Jobs, jobs, jobs

Quote of the day

Obama Administration economic adviser Christina Romer:

"The very first email I got [was] from a women's group saying 'We don't want this stimulus package to just create jobs for burly men.'"

And that's how the sausage gets made in Washington. In the private sector money is allocated based on its potential to make a profit and perform a useful function. In government the money is allocated based on influence. Which process is more likely to produce an outcome better for the economy?

Daniel Gross defends the stimulus

Call it an exercise in masochism. After noticing that Slate columnist Daniel Gross had penned a new column defending the stimulus package I just had to check it out. After all, there are few things more amusing than watching someone attempt to defend the indefensible. What mental gymnastics would he employ to make his case? How would he attempt to place in a positive light that which has failed so miserably?

Going in with low expectations -- the result of having sifted through Gross's past writings -- I still managed to be astonished at the weak logic and flim-flammery employed. It was apparent Gross was going to struggle to make his case when he nitpicked early on in the column "To begin with, the stimulus was $787 billion, not $800 billion" as some in the media have reported.

Besides the absurdity of quibbling over what amounts to a rounding error -- really, a difference of less than 2 percent -- Gross might be interested to know that among those who have used the $800 billion figure include...President Obama!

"This notion that somehow I came in here just ginned up to spend $800 billion, that wasn't -- that wasn't how I envisioned my presidency beginning," [Obama] said.

Kind of hard to bash people for throwing around a figure the legislation's main cheerleader has himself employed.

But let's move on to the heart of Gross's defense, which is essentially that the majority of the stimulus has yet to be spent:

The more egregious error has to do with the timing. Many critics act as if the entire amount has already been spent. They're completely wrong. Even to argue that it's been half-spent, as the Post, does, is only half-right.

As was planned from the start, in fact, only a small portion of the $787 billion has been spent. The Council of Economic Advisers recently issued a comprehensive report on the impact of the stimulus. "As of the end of August, $151.4 billion of the original $787 billion has been outlaid or has gone to American taxpayers and businesses in the form of tax reductions," the CEA reports. That's 19 percent. If projections made for September expenditures are right, "between one-fifth and one-quarter of the total $787 billion" was spent by the beginning of October.

This is truly astonishing and requires some real chutzpah on the part of Gross. Essentially he takes one of the biggest criticisms of the stimulus package -- that the spending wouldn't take place in earnest until after the worst of the recession had already passed -- and turns it into a defense. Don't believe me about the criticism? Here is Robert Samuelson in early February:

Unfortunately, investing in tomorrow won't automatically stimulate the economy today. The $819 billion program passed by the House will only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent of the new spending and tax cuts will flow to the economy. For 2010, the estimate is another 44 percent. The total of 65 percent means that, by CBO's estimate, about a third of the $819 billion package would be spent after fiscal 2010.

And here is a Wall Street Journal article from late January:

President Barack Obama's economic-stimulus plan is moving on a fast track through Congress. But Republicans, and some independent economists, are increasingly raising the question: Just how much will it actually boost the economy in the near term?

While the White House says most of the impact will be felt this year or next, and up to four million jobs will be created or saved, congressional Republicans contend that much of the money in the package wouldn't be spent until 2011 or later, when a recovery is likely to be already under way. They add that opening the spigot on government spending has often proven ineffective at softening recessions.

Gross continues:

This is not surprising. The ARRA is divided into six different types of components, from tax cuts to infrastructure investments. Some can be done quickly (cutting and mailing tax rebate checks) while others (building bridges) take longer. "The areas where stimulus has been largest in the first six months are individual tax cuts, state fiscal relief, and aid to those most directly hurt by the recession," the CEA reported. Through the end of August, in fact, tax cuts accounted for $62.6 billion of expenditures, and government investment outlays accounted for only $16.5 billion.

In other words, it seems the most effective element in the stimulus package is the part that was most favored by Republicans and only grudgingly embraced by Democrats. Again, let's return to the WSJ article:

Democrats have argued all along that tax cuts are a relatively weak way to stimulate the economy compared with direct spending, but they inserted the cuts largely to win Republican votes.

In any case, if Gross truly wants to know why the stimulus is a failure, here's the answer:

The stimulus proponents crafted the legislation, projected the benefits, and have failed to measure up. No amount of wordsmithing can avoid or obscure this reality.

Stimulus update

The Washington Post details the results of an Energy Department audit:

The four drafty buildings had been fixtures of the Energy Department complex in Oak Ridge, Tenn., for more than half a century. They burned energy like 1950s sedans.

The buildings seemed like perfect candidates for a federal conservation retrofit program that relies on private contractors that receive a percentage of the money they save. A deal was struck in 2001. The contractors reworked lighting and heating systems, among other things, and began collecting payments.

The project was counted among the department's "green" successes -- until auditors discovered that the buildings had been torn down several years ago, and the government had paid $850,000 for energy savings at facilities that no longer existed.

...The problems are not exclusive to Oak Ridge. The auditors, from the department's inspector general's office, also determined that $565,000 had been paid over six years under the same arrangement to a contractor in Texas for a high-efficiency laundry that was no longer in use. The department also paid out $3.4 million on another project without checking whether the conservation measures worked -- and $160,000 for measurements that were never taken.

At the same time, the auditors found, some contractors appeared to use inflated energy cost estimates in their savings calculations, increasing their fees.

"Our review established that weaknesses in the Department's contract management strategy for ESPCs . . . directly contributed to each of the above deficiencies," the department's inspector general, Gregory H. Friedman, wrote in a memo accompanying the report.

But that's not the bad news. This is:

The audit findings show the potential for waste and abuse at a time when the department is poised to launch billions of dollars more in stimulus spending on an unprecedented welter of green projects across the country.

The initiatives are hallmarks of the $787 billion American Recovery and Reinvestment Act approved by Congress in February. The stimulus law directed almost $17 billion to the department's Office of Energy Efficiency and Renewable Energy, including $3.2 billion for energy-efficiency and conservation block grants and $3.1 billion for state energy programs.

The outsourcing arrangements such as those at Oak Ridge, known as "energy savings performance contracts," or ESPCs, will probably be an integral part of those efforts, according to government and industry officials.

In December, the department issued 16 deals called Super ESPCs that may be worth as much as $80 billion over the next quarter-century.

And remember, every dollar spent by the Energy Department is one less dollar available to be spent by the private sector, both by companies and individuals. In order for the stimulus to make sense, you implicitly have to believe it would spend money more effectively than if the money were left in the hands of taxpayers. That seems a hard case to make.

Recession and recovery

In this week's cover story Newsweek wants you to know that the recession is over and the recovery has begun. To write the article the magazine enlisted Slate columnist Daniel Gross, author of a book about the benefits of economic bubbles and general propagator of economic nonsense. That Gross is so often wrong may be due to apparent lack of any formal training in economics.

I'll leave aside the question of whether the recession has ended -- a matter I'll defer to the experts on -- and instead concentrate on Gross's review of the Obama Administration's measures to assist the recovery, which he endorses but struggles to defend:

The Obama administration's strategy rests on what some might call industrial policy or excessive government intervention—or even creeping socialism. I call it "the smart economy." It means eschewing the blunt economic instruments we've always used and focusing resources and rhetoric on strategic sectors: renewable energy/green technology, infrastructure, broadband, and health care.

It means making investments to run vital systems more intelligently and efficiently, thus creating a new infrastructure on which the private sector can work its magic. This philosophy, legislated in the $787 billion American Recovery and Reinvestment Act, holds that a mixture of targeted investments, tax credits, subsidies, reforms, and direct purchases can preserve or create jobs in the short term, improve America's economic competitiveness in the long term, and catalyze private-sector investment.

This is far too kind. Spending taxpayer money on particular economic sectors in a bid to promote growth is a failed approach both from theoretical and practical standpoints. If energy, broadband or health care really are the next big thing that will generate growth then help from the government isn't needed since investors will already be putting their money there (unless of course you think the government is smarter than the private sector in identifying money-making opportunities). Practically we already know this isn't true given the struggles, for example, of the renewable energy industry both here and in other countries.

Similarly, describing the stimulus package as the expression of a particular philosophy is a bit of a stretch given that the legislation is an incoherent mish-mash. It's a mixture because it contains a grab-bag of goodies that has something for everyone. Are tax breaks for movie producers what is needed to move the economic forward? It also begs the question of why the stimulus is still needed if the recovery has already begun.

Gross is puzzling because after he lauds the ability of the public sector to create jobs (with money from the private sector) he later concedes that "the White House says less than 10 percent of the employment impact from the stimulus will take place during 2009." Frustratingly Gross freely admits many of the problems with the current approach even as he endorses it:

Energy Secretary Steven Chu may be a Nobel Prize–winning physicist. But as his department sifts through loan applications for different types of alternative-energy projects, will he prove to be a good venture capitalist? Should loan guarantees go to projects that use traditional solar panels or thin-film solar that can be stamped onto building materials? And while they do create jobs, many alternative-energy projects aren't particularly labor-intensive. Wind farms don't require armies of workers to maintain them.

In order to square this circle Gross offers up the following:

The U.S. government does have a pretty good long-term record of midwifing new industries, and creating new commercial infrastructure that spurred massive private--sector investments. The state-funded Erie Canal, which led to massive growth in upstate New York and the upper Midwest, was followed by privately backed waterways. Congress built the first telegraph line from Baltimore to Washington in 1844 before entrepreneurs were struck by "lightning," as the telegraph was called. The first transcontinental railroad was heavily financed and subsidized by Congress in the 1860s—and helped trigger a half-dozen copycat lines.

Essentially he has to reach back to the 1800s and even then comes up with the Erie Canal -- which most people would concede is an appropriate infrastructure project -- the $30,000 telegraph demonstration project and the transcontinental railroad. Now, it seems to me that railroads at the time did not require any subsidies given their huge popularity, and the transcontinental project was funded more as a monument than actual transportation project. If you look at the wikipedia description of the railroad you find the following:

Each railroad was subsidized $16,000 per mile ($9,940/km) built over an easy grade, $32,000 per mile ($19,880/km) in the high plains, and $48,000 per mile ($29,830/km) in the mountains. To allow the railroads to raise additional money Congress provided additional assistance to the railroad companies in the form of land grants of federal lands. They were granted 400-foot right-of-ways plus ten square miles of land (ten sections) adjacent to the track for every mile of track built.

...Because of the nature of the way money was given to the companies building the railroad, they were sometimes known to sabotage each other's railroads to claim that land as their own. When they first came close to meeting, they changed paths to be nearly parallel, so that each company could claim subsidies from the government over the same plot of land. Fed up with the fighting, Congress eventually declared where and when the railways should meet.

...Both railroads soon instituted extensive upgrade projects to build better bridges, viaducts, dugways, heavier duty rails, stronger ties, better road beds etc. The original track had often been laid as fast as possible with only secondary attention to maintenance and longevity. Getting the subsidies was initially the primary incentive, upgrades of all kinds were routinely required in the coming years.

Not sure this is an example of a great initiative.

Gross then, after arguing in favor of subsidizing rural broadband -- including an anecdote about a grandmother selling items on Ebay -- makes this concession:

To a large degree, the U.S. economy must now cope with an era of lower expectations. Road building isn't a recipe for full employment, green technology won't displace fossil fuels in this decade, the benefits of universal broadband may be overblown, and the dysfunctional health-care system won't shift overnight from a headwind to a tailwind. The recession may be over, but there's likely to be plenty of tough slogging ahead.

Does that mean the smart economy is a waste? Absolutely not. Declaring the stimulus a failure five months after its passage is a little like calling the results of a marathon at the second-mile marker. Virtually all these investments are necessary. They will make the economy and specific industries smarter. They are intelligent economic and political strategies.

Gross commends the current approach but then says not to expect too much from it. But how then are we to judge if it is a success?

Towards the end of the article he then offers up this:

By definition, it's almost impossible to know what the next disruptive, discontinuous great leap forward is going to be. On several occasions, Lawrence Summers has remarked that when he was involved in the big economic summit Bill Clinton held after winning the 1992 election, he didn't recall hearing many mentions of the words "the Internet."

Well, yes, it is extremely difficult to predict the "next big thing" and neither Gross nor the government possess any noted powers of clairvoyance. The entire article is a muddle, a strange mixture of advocacy of government activism combined with concessions of its inherent weaknesses and warnings against expecting very much out of this approach. Maybe it's just hard to defend the indefensible.

Buy American idiocy

The stimulus bill really is the gift that keeps on giving. Andy Roth has a round-up of reaction from around the world in response to the "buy American" provision in the legislation that includes China passing its own "buy China" language, France considering doing the same and India raising tariffs.

Such language isn't just bad because of its negative impact on foreign policy, it's also bad for the American taxpayer. Take for example a bridge. If American steel costs $100/ton while Chinese steel is $80/ton then you save 20 percent by going with the Chinese. By buying American you are paying more money to accomplish the same thing, which means that there is less money left over to be spent on other needs. It's a great way of impoverishing yourself.

Stimulus update

The Washington Post points out that it takes money to spend money:

To send out $14 billion in supplemental checks to most Social Security recipients, the federal economic stimulus package passed in February included $70 million to cover administrative costs -- much of it overtime for workers handling the checks and queries over the phone.

The Health Resources and Services Administration has hired 134 people to oversee $2.5 billion in spending and has spent $326,000 on new workstations at its Rockville offices.

The 50-person agency -- with a budget of $84 million -- created to audit the spending just spent $204,000 to outfit its offices in downtown Washington.

And the Transportation Department plans to hire two people at its headquarters to help estimate the number of jobs being created by transportation infrastructure spending. This is despite job estimates that will be provided by the states.

Remember, money spent by government is first taken out of the economy via taxes and borrowing and then put back in, except this way you get back less than you put in because of the bureaucracy.

I wonder what the administrative costs of a tax cut would have been?

Update: Oh, and there's also the problem of fraud, with the figure of $50 billion being thrown around.

Stimulus update

President Obama is promising to start shoveling even more money out the door while Vice President Biden admits that some of that spending is going to be simply wasted. So where is that spending going anyhow?

The New York Times takes a look at some of the funds being devoted to weatherization. I suspect that most people assume that weatherizing mainly involves insulating buildings against cold out -- at least that is what I thought. But the NYT article notes that much of this spending is actually being spend in "hot states" where the money is being used to ensure that cold air stays in. Why is the money being spent in this fashion? Well, politics:

The stimulus money is being divided according to a formula devised in 1995 after members of Congress from the hot states complained that they received too little money through the weatherization program. The formula has been used just twice, since it is invoked only in the rare years that the program financing exceeds a threshold, now set at $233 million.

J. Bennett Johnston, a former Democratic senator from Louisiana who pushed for the new formula at the time, said more people were dying from extreme heat than extreme cold. “This was not so much an energy saving proposal; it was more of an equity proposal, one that gave attention to public health,” Mr. Johnston said, adding that it would save energy.

Now, the formula favoring hot states is being used just as the government makes its biggest investment in weatherization.

Johnston, by the way, is out to lunch, with the data indicating that more people die because of excess cold than heat. The article then provides us with the poster child for this weatherization initiative:

As Florida’s weatherization money climbs to $176 million over the next couple of years, from $5 million this year, the scene that played out recently at Jessica Langston’s double-wide mobile home in Crawfordville is likely to become more common.

A large truck, parked by a palm tree in the front yard, was pumping fiberglass insulation into small holes bored in the corrugated metal roof. Glaziers were sticking tinted film to the windows to dull the sun’s heat. And cool air was streaming through the floor vents, much stronger now that the metal ducts beneath the floor had been sealed tight and the air-conditioner unit outside had been serviced.

“Before, it would just be hot, unbearably hot,” said Ms. Langston, 27, who had covered the windows with tin foil and taped a leaky window shut when she moved in last summer, pregnant with her third daughter. Her monthly electricity bills can top $400.

We've got this, apparently unmarried, woman with two kids and a third on the way who lives in a double-wide. Taxpayer money is being spent to provide her with a cooler home. While she can afford to have multiple children she apparently can't afford to properly insulate her home, leaving the rest of us on the hook.

The article continues:

Officials here say that the program has cut electricity use and costs. A review of the utility bills of nine Floridians whose homes were recently weatherized showed varied savings. A couple of bills were halved, with monthly savings of up to $178; most customers saved $13 to $44 a month, and one customer saw her electric bill rise as she consumed more electricity after her house had been weatherized.

We are spending millions of dollars so that most consumers can save $30 a month on their electricity bill.

How is this better than providing people with a tax cut? Is this better use of the money that leaving it with the people who originally earned it?

Quote of the Day

"[The stimulus package was] the most major, sweeping, comprehensive legislation as relates to economic activity ever." -- Rahm Emanuel, White House Chief of Staff

And that legislation was passed in a scant three weeks without hearings, much debate or members of Congress even getting a chance to read what they were voting on. That's really scary.

The quote comes from this Washington Post article that contains all sorts of interesting information, including this statement from President Obama:

"This notion that somehow I came in here just ginned up to spend $800 billion, that wasn't -- that wasn't how I envisioned my presidency beginning," [Obama] said.

I still don't know what to make of this. Obama's hand wasn't exactly forced here, in fact he was the chief cheerleader for the stimulus. If he didn't want to spend the money he didn't have to. Does he not have control over the agenda? Has the presidency been effectively outsourced to Pelosi and Reid?

I suppose another interpretation is that he is spending the money only reluctantly, but talk of gargantuan stimulus bill began shortly after the election which would seem to indicate that this had probably been on his mind for a while. I also really have a hard time believing that it really broke his heart to spend a big pile of money to accomodate various liberal special interests.

The really scary part, however, is that the stimulus may only be a taste of what's to come:

Some Democrats hope that it will prove easier to build public support for future legislation that will have a clearer focus than a stimulus package that was, by definition, a rushed grab bag. Hacker predicted that more Republicans could be persuaded to support Obama's health-care proposal, given that some Republican senators are already on the record supporting a different universal health-care plan. To lay the groundwork, he said, the president needs to include new health-care funding in his first budget, and grass-roots supporters need to pressure Republicans.

"You have to keep the movement alive," he said. "You have to keep the pressure on. Whether it's [Arlen] Specter or Snowe or Collins, they have to feel that their constituents are hurting."

Translation: The purpose of the stimulus bill was just to shovel a bunch of money out the door. Now we're actually going to plot out how to expand government control to areas such as health care, and we are going to continue employing scare tactics to do it.

Really, to think anything else at this point is just naive.

Spending programs

Economist Robert H. Frank in today's New York Times:

Bizarrely, however, some Congressional critics have denounced the administration’s stimulus proposals as “mere spending programs.” Of course they’re spending programs! More spending is exactly what we need. The imperative is to get this legislation passed and get the spending started right away.

This completely misses the point and I can't believe that Frank actually believes this. The criticism is not that money is being spent, it is that it is being mis-spent and simply spent for the sake of spending. For example, we could have a program that simply pays people to dig holes and then fill them back up. Would Frank endorse that? After all, money would be spent, which is the point right? Does Frank believe that all forms of spending are equal?

I doubt it. Such spending does nothing to increase wealth or make the country better, which is a criticism that could probably be leveled at much of what's in the stimulus package. Simply shoveling money out the door willy-nilly can't be considered wise policy.

It's stuff like this that makes you remember that economics (particularly macro) is not a true science and too often a forum for charlatans to advance their vision of society under the guise of rigorous scholarship.

Update: Frank has a history of writing such nonsense.

Mark Sanford speaks

Gov. Mark Sanford (R-SC) on the stimulus:

Historically, simply throwing government money at a struggling economy hasn’t created growth. It certainly didn’t in Japan during the 1990s, when the Japanese government initiated no fewer than 10 stimulus packages over eight years. Instead of fortifying the economy, government intervention led to what is often referred to as “the lost decade,” a time when Japan’s unemployment rate more than doubled.

Supporters of the current plan like to point to the New Deal as a model, declaring that FDR’s massive government expenditures dragged this country out of the Great Depression. But the data points just don’t back that up. The Depression kicked off with the stock market crash of 1929. Ten years and billions of taxpayer dollars later, unemployment was stuck at 20 percent.

You don’t have to believe me. Believe Henry Morganthau, President Roosevelt’s own treasury secretary, who said the following: “We have tried spending money. We are spending more than we have ever spent before and it does not work.... I say after eight years of this Administration we have just as much unemployment as when we started.... And an enormous debt to boot!”

Read the whole thing. From early indications it's going to take eight years of this guy in the White House to undo four years of Obama and the Democratic Congress.

Stimulus passes

So with House and Senate approval yesterday the stimulus package only awaits President Obama's signature before becoming law. The bill amounts to $792 billion and when interest on the debt is included reaches an astounding $1.14 trillion. It is now clear, if it was ever in doubt, that when Obama refers to hope and change he just means borrow and spend.

At this point I'm past anger, I'm just sad. This isn't about sticking a thumb in Obama's eye or dealing him a setback. I just want what is best for the country and this isn't it. This bill is simply horrendous, expanding government and piling up the debt. As I have told others, I would honestly rather have my taxes increased than have this garbage passed.

But forget about the ideological arguments about the bill -- government spending vs. tax cuts, the record of Keynesian economics, etc. -- and just consider the dynamics that governed the stimulus process:

• Literally hundreds of billions of dollar are being spent. This was done in a relatively short amount of time without hearings. It defies common sense that such an amount of money can be allocated in a smart and effective fashion with so little planning.

• Members of Congress had something like 10 hours to read and digest the legislation -- at 1,071 pages -- before voting on it -- and that's assuming no sleep the night before. There is no way that anyone fully read what was in the bill. They didn't even know what they were voting on.
  

• Here is a list of everything in the bill. Can anyone look at it -- with everything from "Internet crimes against children initiatives" to "Historically black colleges and universities preservation" -- and argue that there is a coherent narrative or overarching paradigm other than simply spending a bunch of money on various items?

Again, this isn't ideology. Is it possible for a bill undergo the process outlined above and result in a good piece of legislation?

Lastly I will point out that in 1993 Bill Clinton came to office and ushered in a presidency that Democrats will likely remember fondly for some years to come. During that first year Clinton raised taxes to pay down the deficit, passed a $4 billion stimulus bill and expanded free trade with NAFTA. Obama is vastly expanding the deficit with a stimulus package 200 times the size of Clinton's that includes protectionist "Buy American" language.

Basically Obama is taking a very different approach from Clinton on the economy. You can believe in Clinton's approach and you can believe in Obama's but it is hard to agree with both.

Crisis

President Obama has described this as the worst economic crisis since the Great Depression. Oh really? (via Cato Institute)

One possibility is that he is ignorant. The other is that the man who preaches hope is trying to scare the hell out of us in order to get his Democratic wish list -- aka the stimulus bill -- passed. Neither is very comforting.

Update: And there's this from the Calculated Risk blog:

Comparing recessions

Obama -- the candidate of hope -- keeps insisting that this is an extraordinary recession unlike anything we have faced since the Great Depression. As the fundmastery blog notes, however, "This is a tough downturn, but certainly not unprecedented in the post-World War II period."

And here's the data:

(click to enlarge)

Why is Obama engaging in unnecessary doom-mongering? You'd almost think that he is more interested in getting the stimulus package passed along with all of its goodies for liberal constituencies than actually taking a cool, rational approach to the economy.

Specter speaks

Sen. Arlen Specter (R-PA) explains in today's Washington Post why he supports the stimulus package. First sentence:

I am supporting the economic stimulus package for one simple reason: The country cannot afford not to take action.

Senator, you can't really be this dumb. If you went to the doctor complaining of a fever and he recommended that you attach leaches to yourself that would certainly be an example of him taking action, but would it be helpful? Of course not. Likewise, doing nothing would be better than passing this horrendous piece of legislation.

Specter then engages in some self-congratulation:

The legislation known as the "moderates" bill, hammered out over two days by Sens. Susan Collins, Ben Nelson, Joe Lieberman and myself, preserves the job-creating and tax relief goals of President Obama's stimulus plan while cutting less-essential provisions -- many of them worthy in themselves -- that are better left to the regular appropriations process.

Our $780 billion bill would save or create up to 4 million jobs, helping to offset the loss of 3.6 million jobs since December 2007. The bill cuts some $110 billion from the $890 billion Senate version, which would actually be $940 billion if floor amendments for tax credits on home and car purchases and money for the National Institutes of Health are retained.

A few questions:

• How do you know that 4 million jobs would be created? Where did it come from? Would you be willing to place a wager on the accuracy of that figure?

• What do you make of the assessment by the Congressional Budget Office that the stimulus bill would actually make the economy worse off in the long run?

• Why is borrowing and spending is a good response to a crisis that many economists believe was caused by...borrowing and spending?

• The money to pay for this stimulus bill will have to be borrowed from the private sector. If let in the private sector, what other uses do you think that money would have gone towards? Are you confident that the government knows better how to spend that money more productively than the private sector? If so, why?

Update: Ross Douthat makes the following observation:

To read this Arlen Specter op-ed, justifying both the stimulus package and the cuts the "gang of moderates" have attempted to impose, is to encounter a mind incapable of thinking about policy in any terms save these: Take what the party in power wants, subtract as much money as you can without infuriating them, vote yes, and declare victory.

Yes, it is certainly formulaic and lacks imagination.

Deal reached

A deal appears to have been reached on the 2009 Deficit Growth Act -- aka the stimulus bill. Self-congratulation is breaking out because the legislation was pared back -- to a mere $780 billion. Nebraska Senator Ben Nelson had the gall to say that "We trimmed the fat, fried the bacon and milked the sacred cows."

Anyone who actually believes that should be stripped of their voter registration card.

People bemoan the lack of Northeast Republicans these days but the three sell-out Senators all hail from that region -- Collins and Snowe of Maine and Specter of Pennsylvania. It's baffling because Susan Collins was just re-elected last year while Snowe prevailed in 2006 with nearly 75% of the vote. They didn't need to do this under pressure from the voters, they simply don't have a problem with big government.

A trip down memory lane

If the debate over the stimulus bill seems vaguely familiar it should -- we've been down this road before. In 1993 President Bill Clinton -- who famously campaigned on "it's the economy stupid" -- proposed a $19.5 billion stimulus bill ($27.65 billion in 2007 dollars) designed to build infrastructure and promote jobs. Republicans attacked it as mostly pork and it was eventually pared down to $4 billion in unemployment benefits .

On the winning side, Senator Dole quietly argued that Republicans, too, want jobs. But asserting that "a fundamental difference of philosophy has brought us to this point," the Kansas Senator said his party viewed the plan as too expensive and fatally flawed because it added to the deficit instead of having its spending matched by cuts elsewhere in the budget.

As originally offered, the bill included about $4 billion to extend unemployment benefits, $2 billion for education grants, $6 billion for highways and public improvements and $2 billion for summer jobs. The Republicans were especially critical of $2.5 billion in community development block grant spending, which they said would pay for pork barrel projects.

..."The minority leader showed that playing politics is a lot more important than putting people to work," said George Stephanopoulos, the White House communications director. "The real losers here are the hundreds of thousands of Americans who won't get jobs this summer and beyond, because a minority of Republicans put politics before people."

..."While the other side is busy congratulating each other on proving that they are a force to be reckoned with, they have only proved to the American people that they are the guardians of gridlock," [Sen. Robert Byrd, D-WV] said. "While the champagne corks are popping, millions of Americans will open a can of beans and wonder whether they are going to find a job."

I seem to recall the economy did OK afterwards.

Update: Let's consider the parallels with the Democrats of 1993:

• Looking to the government instead of the private sector to promote growth? Check.
• Using bombast and scare tactics to drum up support? Check.

The only thing that has changed is the size of their ambitions.

Stimulus update

It just keeps growing:

Despite growing concerns from Republicans and Democrats about the cost of the plan, senators did not reach agreement on which programs to trim. Instead, as the chamber has debated the bill this week, its cost has grown by almost $40 billion, with the tab now at more than $920 billion.

This bill doesn't need a nip and a tuck, it needs slash and burn.

Fear

"If we do not move swiftly to sign the American Recovery and Reinvestment Act into law, an economy that is already in crisis will be faced with catastrophe." -- President Barack Obama, Feb. 4

"If nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse." -- President Barack Obama, Feb. 5

Japan's stimulus experiment

Infrastructure spending to revive the economy? Japan's been down this road before:

Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

...In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.

...Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like [Treasury Secretary] Geithner, who think it did not go far enough; and those, many of them Japanese, who think it was a colossal waste.

Among ordinary Japanese, the spending is widely disparaged for having turned the nation into a public-works-based welfare state and making regional economies dependent on Tokyo for jobs. Much of the blame has fallen on the Liberal Democratic Party, which has long used government spending to grease rural vote-buying machines that help keep the party in power.

The topic is covered more deeply in the excellent book Dogs and Demons: Tales From the Dark Side of Japan. From an economic perspective dumping tens of billions in building infrastructure makes little sense. From a vote buying perspective, however...