Let me cut to the chase: I believe the stimulus bill won’t have any material positive impact on the economy whatsoever. It will have a clear negative effect, though, which is adding hundreds of billions to our national debt for very little in return. Though well-intentioned and containing a few good chunks, overall it’s a clusterfuck piece of legislation.
But let’s back up.
I believe the government can and should play a role in jump starting the U.S. economy by investing in carefully selected projects—if and only if they directly or, with a high degree of certainty, indirectly create jobs. As Obama and dozens of economists have said, the key is to create jobs. Jobs drive consumer confidence and enable consumers to spend, which is precisely what will get more cash flowing in this economy.
Republicans generally favor tax cuts over direct spending. I get the argument: if businesses have lower taxes, they would hire more people. In a strong economy, I believe that’s true. But in a weak economy like the one we’re in, businesses are letting people go for reasons that have nothing to do with taxes. Moreoever, businesses are struggling to be profitable right now, and if they’re not, they don’t pay taxes, anyway. Same is true for individuals: I don’t care if my personal tax rate drops if I’m not making enough to pay taxes, anyway. Still, for companies weathering the financial storm fairly well, tax cuts can only help and certainly not hurt.
So, yeah, I think the Democrats’ basic position that we need spending/investing instead of tax cuts is for the most part the right approach. So far so good for the Obama administration. But there are three major problems with the plan.
The first two problems—too little money over too long a disbursement period—are closely linked. $800 billion or so dished out over at least two years is not enough to make a sizable dent in the U.S. economy, no matter what the money goes into. If it were divided evenly over two years ($400B/yr) into our $13 trillion per year economy, that would be a net injection of 3 percent per year. I draw an analogy to an obese frat boy. Giving him a couple of light beers won’t get him drunk, nor would giving him two strong beers every few hours.
What’s the right amount? I don’t know. Nobody does. But my guess would be that it’d have to be in the low trillions. Yes, as in, two or three trillion dollars, and it needs to be dished out quickly. Hold your horses, though. I fully realize that if Obama had requested that much, Americans would go ape shit. So I come back to my frat boy. If the goal is to get him hammered but we can’t afford a keg of Live Oak Pilz, I’d say we shouldn’t even try. This is not a case of “doing something is better than doing nothing.” No, doing nothing is preferable to doing something incredibly expensive that won’t be effective.
But then there’s the third problem: what the stimulus bill actually directs money to. As a thought experiment, ask yourself what would drive job growth. Some things that immediately come to my mind would be hiring construction companies to rebuild our nation’s road, bridges, airports, ports, dams and so on. That would be politically popular, too. We could invest in large-scale alternative energy project construction. We could fund job training and re-training programs. Certain tax cuts could help, too; we could give businesses generous tax breaks for every new person they hire, or simply reduce the payroll and/or self-employment taxes.
Or we could throw money at programs that might be wonderful but have absolutely nothing to do with job creation. I haven’t scrutinized the final bill (has anyone?), so maybe some of these things dropped out of the final bill. But the original proposal included these gems:
- $380 million to set up a rainy-day fund for a nutrition program that serves low-income women and children
- $300 million for grants to combat violence against women
- $650 million for activities related to the switch from analog to digital TV, including $90 million to educate “vulnerable populations” that they need to buy a converter box
- $50 million for the National Endowment for the Arts
- $380 million in the Senate bill for the Women, Infants and Children program
- $4.2 billion for “neighborhood stabilization activities”
- $2 billion for federal child-care block grants
- $450 million for NASA, as long as the agency spends at least $200 million on “climate-research missions”
- $87 million for a polar icebreaking ship
- $150 million for producers of livestock, honeybees, and farm-raised fish. Bees?
If anyone out there is still arguing that this bill isn’t full of pork, you’re out of your mind. Again, it’s not that I’m necessarily opposed to some of these projects. Maybe we really, badly need an icebreaking ship. But now is not the time to go shopping.
Now, to be fair, there is a lot of jobs-relevant stuff in the bill. Let’s generously assume that 50% of the bill actually funds projects that might directly or indirectly create jobs. That drops the “percent injection to our economy” figure from 3 percent to 1.5 percent. Now our frat boy is drinking a Dixie Cup full of Pearl.
And hey, don’t take my word for it. I watch CNBC all friggin’ day. They’ve done a great job of bringing out a virtual parade of CEOs, industry analysts, and financial experts and asking them the same question: will this stimulus package create jobs? Not one said yes. When CEOs of companies like Caterpillar say publicly that they’re not going to hire more people because of this bill, what more debate do we need on this issue?
While you’re at it, ask your neighbor if they support this bill. The most optimistic sentiments I’ve heard from my friends are along the lines of, “well, it might help some people…a little.” Wow, that’s re-assuring.
So, go look your children in the eye (if you have any; otherwise look at your imaginary kinfolk) and explain to them why, when their country was in one of the worst economic downturns ever, their government was mortgaging their financial futures to help producers of honeybees.