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Tuesday, October 13, 2009

A Laughable Defense of the Stimulus

I don't read Slate Magazine all that often and I certainly don't read Daniel Gross that much. I have read his work on occasion and I didn't read him as a dogmatic liberal. I took him as a left of center moderate. That's why I was a bit surprised by his pathetic defense of the stimulus. The defense essentially comes down to two things 1)you can't criticize the stimulus because it hasn't really started yet and 2)that's all by design.

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.

It's hard to put into words how laughable this is. If this wasn't designed to be spent right away, the president certainly didn't act like it when he jammed it down the Congress' throat in weeks because we simply couldn't wait for debate. Why, I ask, did we need to pass it so quickly if the whole point was to spend the money so slowly? Of course, what Gross doesn't say is that the criticism from Conservatives haven't changed. We all knew that while it was passed quickly it wouldn't be spent until well into 2010. That was one of many problems that opponents pointed out during debate. So, that criticism hasn't changed.

If this is by design, that's just as laughable. That design was done with political not economic goals in mind. The only reason to spend most of the money in 2010 and beyond is to have maximum effect close to November 2010. That's all good and well for those seeking reelection in November of 2010 but it will do nothing for those out of work now. Here's how Gross put it.

In other words, nearly eight months after its passage, a large majority of the stimulus has yet to start impacting the economy—as was the plan. And as was also the plan, the most visible parts of the stimulus are only taking effect now and will remain active through 2010. As you drive around town, it's difficult to visualize tax rebates or aid to states—the fast-acting components of the stimulus. But as I drive around my town today, I can see workers laboring at a $4 million, stimulus-backed road project that is just getting started and will run through the spring of 2011.

Now, think about that for a minute. We've lost in the neighborhood of 3 million jobs since Obama took over. We passed a stimulus package right away because we couldn't wait. Yet, now, eight months in most hasn't been spent and that's by design? This is supposed to be a defense of the stimulus.

In February, we lost about 700,000 jobs in the economy. One would think the time to stimulate the economy was then. After all, that's when things looked really bad. Instead, by design, we passed the bill and spent very little. We are saving most of it for 2010 when it seems we'll be out of the recession naturally. Again, all of this, according to someone defending the stimulus, is by design. Then, Gross really says something absurd.

The Obama administration believes the stimulus is working.

Gross painstakenly points out conservatives are attacking the stimulus unfairly because it is only now starting to be implemented. Well, it can't work if it in fact has only begun to be implemented. At best, it's only getting started and we can't judge yet. Yet, Gross has it both ways. First, he criticizes Republicans for misconstruing how this was supposed to work. He scolds them because its barely begun to work and then turns around and carries the water for the administration by saying it's working as planned. Gross then quotes an administration bureaucracy that claims that the stimulus has added 2-3% to GDP growth. How can that be if it's barely begun to work? Gross can't keep his stories straight. First, it's barely been spent. Then, it's added 2-3% to GDP. At the same time, anyone that criticizes it for not working and not steming unemployment can't criticize because most hasn't been spent. It's laughable.

1 comment:

Anonymous said...

I think he may be really wrong, remember a significant portion of the stimulus has been spent and that was the tax rebate portion.

At best the remainder of the stimulus will help to curb job losses. If one looks at the labor numbers we're seeing declining work weeks, and layoffs. Typically you would increase an existing workers hours before hiring new workers.

As for the time delay, perhaps they wanted it to come between inventory cycles? There would be a double bonus of employing people in a slow period and it encourages them to continue to spend on essentials which would in turn juice inventories for a quarter.

How effective will it be? Most likely it will have a zero or negative multiplier effect since asset prices still outpace income levels. Defaults will resume and the stimulus will merely tide over some tbtf banks.