Stimulus Grades

I'll admit that I clicked onto Ruth Marcus' column grading candidates' stimulus plans specifically expecting to find something I could object to and thus write a feisty blog post about. But actually it seems about right, except that giving Bush "extra credit" for "not insisting on extending his tax cuts, which made no sense as stimulus and would have doomed its chance of passing" seems silly -- you don't extra credit for not screwing up.

Of course the whole stimulus package issue on the campaign trail is a little bit surreal since clearly the situation will be different twelve months from now when any of these people are president. Consequently, I'm not sure how much we really learn from this except for the somewhat disturbing fact that John McCain doesn't appear to know what a "stimulus package" even is or how to ask someone on his staff to explain the idea to him. There's a certain artificiality to the whole thing in that I assume the Clinton and Obama campaigns each felt pressure to differentiate themselves from each other even though by most accounts there isn't, in fact, any kind of gaping philosophical void between the two of them. Mostly I wish I'd seen something creative like Dean Baker's "green stimulus" concepts thrown in along with the more conventional ideas.

Comments

"Mostly I wish I'd seen something creative like Dean Baker's "green stimulus" concepts thrown in along with the more conventional ideas."

Ummm...

I know we're not supposed to talk about Edwards, but his stimulus plan is heavy on green spending, which Marcus slams him for...

Posted by Petey | January 23, 2008 6:14 PM

"I'll admit that I clicked onto Ruth Marcus' column grading candidates' stimulus plans specifically expecting to find something I could object to and thus write a feisty blog post about. But actually it seems about right"

So if I understand you correctly here, Matthew, you like Marcus' column because she grades Obama the highest, even though Marcus slams the very proposal you say you'd like to see enacted.

Posted by Petey | January 23, 2008 6:19 PM

Marcus:

John Edwards: B-minus. Edwards gets points for handing in his paper early -- in December, he issued a $25 billion stimulus proposal (plus $75 billion more if needed), including important help to states to avoid cutting Medicaid rolls. But like Hillary Clinton (see below), he would spend too much money on programs -- investing in "green collar" jobs, for instance -- with too long a lag time to make them an effective stimulus. Edwards's grade goes down because he also hasn't explained how the $75 billion would be spent.

Baker:

There's nothing better than getting something for free. Apparently, that is what the Congressional Budget Office (CBO) says that we can do with green stimulus.

The basic story is simple. Suppose that we had a generous tax credit (30-40 percent) for homeowners and businesses who increased insulation, installed energy efficient windows or other energy conservation measures.

Suppose we also set up a pot of money for transit agencies that reduce fares for riders. The federal government meets their fare reductions dollar for dollar. This is effectively a tax credit for people who take mass transit.

CBO says these policies won't cost the federal government anything.

C'mon now, Petey. Marcus' criticism about time frame is fair, even if green collar jobs are good. And Baker's talking about completely different stuff. You're better than this.

Posted by southpaw | January 23, 2008 6:28 PM

Thanks so much for linking to the Baker article. Though I am not economist, at least it is worth testing. The campaigns are so caught up in locking horns that they aren't taking the opportunity to use their platform to push new ideas. It may never make it into the current stimulus plan but it lays a foundation for more general support for these ideas. Letting people ride the bus or the commuter rail for free would get ridership up, increase the number of stakeholders, push the governments to improve the system; it would also save the riders on car wear and tear and gas and insurance costs associated with the daily collisions. Giving people jobs by allowing people a big break on putting in those new windows that they have been putting off, and now would have put off indefinitely, or hiring a contractor to put in insulation, or to wrap pipes, or to install a tankless HWH so they can save on energy costs--all good ideas because they are win win. Manufacturers increase their sales, installers hire and train more people, homeowners save on energy costs, and when the economy does come back it comes back greener, rejuvenated and more energy efficient, and increases out energy independence. But I don't understand how any of this jumpstarts the economy in the short term. They are good long term plans mid term. Thanks for noting it.

Posted by JC | January 23, 2008 6:42 PM

Exactly southpaw,

In fact, Obama already included provisions for green collar jobs in his energy plan, but didn't include them in his stimulus plan for this reason.

Baker's idea has nothing to do with green collar jobs. And unlike that idea, it could be an effective part of a stimulus plan for the reasons he explains in his post.

Posted by Mike | January 23, 2008 6:44 PM

"C'mon now, Petey. Marcus' criticism about time frame is fair"

Marcus is in favor of tax cuts as stimulus. Given who Marcus is, this shouldn't be a surprise.

And given the campaign Obama is running, it shouldn't come as a surprise that Marcus would grade him the highest. If you run to appeal to Marcus, Russert, and Broder, it shouldn't be a big surprise if you gain their support.

Spending money on green enterprises, as Edwards proposes, would obviously act as an economic stimulus. But if you subscribe to Ruth Marcus' economic thinking, spending isn't an economic stimulus - only tax cuts are.

"You're better than this."

And you're better than someone who sides with Ruth Marcus on economics, aren't you?

Posted by Petey | January 23, 2008 6:51 PM

Unless the candidates that are currently Senators are pushing their plans now - who cares? Everything I read says for any package to work it needs to be going yesterday not tomorrow and defintely not next year.

In this article on Senator Wyden's call to use stimulus to "fix the country's roads and bridges at the same time" - the Congressional Budget Office states that these types of projects would take too long to be effective as stimulus:

At Tuesday's hearing, Peter Orszag, director of the Congressional Budget Office, told Wyden that infrastructure projects don't have an immediate impact on the economy because it takes awhile to distribute and spend money on them.

But Wyden suggested that Congress seek projects, such as road resurfacing, that don't have long lag times.

Orszag agreed that road resurfacing is "perhaps the one example of infrastructure spending that actually would spend out relatively rapidly."

So who cares what the candidates are saying - what are they actually doing NOW?

Posted by Tiparillo | January 23, 2008 6:57 PM

"Unless the candidates that are currently Senators are pushing their plans now - who cares?"

Given that seeing how the candidates react to new challenges during the campaign is a pretty good guide to seeing how they'll react to new challenges as President, I'd say all Democrats should care.

So how do the candidates react to the weakening economy?

Edwards recognizes the problem first, comes out with a progressive plan that accomplishes a secondary lefty goal of increasing green spending.

Clinton comes out with a standard Democratic package, albeit with fuzzy numbers.

Obama comes out with a tax cut package designed to please the WaPo and other Beltway conservative centrists.

That's pretty much the campaign in a nutshell, ain't it?

Posted by Petey | January 23, 2008 7:08 PM

Petey: "But if you subscribe to Ruth Marcus' economic thinking, spending isn't an economic stimulus - only tax cuts are."

Marcus: "One demerit: Obama omits any increase in food stamp benefits, which Moody's estimates would have the greatest bang for the buck, $1.73 for every dollar spent."

Posted by Led | January 23, 2008 7:10 PM

Fair enough, Led. I will rephrase:

But if you subscribe to Barack Obama's economic thinking, spending isn't an economic stimulus - only tax cuts are.

Posted by Petey | January 23, 2008 7:14 PM

And you're better than someone who sides with Ruth Marcus on economics, aren't you?

Gosh, I hope so.

But in this case, as I understand it, it's Baker and Yglesias who like the idea of tax credits and fare reductions (i.e. reasonably progressive tax cuts) as an engine of stimulus.

Edwards has a proposal for investing in green collar jobs, and Marcus criticizes it as too slow to have a stimulant effect. (That strikes me as a plausible, perfectly fair criticism, though I can't say I know enough to decide the question.)

What I do know is that this simply isn't true:

"Marcus slams the very proposal [Edwards'] you [Yglesias] say you'd like to see enacted"

Yglesias wants Baker's tax credits, not Edwards' green jobs.

Posted by southpaw | January 23, 2008 7:19 PM

It should go without saying, but in a sane world a "stimulus package" should actually be designed to stimulate the economy in the immediate short term, not to advance other political goals. That is competence and pragmatism. Using an economic slowdown as a pretense to accomplish other goals unrelated to a short term stimulus is what the Bush administration did with the income tax cut.

Posted by Led | January 23, 2008 7:19 PM

Matt: "...you don't extra credit for not screwing up."

When you're grading on the Bush Curve, the rules change.

Posted by MattM | January 23, 2008 7:30 PM

Petey's got a point.

Marcus is right, Baker is wrong, and Ygles doesn't know what he's talking about.

Gotta love Baker's excuse for calling policies that aren't stimulus stimulus:

Its argument is that these policies are not stimulus because they take too long to implement. We can't know whether this is true or not in advance. (How long does it take desperate building contractors to find people who will take advantage of this tax credit?)

Given that re-pricing normally occurs in the 6-12 month range, aggregate demand stimulus relies on price stickiness to work (absent stickiness, you just get inflation), the credit crunch in the housing market makes new construction less likely than normal, construction generally is easier during the warmer months, people tend to do things for tax credits later in the year to get the most bang for their buck, and tax credits are most often utilized by the relatively wealthy who consume less of a marginal dollar, I think the answer is long enough that it's going to be useless as stimulus.

If the best argument you can muster is the generic arugment against postive knowledge of future events, you may be wrong.

Posted by MattXIV | January 23, 2008 7:32 PM

But if you subscribe to Barack Obama's economic thinking, spending isn't an economic stimulus - only tax cuts are.

Actually, $40 million of his $75 million stimulus package is for direct spending. Read about it by clicking my name.

Posted by Led | January 23, 2008 7:33 PM

"It should go without saying, but in a sane world a "stimulus package" should actually be designed to stimulate the economy in the immediate short term, not to advance other political goals."

But, of course, the government can stimulate the economy in a multitude of different ways. Spending and tax cuts both stimulate the economy. You could have the government deficit fund the building of hundreds of thousands of gigantic titanium statues of leopards across America, and it would stimulate the economy.

Bush and Obama want to stimulate the economy by cutting taxes. Edwards wants to stimulate the economy by creating green jobs.

Which of those options you prefers depends entirely on your "other political goals". They'll both add stimulus.

Posted by Petey | January 23, 2008 7:36 PM

Petey: You might want to actually, um, read about stuff before offering your opinion. It might save you some embarrassment.

Posted by Led | January 23, 2008 7:46 PM

Petey,

The problem is that tax credits (which is just another way of saying that we cut everybody a check) is much, much more efficient as a stimulus than if the flow of money is restriced to a small group of people in a few sectors.

Food stamps are a good analogy here. They are a worthy and important federal program, but it would be foolish to try to use them to stimulate the economy.

If green jobs are a useful way to spend the government's money, then they should be implemented as a permanent program, not as a stopgap for the next six months.

Posted by heedless | January 23, 2008 7:48 PM

Two further points.

One: that should be "tax credits ( ... ) are

Two: I'm not really a fan of green jobs or of stimulus packages. I buy into the permanent income hypothesis, so I expect the response to any stimulus to be pretty minimal. I think that my point stands though, despite my personal biases.

Posted by heedless | January 23, 2008 7:51 PM

Hate to say it guys...

but I think the real issue is the banking system (liquidity), not a recession (demand).

So...I'd prefer to see the banks offered a $145mn bailout...

...SUBJECT TO MANDATORY NEW EXECUTIVE CONTRACTS IN THE FINANCE INDUSTRY...

whereby all financial institutions have have a lien on executives assets acquired with (say) over $100k annual pay, bonus, stock...

... because the problem is not capitalism or captialists, per se (as some have suggeted)...

the problem is that executive contracts only reward, and do not directly grab-back rewards that time shows to have been backed by imprudent business.

Having worked in risk management; it ain't fun nor pretty.

Sales guys and deal doers will only begin to put the shareholders interests first when their pay is aligned...when their causing shareholder losses involves forfeiting prior earned assets.

A broad new contract structure is imperative to end moral hazard.

Posted by Dwight | January 23, 2008 8:08 PM

"Food stamps are a good analogy here. They are a worthy and important federal program, but it would be foolish to try to use them to stimulate the economy."

Even Ruth Marcus is to your left here, heedless. Impressive.

-----

As stated, stimulus can come from tax cuts or from increased spending. The tax cuts you ideologically prefer are no better stimulus than building hundreds of thousands of gigantic titanium statues of leopards would be.

Going to war with Iran would provide economic stimulus.

While you certainly have to pay attention to economic micro-issues like the multiplier effect, at the end of the day, how you address stimulus comes down to your broader political aims.

You're not a fan of spending to create non-fossil fuel energy sources, so you don't like having that included in a stimulus package. I stand on the opposite side of the fence from you.

Posted by Petey | January 23, 2008 8:13 PM

The tax cuts you ideologically prefer are no better stimulus than building hundreds of thousands of gigantic titanium statues of leopards would be.

We all pay taxes, Petey.

Very few of us construct gigantic titanium statues of leopards.

It stands to reason that tax cuts would reach our collective wallets faster than pumping money into leopard statuary would.

Posted by southpaw | January 23, 2008 8:20 PM

George Soros is predicting the worst recession in 50 years, and we're talking "stimulus packages"?

It is to laugh.

Posted by Richard Steven Hack | January 23, 2008 8:26 PM

"It stands to reason that tax cuts would reach our collective wallets faster than pumping money into leopard statuary would."

Not if you're familiar with economics, it doesn't.

Creating all those jobs smelting titanium and building and transporting the leopard statuary could very well pump more activity into the economy more quickly than giving rich folks tax cuts that they'll be more likely to save than spend.

We all understand the Reagan talking points that tax cuts are the best solution to any posed problem, but that doesn't make them true.

Posted by Petey | January 23, 2008 8:28 PM

"Very few of us construct gigantic titanium statues of leopards."

Very few of us construct tanks and bombers, but it was armaments spending that finally stimulated the US economy out of the Great Depression.

Posted by Petey | January 23, 2008 8:31 PM

"Going to war with Iran would provide economic stimulus."

This has to be the stupidest comment posted on this blog yet (even not excluding Matt).

You go to war with Iran, the oil price spikes to $200/barrel. On top of that, China, pissed at being cut off from Iranian oil and gas, dumps the US dollar, which drops the US economy into a depression.

Christ, what a moron.

Not to mention the overall economic effect of US defense spending, which is simply obscene. Read Chalmers Johnson's article on it here:

How to Sink America
http://www.antiwar.com/engelhardt/?articleid=12248

Money quotes:

"A more telling comparison that reveals just how much worse we're doing can be found among the "current accounts" of various nations. The current account measures the net trade surplus or deficit of a country plus cross-border payments of interest, royalties, dividends, capital gains, foreign aid, and other income. For example, in order for Japan to manufacture anything, it must import all required raw materials. Even after this incredible expense is met, it still has an $88 billion per year trade surplus with the United States and enjoys the world's second highest current account balance. (China is number one.) The United States, by contrast, is number 163 – dead last on the list, worse than countries like Australia and the United Kingdom that also have large trade deficits. Its 2006 current account deficit was $811.5 billion; second worst was Spain at $106.4 billion. This is what is unsustainable.

It's not just that our tastes for foreign goods, including imported oil, vastly exceed our ability to pay for them. We are financing them through massive borrowing. On Nov. 7, 2007, the U.S. Treasury announced that the national debt had breached $9 trillion for the first time ever. This was just five weeks after Congress raised the so-called debt ceiling to $9.815 trillion. If you begin in 1789, at the moment the Constitution became the supreme law of the land, the debt accumulated by the federal government did not top $1 trillion until 1981. When George Bush became president in January 2001, it stood at approximately $5.7 trillion. Since then, it has increased by 45 percent. This huge debt can be largely explained by our defense expenditures in comparison with the rest of the world.

On May 1, 2007, the Center for Economic and Policy Research of Washington, D.C., released a study prepared by the global forecasting company Global Insight on the long-term economic impact of increased military spending. Guided by economist Dean Baker, this research showed that, after an initial demand stimulus, by about the sixth year the effect of increased military spending turns negative. Needless to say, the U.S. economy has had to cope with growing defense spending for more than 60 years. He found that, after 10 years of higher defense spending, there would be 464,000 fewer jobs than in a baseline scenario that involved lower defense spending.

In an important exegesis on Melman's relevance to the current American economic situation, Thomas Woods writes:

"According to the U.S. Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation's plant and equipment, and infrastructure, at just over $7.29 trillion. In other words, the amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock."

The fact that we did not modernize or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated. "

Posted by Richard Steven Hack | January 23, 2008 8:34 PM

Creating all those jobs smelting titanium and building and transporting the leopard statuary could very well pump more activity into the economy more quickly than giving rich folks tax cuts that they'll be more likely to save than spend.

Foofaraw. How quickly do you really think a massive leopard statue industry could get off the ground? Fast enough to forestall a recession?

Titanium, not being found as an oxide ore, does not require smelting. And we're not talking about tax cuts to rich people but rather subsidies and tax credits for fare reductions on public transportation and the construction of more energy efficient homes.

Posted by southpaw | January 23, 2008 8:35 PM

"Titanium, not being found as an oxide ore, does not require smelting."

I stand corrected. However, I still think titanium leopard statuary would be cool.

"And we're not talking about tax cuts to rich people but rather subsidies and tax credits for fare reductions on public transportation and the construction of more energy efficient homes."

Too bad Obama's not talking about anything like that.

And I still prefer Edwards green stimulus plan to Baker's green stimulus plan.

Posted by Petey | January 23, 2008 8:38 PM

"How quickly do you really think a massive leopard statue industry could get off the ground? Fast enough to forestall a recession?"

Think about how quickly we ramped up military spending after 9/11.

We could easily ramp up spending on non-fossil fuel development quite quickly. And the multiplier effect throughout the rest of the economy of that type of spending tends to kick in quite quickly as well.

Posted by Petey | January 23, 2008 8:44 PM

Have to agree with the Petey. One goal of a stimulus bill is to inject cash into the economy, which any spending will do, and which monetary policy does as well. (Technically you want spending with the least lag and the highest multiplier, but I think the empirical estimates of the multiplier are somewhat overrated, at least for tax-cuts/benefits which go to non-rich people).

But another goal, equally important, is to make sure that in general the people most hurt by the recession get the most benefit from the stimulus. This is very, very important, and here Marcus gets a D+. She mentions food stamps, but there's nothing about unemployment benefits, aid to state and local governments (which have programs very important for some people), or a housing crisis fund.

There's also the relatively less important goal of doing the least damage to the government's long-run balance sheet. This is why you want some of the stimulus to consist of infrastructure projects which you would eventually have to do anyway. If the stimulus is going to soak up a certain amount of government spending, ideally you'd want it to be money as well spent as possible.

There's also the theoretical point that, just as you want to buy low and sell high, you want more public infrastructure built/developed during a slump, when it's less likely to crowd out private sector investment.

To see what Ruth Marcus didn't address, read Joe Stiglitz's op-ed in the NYT.

If the best stimulus plan can't get passed because the GOP will block it, then we should pass a second-best, "morally-neutral, apolitical" stimulus bill (i.e. almost entirely tax cuts). But there's no reason to pretend that a morally-neutral, apolitical stimulus bill is in fact better on the merits.

Posted by roublen | January 23, 2008 9:13 PM

Have to agree with the Petey.

I'll defer to roublen and The Petey on the question of spending vs. tax cuts. Send me one of those statues when you get it done.

Posted by southpaw | January 23, 2008 9:44 PM

Clearly, if I can't even format my posts properly, I shouldn't be trusted to stimulate the economy.

Posted by southpaw | January 23, 2008 9:50 PM

"Send me one of those statues when you get it done."

If we were to build a 12 foot tall titanium leopard on every street corner in the country, it'd provide a helluva lot of economic stimulus, and you'd be able to admire one at your leisure.

But the more I think about it, the more I think that non-fossil fuel development might end up providing more benefit to society.

Posted by Petey | January 23, 2008 9:58 PM

Um, why would one care about Marcus' view about economic stimulus plans. She's just a porcine, aged version of McArdle... without the 2X4's.

Posted by SavageView | January 23, 2008 10:17 PM

In this article on Senator Wyden's call to use stimulus to "fix the country's roads and bridges at the same time" - the Congressional Budget Office states that these types of projects would take too long to be effective as stimulus

Gov Ed Rendell also dearly wants the money invested in repairing America's decrepit infrastructure. Nothing offers better bang for the buck outside incentives for companies to boost capital spending and grow. The infrastructure projects create huge numbers of well-paying, skilled jobs, offer a massive economic multiplier number (how many times dollars spent on, say, a bridge get reused locally) - and a lasting investment for the future that continues to pay off in effeciencies they provide to workers and employers. (I commute to work on a highway, over several bridges, to work in a building all built within 2 years in the Great Depression).

A far more efficient use of stimulus money than tax cuts for individuals who can then blow it on CHinese-made stuff with no future benefit to society in productivity gains, and no local economic multiplier as the money is split between China, a few dozen wealthy import firms, and the store the happy guy gets all his Chinastuff from.

The problem, and this is something Romney, the CBO, and others that know economics have stated - is that modern laws - especially environmental and "community involvement" and subsequent lawsuits - can block infrastructure jobs for decades, so now most politicians believe it is impossible to get stimulus with infrastructure upgrade, repair funds that will sit unused while lawyers argue months and years and decades about the project being blocked.

Every dangerous, structurally deficient bridge, tunnel, airport in the country could be fixed, and broadband laid to every town above 2,000 in population - for a 175 billion stimulus mostly likely now to go into a rathole of household luxuries or for more fun China-goods. All it would take is for Congress to say Fed Environmental laws are suspended as long as the project is approved by EPA, insofar as decade-long court challenges by NIMBYs go. And that the money will go to States that suspend their own "stall all public works" laws by action of State Legislature and Executive agreeing that a safety issue exists and with the State in near-depression, local blocking laws are suspended and money will go for works projects that will hire, spend the money, and complete work within 3 years with only worker safety laws and strict construction code enforced and only use local firms and American citizens...

For now though, the people that know the economy say that the laws remove infrastructure work as a stimulus possibility.
the country could be

Posted by chris ford | January 23, 2008 10:26 PM

But another goal, equally important, is to make sure that in general the people most hurt by the recession get the most benefit from the stimulus. This is very, very important, and here Marcus gets a D+. She mentions food stamps, but there's nothing about unemployment benefits, aid to state and local governments (which have programs very important for some people), or a housing crisis fund.

It's worth noting that the Obama plan would dedicate $30 of the $40 million in spending precisely to the 3 things you mention. It's possible (although doubtful) that Marcus implicitly considered that in grading Obama's plan.

Posted by Led | January 23, 2008 10:45 PM

>-- you don't extra credit for not screwing up.

MattM's take (super) is correct, but I prefer to remember David Cross' comment years ago, something like,

Why do we treat Bush like he came in third at the Special Olympics?: "You did good, no more tears...,".

(My apologies for the association of regular cripples with a moral cripple; if Bush's conscience were his corpus he'd be a total-body amputee.)

Posted by Dabney Braggart | January 24, 2008 9:36 AM

Petey: Even Ruth Marcus is to your left here, heedless. Impressive.

On this issue, she probably is. On the other hand, I'd support to making the tax credit steeply progressive, say giving most of it to people below the poverty line. My objection to green jobs or a yacht subsidy, or to your giant titanium leopards for that matter, is the same: if you restrict the manner in which the stimulus can be spent, you reduce the multiplier effect.

Posted by heedless | January 24, 2008 10:01 AM

I think Marcus has a serious case of the soft bigotry of low expectations.

Posted by Anonymous | January 24, 2008 11:10 AM