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Risks of the Stimulus Package: What Is the NYT Talking About?
The NYT presented a somewhat confused discussion of the stimulus bill passed by the House today. For example, it told readers that: "the bill would also create a $79 billion state fiscal stabilization fund, disbursing half the money in late 2009 and half in late 2010. The Congressional Budget Office has estimated that little of that money would be spent this year."
Hmmm, should we be worried that little of this stabilization fund will be spent in fiscal 2009 (before October 1)? Right now state and local governments are preparing massive cutbacks in services and payrolls based on huge projected budget deficits. The day this bill is signed into law, these governments know that they will have access to this $79 billion fund. This means that they do not have to start cutting back services and lay off workers. They may not literally tap the funds immediately, but the impact on their spending and employment should be almost immediate.
Later the article discusses the prospect that some of the infrastructure will not be well-spent, commenting: "then there is the risk that the projects themselves have little or no long-term economic value and simply drive up the budget deficit." There is a risk that any government spending, or tax cuts, will have little long-term economic and therefore "simply drive up the budget deficit." (The tax cut in this bill that allows businesses to write-off losses against taxes paid up to six years ago, might fit this category.) There is no obvious reason that infrastructure spending should raise this concern more than any other item in this bill.
--Dean Baker
COMMENTS (19)
I wish the Warren Buffet "Import Certificate" proposal would be implemented ASAP as a means for job creation.
Is there any estimate on the Millions of manufacturing & related supporting jobs would be created, by using the Imports Certificates proposal to lower the US trade deficit from $700B to near 0 (aka a near balance of US imports & US exports)?
Posted by: El Gringo Colombiano | January 29, 2009 5:31 AM
I don't understand why there needs to be ANY tax cuts in this bill if no republicans (0) are going to sign on. The tax cuts are are mere pre-emptive capitulation, and do not represent a valid compromise.
Posted by: deanx | January 29, 2009 6:04 AM
"...there is the risk that the projects themselves have little or no long-term economic value..."
Let us again revisit history, specifically WW II, when the money was spent on things which were immediately exploded or otherwise destroyed or later rusted away. It's hard to argue that this led to either short- or long-term economic harm. If the money were spent on infrastructure or other fundamentals like alternative energy development rather than destruction there would presumably be considerable long-term benefit.
The critical thing is to get or keep people working without diminishing immediate demand. Private industry will follow when demand increases, or even if it just becomes clear that demand will not diminish. This is nothing new - Keynes recommended that the government bury money in jars. (Bernanke promised to distribute money from helicopters, but so far has not followed through - the helicopters were not necessary to distribute money to Wall Street.)
Posted by: skeptonomist | January 29, 2009 9:46 AM
I thought that tax cut was struck?
Posted by: anonymous | January 29, 2009 12:45 PM
You give the impression that the federal government has somehow come up with money to give to the states. But they didn't. They are just as broke as the states. All they are doing is borrowing money and printing it up, then giving it to the states, who in the end will have to pay it back (their taxpayers that is) plus massive amounts of interest, about as much as the original principal. There's no "economic policy" happening here, just a huge shell game, a circle/cycle of blank checks going back and forth, passing the buck to the next generations, and all based on the at-best tenuous assumption that American consumption will, within a couple of years, return to the levels of the past couple of decades, which it won't. I'm all for investment for infrastructure and other needs, but this bill is one of the most irresponsible bill Congress has ever passed. They claim they need to ram it through without any hearings, because there's a "crisis", but I think most of us can figure out the real reasons. They don't want anyone to look to close at a $1.7 trillion (including the interest) boondoggle.
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