The New York Times analysis of the $275 billion in tax cuts in the $820 billion “stimulus” plan isn’t encouraging:
Mr. Obama’s signature tax cut would provide a credit of up to $500 for individuals and $1,000 for couples. It won praise in an analysis by the Tax Policy Center, a nonpartisan research group, because it could be carried out quickly, by reducing the amount of money withheld from paychecks. …
[But] Even some economists who generally support the stimulus think that the main tax proposal would provide limited economic lift.
“People are going to spend 30, 40 cents on the dollar, so the multiplier is going to be low,” said Adam S. Posen, deputy director of the Peterson Institute of International Economics.
Informed action? I have to wonder, did Congress really listen to economists when they put this together? Did Congress, even the Democratic majority of Congress, reach an informed consensus on which government-stimulated activities will have the highest multiplier effect in generating consumer spending and business investment?
There’s this observation on building new highways and housing:
The greatest prospect of delay in spending is on infrastructure. The bill provides $30 billion for highway construction and tens of billions more for other transportation projects, water projects, park renovation, military construction; local housing projects and more.
A Congressional Budget Office analysis found that only 64 percent of the bill’s spending would be completed within 19 months, and spending on construction projects was among the slowest.
2.3% for infrastructure. Weren’t the congressional leaders telling us that a big part of the stimulus was for shovel-ready infrastructure? This $30 billion is just 3.7 percent of the bill, and only 64 percent of it would happen in 19 months? That makes infrastructure just 2.3 percent of the stimulus bill.
Just 2.3 percent for infrastructure? Come on. Is anyone else wondering which of the bill’s projects Congress expects to boost the economy faster than building needed highways and bridges? No one seems to have helpful or hopeful data on how effective the other $515 billion in spending will be.
How about the $20 billion for renovating schools?
[A]lso included are programs that even under the most optimistic timetable will take longer to complete, like $20 billion for school renovations. These would provide little near-term help for the economy.
This is the Democrat-friendly New York Times reporting this.
State bail-outs. The $166 billion to bail out indebted states doesn’t sound exactly stimulating either. That mad cash might just tell the more responsible state legislatures that they’ve been suckers to balance their budgets.
Where’s that list of high multipliers?
Which kinds of tax cuts and which kinds of government projects are most likely to produce private spending and investment that generates more spending and investment in a quickly expanding cycle of growth?
Frivolous fare. Did Congress even bother to ask? Because this $820 billion bill – still not passed by the Senate – has the feel of aimless tax cuts and casual spending on the usual government programs that might have admirable long-term goals, but have nothing to do with stimulating anything in an economic emergency.
Tiny parts of the bill are good, but most of it is spending for luxuries and frivolous favors. It bill feels too much like a bad last bet.
If your nation is deep in debt, and you have one big chance to use more debt to pull out of an economic hole, you have to bet that precious borrowed money on activity that will fill the hole fast with high multipliers of spending and investment.
Party time. To switch metaphors: At a time when we should be fixing the engine and fueling up for a ride, Congress seems to have parked the economic car and borrowed big for a drunken party. Drinks are on the House!
I hope the hangover isn’t too bad.
Frank Warner
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