time critical projects, long term infrastructure plans) but this will address none of those. Split them up into three bills, the most time critical parts (that everyone agrees on, like increased unemployment benefits etc.) now, a truly good short term job creation bill in the next month or two, and a long term infrastructure in six months. This will isolate the bad criticism so it can be destroyed.
For supporters of the bill, I’d stop focusing on how completely crazy some of the arguments are against it (and how awful the alternative “proposal” is) and focus on whether the bill itself is any good. Be like John Cole and recognize that just because one side is insane doesn’t mean that the other side isn’t idiotic.
Update: I pretty much agree with commenter CS
Anyone who’s still supporting this bill, IMO, fits into one of two categories. Either you’re a partisan Democrat and big government progressive who feels that it doesn’t matter if the bill is really a stimulus bill, it’s a way of increasing all of the programs you want to see increased…Or, you’re a dogmatic Keynesian and you think that any spending is good spending, so why worry about the details. My impression is that Pelosi (of course) is in the first category and Obama is in the second (or, he’s listening to economists who fit in that category.)
I responded:
Yes the second group is what drives me insane because it is what normally right-thinking people are succumbing to. Of course it will raise the GDP but that’s because the GDP calculation doesn’t pay attention to debt. While theoretical models that have no resource constraints and static labor to GDP relationships show that any spending is good spending, in reality there are opportunity costs, resource misuse and labor market asymmetries that make bad spending way worse than doing nothing.
Even ignoring the theoretical problems, Keynes #1 message was about trade imbalances, and how countries need to work together to help the debtor countries become surplus countries and visa versa. All the spending through debt makes that relationship worse and is completely against what Keynes believed in.
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Yeah, revolution sucks anyway you slice it. Just ask the French. Get the Bill right for the little guy or do some quick reading on The French Revolution, and get a steel collar for your neck just in case. I know times have changed but don't underestimate the common man's penchants for nastiness in a pinch…
Oh, and freeze the assets of the bailed-out institutions last Fall. The Citizens want and are entitled to a full accounting of where their money went and we may want reimbursement for ill-used funds..
Hear, hear, mikkel.
Anyone who's still supporting this bill, IMO, fits into one of two categories. Either you're a partisan Democrat and big government progressive who feels that it doesn't matter if the bill is really a stimulus bill, it's a way of increasing all of the programs you want to see increased without going through the normal budget debate process (according to the Rahm Emmanuel school of thought, never let a good crisis go to waste.)
Or, you're a dogmatic Keynesian and you think that any spending is good spending, so why worry about the details.
My impression is that Pelosi (of course) is in the first category and Obama is in the second (or, he's listening to economists who fit in that category.) The problem with the people in the second category is that they won't even try to defend their ideas and instead criticize everyone else for obstructing the passage of the bill. It doesn't matter if you don't think the opponents have any serious ideas- the burden of proof is still on you to sell this massive spending program.
Obama was right that 'stimulus' by definition means spending…but no one's asking him to defend the converse of that, “Is spending always a stimulus?” Of course he can't defend that…in fact in the very same speech he himself stated that a big part of the origin of this crisis was debt.
Yes the second group is what drives me insane because it is what normally right-thinking people are succumbing to. Of course it will raise the GDP but that's because the GDP calculation doesn't pay attention to debt. While theoretical models that have no resource constraints and static labor to GDP relationships show that any spending is good spending, in reality there are opportunity costs, resource misuse and labor market asymmetries that make bad spending way worse than doing nothing.
Even ignoring the theoretical problems, Keynes #1 message was about trade imbalances, and how countries need to work together to help the debtor countries become surplus countries and visa versa. All the spending through debt makes that relationship worse and is completely against what Keynes believed in.
Jim, I don't feel sorry for the big CEOs, but I trust the government to regulate them not at all, and I know that any attempts to regulate these things just lead to worse unintended consequences. People will find a way to continue seeking (and getting) huge compensation packages- they'll just structure it differently. So in the end this is a combination of a deflection from the real issues at hand and an attempt to put more power in the hands of Washington DC.
Yes the second group is what drives me insane because it is what normally right-thinking people are succumbing to.
Well, I think that left thinking and right thinking people are both susceptible to this. It's a human flaw, not a conservative or liberal one.
How is exactly is spending that goes toward job creation not simulative? There are certainly kinds of spending that produce no stimulative effect – corrupt payoffs to wealthy people who invest in useless enterprises, for example, But the spending in this bill will either create jobs in this year or the next two years. That's the point.
Now debt, of course, is a big problem. But excessive worry about the debt at THIS TIME would mean, essentially, doing nothing (tax cuts would increase the debt too).
If the stimulus fails to stimulate, tax revenues will continue to be low and the debt will get worse. If the stimulus succeeds, however, tax revenues will increase and we can pay down this new debt.
As for the shovel-ready analysis – I generally agree that super-short term projects are not likely to amount to much. But the talk of only 90 days? Where does that come from? Is it just heated rhetoric? Or is it the law?
I see a stimulus bill as useful for two years. It takes that long for things to move through the economy.
We will have a sense by November 2010 – election time – whether or not this bill has stimulated the economy.
“However, the tax cuts won’t do anything, and I have yet to see one — one! — infrastructure project that looks like it will truly help our country over the long run.”
This bill isn't meant to be a long run fix – it is meant to stop the bleeding so that we can figure out how to fix the long run without having half a million people a month lose their job.
It's supposed to create 4 million jobs. You could pay each of those people $200k for the amount of money spent on the bill. It'd be better to greatly expand unemployment benefits (both duration and size) and take time to craft long term projects.
The counterpoint is that not many jobs are actually being created with the bill and that the jobs that are created aren't useful. This brings me to my general irritation with the economist fixation on labor and aggregate demand. There is no point in paying people to waste valuable resources (and their lives) by doing stuff that isn't important. It'd be much much cheaper and more effective to just increase unemployment benefits to make up for the small gap in time I'm talking about. I'm for $150-$200 billion in emergency relief like that, another $200 billion in job creation that focuses on getting the most jobs for the buck and has a long, open and independent review process for selecting projects, and then $600-$800 billion for long term infrastructure over the next 10 years that isn't focused on “stimulus” at all, but completely reworking infrastructure and efficiency.
My simplistic understanding of it is that we're just too overleveraged for the Keynes kind of stimulus to work. The way I understand it, the reason that it can work in some situations is that you're borrowing against future productivity with the idea that the economy will start growing again and then the payback will take care of itself. (BTW, that seems to be what you were acknowledging, Elrod, when you said that if the stimulus succeeds that revenues will increase- the same argument that always seems to be rejected by liberals who oppose tax cuts. I hope we can agree that under SOME circumstances, spending produces those revenue increases by causing economic expansion, just as under SOME circumstances, tax cuts can have that stimulatory effect too- neither is by itself a 'cost' or 'drain' on revenue, but it all depends on the circumstances.)
But today, it seems to me that we have a lot of growth to do just to play catch up- and we can't really expect to stimulate ourselves into a jolt that will take care of the payback phase. In that sense, I see it like the housing bubble, in which everyone thought it was 'safe' to finance crazy levels of debt because the housing prices would continue rising forever.
I thought this was a pretty good critique- the take home point as I see it being that the risk of creating even more volatility in the global markets, currency valuation, etc, is so high from doing this that there's no way that the upside of creating a few million jobs in the short run can outweigh that.
Look, I'm no economist- had one course in college and hated it with a passion- so I could be wrong and will consider counterarguments. But as I see it, the arguments against the Keynesian stimulus are:
1. There's no way to do anything quickly enough to prevent the downward spiralling effect, which is what it's meant to do
2. The government spending ends up crowding out private investment so that the net effect at best is negligable.
3. There are so many other intertwining problems with capital markets that need to be addressed, and this is more likely to have a negative effect rather than a positive one.
4. The overleveraged argument that I started off with.
I realize everyone's impulse is to 'do something', but there's NEVER a situation so urgent that you should do something so quickly that you fail to consider whether it could produce worse results than doing nothing.
“the risk of creating even more volatility in the global markets, currency valuation, etc, is so high from doing this that there's no way that the upside of creating a few million jobs in the short run can outweigh that.”
I don't want to brag but I brought that up
HemmD
February 6, 2009 | 3:23 pm
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mikkel
February 6, 2009 | 3:26 pm
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ChrisWWW
February 6, 2009 | 3:31 pm
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mikkel
February 6, 2009 | 3:36 pm
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CStanley
February 6, 2009 | 3:45 pm
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ChrisWWW
February 6, 2009 | 3:47 pm
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CStanley
February 6, 2009 | 3:47 pm
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CStanley
February 6, 2009 | 3:48 pm
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ChrisWWW
February 6, 2009 | 3:52 pm
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CStanley
February 6, 2009 | 3:58 pm
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mikkel
February 6, 2009 | 4:00 pm
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ChrisWWW
February 6, 2009 | 4:02 pm
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CStanley
February 6, 2009 | 4:10 pm
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ChrisWWW
February 6, 2009 | 4:16 pm
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CStanley
February 6, 2009 | 4:20 pm
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ChrisWWW
February 6, 2009 | 4:26 pm
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ChrisWWW
February 6, 2009 | 4:30 pm
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DLS
February 6, 2009 | 4:46 pm
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DLS
February 6, 2009 | 4:57 pm
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DLS
February 6, 2009 | 5:21 pm
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Jim_Satterfield
February 6, 2009 | 5:56 pm
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mikkel
February 6, 2009 | 6:12 pm
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Jim_Satterfield
February 6, 2009 | 6:36 pm
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Jim_Satterfield
February 6, 2009 | 6:37 pm
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HemmD
February 6, 2009 | 6:43 pm
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Jim_Satterfield
February 6, 2009 | 7:44 pm
Maybe this is simplistic, but the magnitude of the problem requires immediate action.
30% of the work force is either unemployed or under-employed. There are no unimportant jobs if you have no income. Tax cuts are not helpful. How much of nothing will a cut produce?
California is paying citizens in Arnold buck IOUs. If states cut services, the economics downturns turns into a cliff dive.
I refer you back to the bill's name: American Recovery and Reinvestment Plan. Workers are bleeding to death and much of this money is a tourniquet. We're deeper than anyone cares to admit and don't look now, but it's going to require repeated treatment.
Or this could just be a regular pork and cut political war in regular economic times.
IMHO
I would distinguish between “over leveraged” and “over indebtedness” because even though it's impossible to be leveraged without debt, the primary point is indebtedness to outside countries. We are over leveraged in general which makes the multiplier really low as people are forced to start saving and cut back on demand (and it also makes it so smaller changes wreck the financial system) but we were over leveraged in the 30s too. However, there we had massive surpluses and were the #1 creditor nation. In that case it made sense to borrow against future productivity (or more accurately even, spend past under consumption) but in our current situation it doesn't because we are the #1 debtor. This means that we need capital inflows to outweigh capital outflows.
It's not an argument. It's fact that the lost revenue is not made up after a tax cut: http://www.time.com/time/magazine/article/0,917…
From what I understand, that's the goal of the tax cuts in the bill. They are targeted to have an immediate economic impact.
I think you'll need to explain this a bit more. I don't know of many private businesses or individuals that spend money on health care, road repair, etc.
This is only part of the puzzle, you're right. We have to fix the banking situation along with addressing the economic shortfall.
Borrowing is cheap for the government right now. Tbill rates are at the floor.
“Borrowing is cheap for the government right now. Tbill rates are at the floor.”
Short term debt is. Long term debt has had yields increase about 50% from the bottom. They are marching on their way back to 4%+. There are numerous corroborated accounts of central banks selling massive amounts of 10 and 30 year bonds in order to cycle them into short term debt for two reasons: a) expecting massive inflation (and or increased default risk) to take hold, and carry all interest rates up tremendously in the next 2-3 years and b) being able to readjust their portfolio more immediately by letting the T-Bills mature and then deciding whether to cycle them back in, spend the money on their own domestic projects or buy other assets. Don't fall for that talking point, it's where danger lies.
As for the crowding out private investment I've never believed that there was evidence to back that up. If government dollars are chasing the same things as private investment then sure (which is actually what has happened with the Fed buying commercial paper, mortgages and CDOs) but when it comes to infrastructure spending I think it augments private investment if the productivity increases from the public spending outweighs the interest on the debt which I don't see these sorts of investments doing.
when it comes to infrastructure spending I think it augments private investment if the productivity increases from the public spending outweighs the interest on the debt which I don't see these sorts of investments doing.
This is exactly what the CBO is cautioning, if I understand it. They're not talking about the direct investments made by the government with spending on those things, Chris- they're talking about how private investment capital will be purchasing those Tbills instead of using it for riskier venture capital.
That CBO letter concluded by saying exactly what you wrote there, mikkel- that if they could produce enough net growth from the public spending then that would outweigh the downside of the 'crowding out', but I think they estimated that only 25% of the bill was the type of spending that could even do that at all.
Sure makes me wish we had that money from the Iraq war back
We've got a few problems with this bill and the argument surrounding it:
1) There is some genuine waste in the bill… which is ultimately unavoidable, but still unfortunate
2) Republicans are arguing for a bill that would be even less effective, and still add hundreds of billions to the debt
3) The big projects we really need aren't necessarily “shovel ready.” So we need a good mix of both.
Borrowing is cheap for the government right now. Tbill rates are at the floor.
You know, mortgage rates made borrowing for big houses look pretty good not too long ago. How's that going now?
Sure makes me wish we had that money from the Iraq war back
So, double or nothing sounds good to you now?
CStanley,
I don't believe the argument that our economy will be crippled by this bill, so I'd rather we try something than just twiddle our thumbs because conservatives suddenly rediscovered the ills of government spending.
It's fact that the lost revenue is not made up after a tax cut: http://www.time.com/time/magazine/article/0,917…
That article only discusses whether or not the Bush tax cuts paid for themselves. My point was that under some circumstances they do, other circumstances they don't- and the same goes for 'stimulatory' spending. Instead of clinging to dogmatic, partisan beliefs about one side or the other, people ought to consider what the circumstances are which would make it likely that a certain type of tax cut would help, and same for justifying the specific types of spending.
Chris your three arguments are all addressed by my post though. I think the waste makes up the majority of the bill both based on expected multipliers (from the tax cuts), misguided ideas about economic theory (labor as a function of GDP, etc.) and misapplication of economic theory (we're a debtor nation).
The Republican bill is even worse…but it's up to Democrats to put pressure on Democrats to make a good bill, not point out that the Republicans are completely off the reservation.
There is a bad mix of both “shovel ready” and “long term” that don't create that many jobs nor operate on a long term strategic level.
I personally give Republican policies (which were eventually coopted by establishment Democrats) about 75-85% of the blame for the current problems. I think that the GOP isn't being constructive at all. But that doesn't mean that the Dems are leading us to do something right.
CStanley,
Of course we should look at the circumstances. So, who is pushing the theory that in this circumstance tax cuts will provide the best stimulus, and be better for long term government debt?
Um, I think that you said that. But I'm puzzled at how you square that circle when you were also citing evidence that 'tax cuts do not pay for themselves.”
It's a rare event when the spotlight turns to a liberal arguing for a better spending plan, and from what I read, it's not that there is a dearth of available voices. I'm not sure how to fix that situation and I think it's largely the fault of the media. Republican obstructionist voices are given so much prominence right now that liberal thinkers are only given a voice to support the passage of the bill.
I think it's largely the fault of the media. Republican obstructionist voices are given so much prominence right now that liberal thinkers are only given a voice to support the passage of the bill.
Oh please. More like there aren't too many outside of the Dem leadership who are willing to go before the public to defend this mess. Not to mention that it suits the Dems just fine to give the GOP enough rope to hang themselves with by demonstrating that they don't have better alternative ideas.
CStanley,
I said that tax cuts will provide immediate stimulus, then we need increased spending on current government programs to provide short term stimulus, then we need long term investment in new programs for things like health care and infrastructure that will pay us back in multiplied value.
There aren't a lot of Democrats making that argument, but there are liberals making it. Like Yglesias, Krugman, and Klein. I'm trying to be careful about the distinction between party Democrats and liberal thinkers. The latter are rarely listened to by the former.
It's a bad bill, and the House Dems aren't being Keynesians, but a combination of raw-power vote-buyers and expansive interventionists. Fortunately, the Senate is likely at least to tame or to shave some of the worst of what the House Dems are trying to do. Calm down and grow up, you who wrongfullly support the House Dems. There will be money held in reserve and power held in check you likely will move to use later, anyway.
“I know times have changed but don't underestimate the common man's penchants for nastiness in a pinch…”
Certain Dems are exploiting this, as they have before.
* * *
“we're heading to the brink of a cliff”
Hype and sensationalism, an example of the exploitation mentioned above
“and have to do something”
Not true. And of course, doing anything rather than nothing does not follow.
“You could pay each of those people $200k for the amount of money spent on the bill.”
I've expressed similar thoughts, too (include the bank bailout money in this) and note that it reaches the point where people will go beyond saving and investment in many cases and resume spending were that to happen. (Relative costs — it's like scrapping the more elaborate auto-pollution-related regs and programs and just buying older-vehicle owners a new vehicle instead. It's a huge expense!)
mikkel,
Might I suggest that you read this from Angry Bear? There's also some follow up in the comments.
OK maybe I was a bit harsh. It's possible that I may think that there is 40% of stuff in there that would be very beneficial…but I still don't see why it all has to be thrown together in one giant bill that everyone argues about while the states are close to shutting down. I'd like to see some sort of planning and oversight office formed that coordinates infrastructure projects across the nation since there is an unprecedented need to have a coherent long term strategy that will involve major structural changes. That's the sort of thing that I would like to see created now and in 6 months start rolling out recommendations that could then be funded.
Would you feel better if we called it what it really is, the 2009 Tourniquet Bill for the Badly Bleeding Economy?
But I do agree with you about the necessity for major changes for the long term good of our country.
Unfortunately, one of the first things cut in the Senate version is Food Stamps, school upgrades, and job training. This is exactly the problem I referred to when warning that this stimulus bill is “just … a regular pork and cut political war in regular economic times
No, HemmD, these are not regular economic times. Saying that discredits anything else you might want to say.
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