RSS Feed MenuThe Obama administration, congressional Democrats and more than a few congressional Republicans are reportedly considering new “stimulus” measures. It’s a bad idea. The additional infrastructure spending that many Democrats want and the payroll tax cuts that the Obama administration has floated (probably with the intention of attracting Republican votes) simply aren’t advisable.
Additional infrastructure spending wouldn’t do anything for several years to come. Despite promises and legal mandates that money from the 2009 stimulus bill go for “shovel ready” projects, even the government’s own statistics show that less than half of the “contracts, grants and loans”–mostly infrastructure projects–created have even been awarded. And much of the money awarded still hasn’t been spent. Insofar as infrastructure spending is an economic stimulus in itself, and economists aren’t conclusive at that point, states have plenty of cash to carry out the infrastructure projects they have. Whatever the merits of additional infrastructure projects—and suburban freeways, freight-rail lines, and the electrical grid all probably could use more investment—the planning lag means that appropriations today simply wouldn’t stimulate the economy even when judged by the models of economists who advocate for such spending.
Payroll tax cuts have a more conservative appeal but, if infrastructure led economic stimulus has disappointed, stimulus via tax cuts and rebates has an even worse record. Most of the funds provided through the 2009 Obama’s stimulus to date has come in the form of tax cuts and rebates while the Bush administration’s last-ditch effort to prevent a recession involved sending most American families a $1,500 check. None of it has worked. Cutting payroll taxes now will only deepen the already grave fiscal problems of Social Security and Medicare. In the long term, systematic reform of the programs could pave the way to lowering the taxes that support them but cutting taxes right now would give the programs even less of the flexibility and room for free market reform.
In short, even if some case exists for another stimulus or “jobs” program—and there’s plenty of reason to be dubious about both—payroll tax cuts and infrastructure spending just aren’t the way to do things.
Oldskool // Sep 3, 2010 at 10:52 am
So, in short, it’s going to take a while to get out of The Great Recession no matter what. In the meantime politicians will ply their trade: politics.
Which is why it’s no surprise the package likely to come out soon is political. With something favorable to (R) Congresscritters on the table, they’ll have hard time voting against it so close to the midterm election. The same way Tom Coburn would have to think long and hard about holding up the veteran care bill close to an election as opposed to his nonchalant opposition earlier this year.
easton // Sep 3, 2010 at 11:02 am
“Additional infrastructure spending wouldn’t do anything for several years to come.”
That is a separate issue if the spending is needed. If you are going to have to fix a bridge, then plan to fix the bridge, don’t say you will wait until it falls down first. They might not stimulate the economy now, but they will in the future. I wish we didn’t call it stimulus anyhow. The Chinese are building subway lines right and left throughout their big cities, they are doing it because it needs to be done.
Additionally, I would love to see 50 new Nuclear power plants be ordered. And a huge host of Wind mill farms, etc. all planned for now. Interest rates are at an all time low, borrow now and get moving on them now. Rome wasn’t built in a day, that was no reason not to start building it.
And putting money into the hands of the Middle class now might not add to the economy, it will prevent it from retracting. Consider how many people can continue to make house payments.
We are in a severe Housing recession. Open up the market to foreign investors. Let rich Chinese who want to invest in the US real estate market do so. Give them visas but stipulate that if they overstay their visas they will lose the house. Millions of rich Chinese would love vacation homes in the states. And yes, there are millions of rich Chinese. They don’t want to move to the states and abandon their businesses.
SkepticalIdealist // Sep 3, 2010 at 11:56 am
I chuckled a little when I read this. I seem to recall David Frum proposing a “Payroll tax holiday” to encourage employers to add on more workers, and now I find this idea being pooh-poohed at none other than…FrumForum.
forgetn // Sep 3, 2010 at 12:02 pm
I though conservatives were for tax cuts — Oh, I get it only cut in income taxes
balconesfault // Sep 3, 2010 at 12:55 pm
Despite promises and legal mandates that money from the 2009 stimulus bill go for “shovel ready” projects, even the government’s own statistics show that less than half of the “contracts, grants and loans”–mostly infrastructure projects–created have even been awarded
While it would be nice to have seen more shovel ready projects funded and putting people to work already … shouldn’t Conservatives be kind of cheering the fact that the Obama Administration seems to have been moving very carefully and programmatically in reviewing and approving applications, rather than simply spreading money around like a lawn sprinkler?
At the very least, if the intention of the Stimulus purse was, as the most extreme right-wingers were claiming from the beginning, just to pump money to Obama’s political supporters – believe me, that would have been a very easy process, and the money could have all been spent months ago.
Instead, what we’ve been seeing seems to be an apolitical, results-oriented, and by-the-books approach to making sure that every dollar being spent can be accounted for.
So why more money? Well, if the inherited recession was like a big boulder starting to roll downhill, the Obama Administration used the original stimulus (along with the GM and Chrysler bailouts) like a barrier just to stop the boulder (the tax cuts and direct funding to state and local governments) … and are using the rest of the money as a lever to incentivize private capital to come into play to help push the boulder back up the hill, rather than trying just to push it with governmental dollars.
What they seem to be saying right now is that they need a longer lever, since private money is still sitting on the fence. Since the barrier is temporary, and won’t last forever, it seems like time to get the boulder moving back up the hill before it’s too late.
sinz54 // Sep 3, 2010 at 3:27 pm
easton: That is a separate issue if the spending is needed. If you are going to have to fix a bridge, then plan to fix the bridge, don’t say you will wait until it falls down first.
Funny you should mention that.
In MA where I live, it took some 15 years of planning just to get the Central Artery highway project (the “Big Dig”) started–and then it took 8 years to build it.
2 years after being funded, MA still hasn’t completed work to upgrade 3 little dinky bridges on Interstate 495. (One bridge is just an overpass over a road; another bridge is just an overpass over a railroad track.) Imagine, three years to construct one overpass over one road.
Liberals need to understand this ain’t the 1930s anymore. You can’t just create a CCC or WPA and put millions of Americans to work building things immediately. There are endless EPA and OSHA applications and forms to fill out, endless public hearings, NIMBY protests, court injunctions, etc. And those don’t stop after the first shovelful of earth is turned; anyone can continue to fight a rearguard action to stop the project at any time up to the ribbon-cutting ceremony. Or the funding can be cut, or the funding can just run out.
And it was liberals who put most of those speed bumps (pun intended) into effect. That was back in the 1970s, when liberals were against economic growth (“growth is the ideology of the cancer cell,” they chanted).
Well, liberals should be happy. America is no longer engaged in lots of “cancerous” economic growth.
Now let’s see if they can sell the Chinese on that bunk.
sinz54 // Sep 3, 2010 at 3:30 pm
SkepticalIdealist: I chuckled a little when I read this. I seem to recall David Frum proposing a “Payroll tax holiday” to encourage employers to add on more workers, and now I find this idea being pooh-poohed at none other than…FrumForum.
Back in 2009, Frum proposed it, I supported it–and all the liberals on this forum denounced it.
Liberals said that tax cuts were not the way to go, “green” jobs were the way to go.
But now Obama is facing the prospect of House Speaker Boehner.
So he threw in this payroll tax holiday as a sop to House Republicans, who might be in the majority this coming January.
They’re not going to buy it.
They’re going to wait until they win the November election–and then they can tell Obama what THEY want.
Rabiner // Sep 3, 2010 at 3:50 pm
Sinz54:
You’re distorting the environmental movement which you obviously dislike. It wasn’t just liberals clamoring for the Clean Water Act and so forth which was signed by Nixon if I recall. It was conservatives too who saw birth defects and the destruction of the environment from DDT and other chemicals being pumped into the environment as problematic.
On a general matter however the most effective stimulus is State aid, unemployment insurance, and small cuts in payroll taxes for the 7.5% owed by employees but not employers. The private sector has continued to add jobs, granted at a slow pace, but the job loses have been in the public sector at the state and local levels. I know many teachers, 24-26 years old, who are now out of work just as they started their career.
Rabiner // Sep 3, 2010 at 4:00 pm
Sinz54:
“Back in 2009, Frum proposed it, I supported it–and all the liberals on this forum denounced it.
Liberals said that tax cuts were not the way to go, “green” jobs were the way to go.”
I’ll speak to my opposition to it. The original stimulus had payroll tax cuts in it so people started to see 10-15$ more per week from their paychecks. It wasn’t large or noticeable but went to people who would spend 100% of their income. Taking that approach to a full ‘holiday’ is not prudent in the long run and in the short run wouldn’t increase employment. Short run tax cuts on payroll taxes wouldn’t induce long term employment like increasing tax cuts for Research and Development would since it that research would theoretically lead to new products produced.
Saving 7.5% on payroll taxes as a business won’t lead it to hiring more people but rather will lead ire to socketing that money away as extra profit. However give it long term certainty of an extension of the R&D tax credit, which I’ve heard as being floated as part of this new stimulus, would be quite welcomed to businesses wanting to invest in R&D.
easton // Sep 3, 2010 at 6:05 pm
Ah yes, the Big Dig. Take one example of government mismanagement and make it representative of the whole process. You also ignored what I wrote about China. When I left there in 2005 they were just about ready to begin on their World Financial Center in Shanghai, and it is done. It was initially delayed, but when given the green light went up pretty quickly. I literally watched Shanghai transform incredibly (in Pudong, in Xujiahui, etc.) in a few short years, and this was just one city.
Now you can say we are doomed, that it is hopeless to make America better, that it ain’t 1932 anymore. Fine, but it ain’t true. If the freaking Chinese can do it, then we sure as hell should be able to. You can surrender, or make it better. I say make the process better.
balconesfault // Sep 3, 2010 at 7:35 pm
Take one example of government mismanagement and make it representative of the whole process.
Well, as a matter of consistency, Sinz always brings up the fight over how long it took the Cape Wind project to get permitted as an example of the impossibility of wind power every generating much power in America … ignoring that over the time period it took Cape Wind to get permitted, the US went from 4,000 MW of wind power generating capacity to 35,000 MW.
It would be like arguing that because of the $63 million boondoggle that was the DuPont DP-2, we should conclude that government should never again fund development of any military aircraft.
vidoqo // Sep 3, 2010 at 11:27 pm
All I know is that when I was laid off in November, my cobra payments were cut by 2/3, allowing me to cover my family with my unemployment, which was extended until August. I was finally hired – for the job I’m qualified to do – last month and the family has survived intact. I don’t know what we would have done without it.
drdredel // Sep 4, 2010 at 5:24 am
Would there be any more talk of any more stimulus if the Republicans weren’t constantly (and very cynically) laying the very slow recover at Obama’s feet? I realize the voting public is generally naive and uninformed, but would it really be THAT suicidal, politically, to just say “There’s nothing we can do to accelerate recovery. Things will just have to take their own time.” And call it a day? Maybe extend unemployment and health care benefits to those who still need it.
Also, wouldn’t now be the time to legalize all drugs (except maybe for crystal meth) and just tax the crap out of them? I’d run out and buy 8 balls for all the neighborhood kids to help stimulate the economy!
dante // Sep 4, 2010 at 9:37 am
Wow, I can’t imagine if we had another stimulus that “failed” as spectacularly as the first one, creating or saving 3.3 million jobs….
http://www.bloomberg.com/news/2010-08-25/obama-s-economic-stimulus-program-created-up-to-3-3-million-jobs-cbo-says.html
That would be a disaster.
parsifal // Sep 4, 2010 at 11:51 am
People are thinking too small. The heck with a fence. What we need is a “Great Wall of China” on our southern borders, complete with towers, and roadways inside so border agents can quickly move from one position to another, or bring in reinforcements. It needs to be about 100 feet thick, at least, of brick and mortar, and about 50 feet high. (Perhaps the measurements can be in cubits???) If it can not be seen from outer space, then it is worthless. Let the Mexicans try to jump that!
No Tea Partier could object, nor Paleocon. Millions of unemployed mortgage brokers, Nike sales clerks, and baristas would find work. Guys with holdings in aggregates like the Kochs(?) would probably go for it. There would have to be temporary housing in the areas, and train lines, and food suppliers. Plenty of work for all. Perhaps GS’s Blankmind could structure an innovative financial instrument based on the number of Mexicans able to sneak into the country in 2020, or something like that.
drdredel // Sep 4, 2010 at 12:35 pm
@parsifal,
And I can sell my coke to the workers to keep them both happier AND more productive!
sinz54 // Sep 5, 2010 at 4:46 pm
balconesfault: shouldn’t Conservatives be kind of cheering the fact that the Obama Administration seems to have been moving very carefully and programmatically in reviewing and approving applications, rather than simply spreading money around like a lawn sprinkler?
The delay isn’t caused just by the time to review applications. It’s caused by all the bureaucratic nightmares involved in any new large engineering projects anymore.
There is such a thing as “truth in advertising.”
For example: The United States must begin to change its energy mix–for a variety of good reasons. You, a liberal, and I, a conservative, agree on that.
And so if Obama demanded an energy bill that included funding for building nuclear power plants and proving the (as yet unproven) scalability of alternative energy, I would be supportive.
JUST DON’T CALL IT “ECONOMIC STIMULUS.”
Because it’s not going to stimulate the economy any time in the next couple of years. The claim that it’s going to start reducing unemployment immediately is a joke.
It now takes a whole lot longer to start building anything, than it did in the 1930s. In the 1930s, we built the Empire State Building in two years. Today, we couldn’t do it in less than five or six years. (The replacement for the World Trade Center, the Freedom Tower, won’t be completed till 2013–that’s 12 years after the 9-11 attack.) The contractual, regulatory, and bureaucratic obstacles erected since the 1930s are just too great.
From Jonathan Alter’s book “The Promise: President Obama, Year One”:
The biggest frustration [of the 2009 stimulus bill] involved infrastructure. Obama said later that he learned that “one of the biggest lies in government is the idea of ’shovel-ready’ projects.” It turned out that only about $20 billion to $40 billion in construction contracts were truly ready to go. The rest were tied up in the endless contracting delays and bureaucratic hassles associated with building anything in America.
Xunzi Washington // Sep 6, 2010 at 12:03 pm
Sinz: ‘The contractual, regulatory, and bureaucratic obstacles erected since the 1930s are just too great.”
Which specific regulations do you think are in the way such that, if we got rid of them, we could once again built 100 story buildings in two years?
I’m all for getting rid of unnecessary regulation, so where do we start?