Critics Of The Stimulus Plan

Its often been said that you cannot please everyone. Having watched CNBC, I can finally confirm that they have too many Republicans on the show as anchors. I am not saying that Obama's stimulus plan is perfect, far from it, but it is never going to please the majority because there are not just two sides to the stimulus plan. There are many sides you can take. If you put the top 10 economists into a room to debate the plan, I would bet that there would be 11 views.

I also think I have to put a strong protective layer on my TV screen as I am very very close to throwing things at my TV everytime Gasparino or Kudlow speak.

We have to appreciate that beneath our views and opinions on the stimulus plan are our very unique assumptions of what will work and where our inherent priorities and biases lie. Safe to say that most people who like to say things on business channels will have a view, and believe that their understanding of economics are the appropriate school of thought.

It is easy to bash the plan if you are a conservative, hence you are unlikely to find favourable articles reading Wall Street Journal. Not calling everyone is wrong but that we all need a broader context to appreciate the enormity of the task at hand. My words in purple below.

WSJ: 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.( OK, the Amtrak thing and Arts facility are a bit silly but the child subsidies sounds ok for those who require them in times like these. The global warming and carbon capture are ok as part and parcel for the US to further their advancement in cutting edge arena - the US not only need to boost employment but also invest for the long term to boost their competitive advantage in technology and other cutting edge industries).

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. (Both are essentials, although one can argue for a greater deployment for infrastructure). 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. (That's the bone of contention for most critics, that only 12% of actual plan is for actual stimulus. If thats the basis for judging the stimulus plan, then its a short sighted view as what brought the US to its knees is the lack of savings, lack of proper regulation, voracious appetite for debt... the plan needs to address the future as well, if not, then even after recovery the US will be left behind in many cutting edge industries, and investing in broadband, education, science are necessary to go hand in hand with jobs creation in order to sustain a more competitive USA of the future).

Most of the rest of this project spending will go to such things as renewable energy funding ($8 billion) or mass transit ($6 billion) that have a low or negative return on investment. Most urban transit systems are so badly managed that their fares cover less than half of their costs. However, the people who operate these systems belong to public-employee unions that are campaign contributors to . . . guess which party? Here's another lu-lu: Congress wants to spend $600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles. Congress also wants to spend $7 billion for modernizing federal buildings and facilities. The Smithsonian is targeted to receive $150 million; we love the Smithsonian, too, but this is a job creator? (OK, the Smithsonian is not necessary but please, look at the bigger picture, its only $150m, same with cars, its $600m... if you guys want to get bogged down in small stuffs you will be missing the bigger picture. As for renewable energy and mass transit, these low yielding investments are necessary as backbone for business and seeking alternative energy sources.)

Another "stimulus" secret is that some $252 billion is for income-transfer payments -- that is, not investments that arguably help everyone, but cash or benefits to individuals for doing nothing at all. There's $81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don't pay income tax. While some of that may be justified to help poorer Americans ride out the recession, they aren't job creators. (This is where the Republicans come out whingeing ... you need safety nets strengthened during difficult times. Its not a yes/no question for the stimulus, and as conservatives you would shy away from supporting these measures, but they are not wrong or bad, just what you believe in and what is fair).

As for the promise of accountability, some $54 billion will go to federal programs that the Office of Management and Budget or the Government Accountability Office have already criticized as "ineffective" or unable to pass basic financial audits. These include the Economic Development Administration, the Small Business Administration, the 10 federal job training programs, and many more. (Obama has already promised for more oversight and accountability. The ineffectiveness of these institutions has more to do with the previous government or rather the Republicans, so shut up... I guess if I was American I would be a Democrat).

Oh, and don't forget education, which would get $66 billion more. That's more than the entire Education Department spent a mere 10 years ago and is on top of the doubling under President Bush. Some $6 billion of this will subsidize university building projects. If you think the intention here is to help kids learn, the House declares on page 257 that "No recipient . . . shall use such funds to provide financial assistance to students to attend private elementary or secondary schools." Horrors: Some money might go to nonunion teachers. (I don't see the issue here, you need to invest in education. God knows how far behind the US is lagging behind many other countries. So what if some of it goes to teachers, you want better teachers, and people who are properly incentivised).

The larger fiscal issue here is whether this spending bonanza will become part of the annual "budget baseline" that Congress uses as the new floor when calculating how much to increase spending the following year, and into the future. Democrats insist that it will not. But it's hard -- no, impossible -- to believe that Congress will cut spending next year on any of these programs from their new, higher levels. The likelihood is that this allegedly emergency spending will become a permanent addition to federal outlays -- increasing pressure for tax increases in the bargain. Any Blue Dog Democrat who votes for this ought to turn in his "deficit hawk" credentials.

This is supposed to be a new era of bipartisanship, but this bill was written based on the wish list of every living -- or dead -- Democratic interest group. As Speaker Nancy Pelosi put it, "We won the election. We wrote the bill." So they did. Republicans should let them take all of the credit.

(Well, to all the conservatives, I know one thing the Republicans won't do if they were in office... they wouldn't freeze their own pay. Let the change begin, let they guy do something, you buggers had your chance, in fact, you buggers fucked it up royally during the last administration).

p/s photo: Noon Wongsawan