Editore"s Note
Tilting at Windmills

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February 7, 2009

THEY DIDN'T ERR ON THE SIDE OF TOO MUCH.... Back in November, Paul Krugman advised Barack Obama and his team to figure out what kind of stimulus the economy actually needs and then "add 50 percent." As Krugman saw it, "It's much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little."

That sounds reasonable enough. The Fed has already cut interest rates and extended credit. Congress has already cut taxes. The CBO nevertheless believes the economy will fall $1 trillion short this year, and another $1 trillion short next year. The point of the stimulus package is to help make up at least some of the difference to get the economy back on track. More money from the federal government means more jobs, more investment, and more capital in the system.

Republican "centrists" in the Senate, we now know, felt more comfortable with a smaller stimulus, and had the political clout to demand the changes (due to GOP obstructionism, a 58-member majority couldn't pass the bill without approving the "centrists'" cuts). Krugman has given the resulting package a look, and is obviously discouraged.

Now the centrists have shaved off $86 billion in spending -- much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast -- because it prevents spending cuts rather than having to start up new projects -- and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

Dean Baker is thinking along the same lines: "We should talk about the spending cuts as job cuts. So cutting $100 billion from the stimulus means that they cut 500,000 jobs. (Working with the Romer-Bernstein numbers, $100 billion would increase GDP by $150 billion. This equals 1 percent, which they calculate translates into 1 million jobs. We divide by two [2-year savings] and get 500,000 jobs.) So the Collins-Nelson crew just cost 500,000 people their jobs. Isn't fiscal responsibility wonderful?"

There are, of course, some opportunities for improvement. We don't know what House-Senate negotiators will produce; we don't know if a White House p.r. initiative will improve the political climate; and we don't know if President Obama will have the opportunity to come back to Congress later this year or next, asking for additional stimulus investment, the way George W. Bush kept returning to Congress, demanding limitless funds for the war in Iraq.

I guess we'll see soon enough.

Steve Benen 7:45 PM Permalink | Trackbacks | Comments (26)

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Comments

It's horrible, this news. I'm so depressed. Sounds almost as though it's worse than nothing or a do-over.

Perhaps the House and Obama should toss it out (?).

Posted by: Perhaps the House should say NO on February 7, 2009 at 7:55 PM | PERMALINK

I'm baffled at the state aid cut. It's necessary and effective stimulus, and you'd think it would get a lot of support from republican governors, legislatures, and local officals. We're only talking 40b here, surely there must have been something better they could have targeted? Why would Collins/Nelson go after that?

Posted by: Royko on February 7, 2009 at 8:02 PM | PERMALINK

A reminder that our Republican friends don't consider the emergency facing our country to be a big deal. Keep in mind these are the spiritual heirs of the people who thought the most dire threat to our nation during the 1930s was not the Depression, but the New Deal. Keep in mind that we are where we are today because they have spent the last generation uprooting the last vestiges of the New Deal (and the generation before that planning to do so.)

Posted by: Roddy McCorley on February 7, 2009 at 8:05 PM | PERMALINK

One thing the conference should do is to remove any provision put in by someone who ended up voting against the bill.

Posted by: tomj on February 7, 2009 at 8:14 PM | PERMALINK

Could someone explain to me why Pelosi and colleagues don't just go after the big AMT fix in the bill when it goes to conference?

1. That fix ($64 billion, I think; but who's counting these days?) won't have any or much stimulative effect and was put there to attract Grassley's support. Guess what? Grassley's not biting. So, rip it out.

2. The repugs support such a fix anyhow. So, assuming one thinks it worth doing (at least for the lower part of the income curve affected), that could easily be done with future legislation.

3. The money saved could go to education or other cuts to the States. As a NYer, I'm desparately aware of the need for this money.


Posted by: TB on February 7, 2009 at 8:27 PM | PERMALINK

We should talk about the spending cuts as job cuts.

The CBO letter to Sen. Judd predicted that the stimulus might have a small short-term beneficial effect on GDP, but that it would have a negligible effect on job creation.

As the CBO pointed out, there was much uncertainty about every one of its projections.

Has Krugman yet told us all the most productive ways to spend the stimulus money? If so, what spending does he recommend?

The government is already borrowing money. Can the government actually borrow an additional $450 billion rapidly enough to make a difference before next autumn? Does anybody now know who the lenders of all that money will be?

Posted by: MatthewRMarler on February 7, 2009 at 8:38 PM | PERMALINK

I'm sorry, I like Obama, but none of these stimulus ideas - more spending or tax cuts - are going to work. The government, the banks, the entire US economy is insolvent. It was runaway debt at all levels of the US economy that got us into this mess. None of these Keynesian measures will stimulate anything except inflation and higher borrowing costs down the road. Followed by the collapse of our currency.

We've already spent or promised trillions over the last couple of years, and none of it has worked. How long do we think we can wrack up epic levels of debt? Levels we never even imagined in the 1930s. The collapse of the US economy is coming soon, folks. There's nothing the government can do at this point to stop it.

Posted by: Doomer on February 7, 2009 at 8:41 PM | PERMALINK

Paul Krugman advised Barack Obama and his team to figure out what kind of stimulus the economy actually needs and then "add 50 percent."

Obama referred to the fact that he is inheriting a budget with a $1 trillion deficit already. So he is increasing that by about 50%. Is that enough, or is another $1.5 trillion needed this year?

Posted by: MatthewRMarler on February 7, 2009 at 8:43 PM | PERMALINK

The state aid is truly mind boggling. Some of the stuff that was 'cut' are things we'll probably see return as part of the regular budget. But gutting the state aid strikes me as counter productive. I'm guessing repubs want to see less services and higher taxes at the state and local level to insure themselves a fresh source of outrage.

Posted by: JoeW on February 7, 2009 at 8:50 PM | PERMALINK

Republican "centrists" in the Senate, we now know, felt more comfortable with a smaller stimulus,[...] -- Steve Benen

Much as I love ya, Benen, you're not getting a pass when you bend the truth to the snapping point. Just for your information, here's the list of those "Republican", big-shears-wielding, "centrists":

Ben Nelson (D-NE), Mark Begich (D-AK), Tom Carper (D-DE), John Tester (D-MT), Mary Landrieu (D-LA), Evan Bayh (D-IN), Jim Webb (D-VA), Mark Warner (D-VA), Michael Bennett (D-CO), Claire McCaskill (D-MO), Jeanne Shaheen (D-NH), Mark Udall (D-CO), Joe Lieberman (I-CT), Susan Collins (R-ME), Arlen Specter (R-PA), Mel Martinez (R-FL), Lisa Murkowski (R-AK), and George Voinovich (R-OH).

I may have been at the bottom of my highschool's math class, but it had nothing to do with my ability to count to 20. And, by my calculations, that's 12 so-called Dems, one neither-fish-nor-fowl (The Connecticut Lie) and 5 (centrist) Repubs.

I'm sorry (and embarrassed) to see that *both* of "my" Senators are in the group which would rather see more tax cuts and more funding for the military than things like food stamps and firefighters (not to mention cops. I thought all Repubs and all "centrists" loved cops? For who's gonna protect the money they make on their tax cuts?)

Posted by: exlibra on February 7, 2009 at 8:57 PM | PERMALINK

Marler-

We don't have to borrow the money at all. The treasury just prints it. That's the benefit of fiat money.

Secondly, nobody gave a shat about where the money was coming from for the troops. And the Republican'ts told us we were unpatriotic if we didn't fund the troops. Well guess what...they're unpatriotic for not funding jobs and the economy.

Posted by: Gridlock on February 7, 2009 at 9:15 PM | PERMALINK

While I am not happy with this, I am not ready to pack the tents and go off into the desert over this.

Hopefully, the Democrats have learned from the Republican playbook when it comes to "reconciliation" - let's see who's on that committee, and then see what Pelosi does, since she doesn't like the state aid cuts and has them in the House version. If they use the GOP play to revise the bill (with the difference being they will take out the bad ideas and put in the good ones, rather than the vice-versa of the GOP's ways), and the bill comes back about the same size, but closer to the House version, this will be an up-or-down vote that cannot be filibustered or amended. We have the votes to pass that without the halfwits, and most of the 12 Democrats in Joe Lie's "gang" will go along with it.

One thing I have noticed about Obama during the campaign is that he only made mistakes once. This was a biggy to be using for a "classroom exercise," but now he knows what is what with his "post-partisan" baloney. Now that we know the enemy is still The Enemy, things can be reorganized strategically.

I don't know how many of you got your "personal" e-mail from the President today, but there are all the talking points to be using with people you know. OFA should now be organizing demonstrations outside the state offices of all 12 of the Democratic senators, in support of what comes out of the reconciliation committee.

As was said by another at another thread, this is a war, and winning is going to go to those who hang in and don't go giving up just because the victory wasn't as big as we wanted this time.

As someone else commented, just think what sort of situation we'd be in if Wet-Start Johnny was in the White House now, advocating more tax cuts and a balanced budget.

Posted by: TCinLA on February 7, 2009 at 9:32 PM | PERMALINK

Two important points here:
1) It was neither a threat of filibuster nor weak-kneed Democratic leadership that created the 60 vote threshold. It was the Budget Act, which requires a 3/5 vote for spending that increases the deficit in the first year. The Republicans don't have to filibuster and it would still take a 60-vote count to waive the Budget Act.

2) A Conference Report cannot be filibustered. Presumably, the Budget Act will have already been waved to get this through the Senate, so if the Conference Committee decides to throw out all the Senate cuts and just go with the House version, the bill would only require 50 votes (with Biden) to pass.

Posted by: Elrod on February 7, 2009 at 9:45 PM | PERMALINK

Yes, this compromise is bad news, but don't blame the Republicans. Here is a list of the 'centrists':

  • Ben Nelson (D-NE)
  • Mark Begich (D-AK)
  • Tom Carper (D-DE)
  • John Tester (D-MT)
  • Mary Landrieu (D-LA)
  • Evan Bayh (D-IN)
  • Jim Webb (D-VA)
  • Mark Warner (D-VA)
  • Michael Bennett (D-CO)
  • Claire McCaskill (D-MO)
  • Jeanne Shaheen (D-NH)
  • Mark Udall (D-CO)
  • Joe Lieberman (I-Lieberman)
  • Susan Collins (R-ME)
  • Arlen Specter (R-PA)
  • Mel Martinez (R-FL)
  • Lisa Murkowski (R-AK)
  • George Voinovich (R-OH)

That's 12 Dems, 5 GOP and a self-important jackass.

The Democrats had options. The best would have been to stand with their president and dare the Republicans to filibuster (and if they did, force them to stand up in front of the country and explain at length why they were opposing urgent stimulus). A less satisfying, but nevertheless viable option, would have been to pass the stimulus bill under budget reconciliation rules, which are immune to filibuster.

But no. A dozen Democrats chose the 'win by losing' strategy, screwed over their caucus and the country for no reason whatsoever. Practically every Republican in Congress is a jerk who puts political ambition before the needs of the country, but this isn't their fault.

It's partly Obama's for trying to pass legislation with them rather than in spite of them; it's partly the 12 Dem 'centrists' who seem to believe that claiming the 'centrist' label and being 'bipartisan' is more important than solving the country's problems; but mostly it's Harry Reid's fault for being a weak and ineffective majority leader.

The Democrats have the oval office with an extremely popular president, and commanding majorities in the House and Senate. It's time to stop blaming Republicans for failing to get things done.

Posted by: David Bailey on February 7, 2009 at 10:34 PM | PERMALINK

Government doesn't need to borrow money: It can tax the uber-wealthy who are just sitting on the money anyway.

Or, just go after tax cheats. Apparently every year the government is shorted some $300 billion by tax cheats.

It's quite obvious that the bulk of that doesn't come from the middle, working or lower class.

Obama could beef up the IRS and go after those tax cheats.

He could even allow private firms to go after tax cheats. IRS bounty hunters. Last I heard, Black Water was being chased out of Iraq. Here's a new market for them - It would be fun to see them eat Republicans.

Digging into tax cheats for the last eight years could produce nearly $3 trillion in revenues.

Obama doesn't need to borrow money to pay for the stimulus, he can pay for it by enforcing existing tax laws and going after cheaters.

Paybacks a bitch.

Posted by: Bub on February 7, 2009 at 10:37 PM | PERMALINK

Matthew:

It really comes down to what sort of country you want to have. And lack of aid to the states means some are cutting medical treatment for cancer and other deadly but survivable diseases. You appear to be saying let them die, we can't afford them. I think we are better than that.

Posted by: Tigershark on February 7, 2009 at 10:52 PM | PERMALINK

New Slogan courtesy of South Park:
The Republican Party: They Took Our Jobs!

Posted by: 10leggedshadow on February 7, 2009 at 11:03 PM | PERMALINK

---As I look around the internet, reading here and there, it is quite clear that NO ONE KNOWS WHAT IT WILL TAKE. How much stimulus, what type and for how long. Of course, everyone has an opinion. History is helpful but not he situation is not exact.

Listen, I say to Obama "got with your gut and what the people and expertise you trust says". Everyone is going to have an opinion and at least half of them are going to be wrong anyway.

This situation is a huge noise machine in which the players are not only playing fot the current predicament but also trying to avoid a bad position for sometime in the future for their political careers. We.are.just.not.hurting.enough. to cut the bullshit and have everyone focus and "man-up"

So Mr. Obama, go for it, its your call. None of these other people really know, no matter how much they pretend they do...

Posted by: Elie on February 7, 2009 at 11:05 PM | PERMALINK

Welcome to the Nelson-Collins Depression

Posted by: PAULO on February 7, 2009 at 11:40 PM | PERMALINK

The Fed has NOT cut effective interest rates as far as they say they have because they are still paying a "floor" interest on excess reserves above the target overnight rate.

Posted by: GA-Sen Watcher on February 7, 2009 at 11:57 PM | PERMALINK

Read what Doomer said... uh, if the currency collapses, then nothing is worth anything? So if I have savings in dollars, which I'd hoped to hold onto and maybe get a house at some point (but prices where I am have not gone down much-- So. CA) what is the best thing to do?

Did I hear Nouriel Roubini has his money in equities... which I assume means stocks?

This is getting depressing.

;-(

Posted by: Clem on February 8, 2009 at 12:36 AM | PERMALINK

Three big problems with the bill:

First, it needs a much, much bigger stimulus portion (i.e., those items that would have the greatest impact on using the current excess capacity of labor, such as government hiring more workers for social service and education AND funding of labor-intensive infrastructure projects).

Second, it has too many things that, while admirable, such as extension of unemployment benefits, don't do anything to create jobs. These should be broken out into other bills to be considered on their individual merits, because they are only marginally stimulative, if at all.

Third, get rid of tax breaks. Analysis of recent tax breaks has shown that only one-third is spent; the rest is saved, which is a good thing, but, again, doesn't provide immediate economic stimulation. I include in these bad tax tools attempts to reflate the asset bubbles in housing and autos, especially provisions in the bill like the one from Sen. Barbara Mikulski, D-Md., that would allow most car buyers to claim an income tax deduction for sales taxes paid on new autos and interest payments on car loans. The break would cost $11 billion over the coming decade. As Sen. Debbie Stabenow (D-Big 3) said, "just as we need to get the housing market going, we need to get auto sales going.”

Right, let's get people buying stuff again that they can't afford.

Posted by: DevilDog on February 8, 2009 at 1:31 AM | PERMALINK

When there's argument over how much and where this stimulus money is going, it's obvious folks just aren't gettin' it when it comes to why we need to pour money into this economy -- and fast.

Obama and his team need to come up with a cool wazoo, visual aid, chart or PowerPoint -- anything -- for demonstration purposes that boils this all down for simplicity that most non-economist types can understand. (That'd certainly include most, if not all, of our elected officials; that's obvious.)

On this visual aid, talk basics like: Here's what GDP means and why that number is so important to this entire discussion. Illustrate how 75% of GDP is comprised of consumer spending and which income bracket is fueling the majority of that. (Hint: the middle class.)

Show on your chart how, since that GDP number has fallen so quickly and drastically recently, that equates to lost production (shown in real dollars) which is caused by lower consumer spending, which equates to lost jobs, which causes less consumer spending, which equates to more lost jobs, which equates to even less consumer spending...

But you get the idea. And this stuff snowballs really fast, and we're soon to get an even better idea of that if something isn't done quickly.

We NEED to get money into this economy. Even if we have to beg, borrow or steal it -- yes, I mean printing it too. Otherwise, we've lost this battle entirely.

And haggling over where it's going is just wasting precious time.

Are we borrowing too much? You betcha. But you have to. What are your options for getting money into this economy? The private sector certainly can't help because, like the rest of the common folk, they're all tapped out too.

And here's another important point I think Obama's team needs to make to sell this:
When the government starts spending this money for stimulus, the majority of manpower for these jobs will come from the private sector and not the government. (The government's payroll may be large but it isn't that large, folks.) This money is disbursed to government contractors, for instance, and others in the private sector for carrying out these tasks, and many, many businesses will benefit. Now, that's real job creation.

Now the Obama team needs to get to work.

Pauline

To do nothing or even, as the Republicans want, to lower taxes or cut this spending bill, it's evident how dangerous that is. We're doomed with anything short of and all-out effort here.

Then talk about how, well, how

Posted by: Pauline May on February 8, 2009 at 4:38 AM | PERMALINK

Keep in mind a few things:

First, there's far more stimulus money slated to be spent in the 09-10 fiscal year than this one (08-09) anyway. To gauge how badly the "centrists" butchered the stimulus one really needs to know the timing of the cuts (this year=bad; next year, not so much). The President and Congressional Democrats will have another bite at the stimulus apple when formulating and passing the 09-10 budget.

Posted by: Bob905 on February 8, 2009 at 6:59 AM | PERMALINK

My hope at this point is that Obama will go on the road (i.e., outside the Washingtonian echo chamber of CW), talk with the people that have been victimized by the rampant greed and corruption of the past two or three decades, return to DC, and say "We are going to revitalize the stimulus bill with the spending that the PEOPLE want, and forget the unneeded tax cuts, which the PEOPLE don't want."

PEOPLE see the wealthy, connected class as the problem, and NOT tax cuts.

Posted by: kleven-stein on February 8, 2009 at 8:20 AM | PERMALINK

TO THE COTS

I've already noted that, in my opinion, the stimulus bill should have been written by the crack economics team in the White House and then forced through Congress. Now we have the House bill with too many easy targets for Republicans to attack and a compromise in the Senate that has let the Republicans water down the bill at the expense of the economic recovery.

Examples: cut in aid to states, a fast track economic help; too much in tax cuts, a weak economic help. And the total sum, already too small, has been reduced.

With Obama's bully pulpit eloquence, and with more spine in Congress, we should force the Republicans to demonstrate their intransigence and disregard for our economic distress. Vote for the best damn bill possible and make the Republicans do an actual filibuster.

homer www.altara.blogspot.com

Posted by: altara on February 8, 2009 at 10:02 AM | PERMALINK




 

 

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