Watered Down Stimulus?

posted by Curt, on February 9, 2009 10:19 am

It's something of a rare day today -- I agree with an opinion piece written by Paul Krugman, our new Nobel Laureate. Well, I partially agree with him, anyway. The piece is called The Destructive Center, and it lambasts centrist Republicans (and Democrats?) who have altered the stimulus bill by taking out some government spending and replacing it (in part) with a $15,000 tax credit for home buyers.

Krugman's focus is one the injustice and ineffectiveness of it all:

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?
A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.
Even if the original Obama plan � around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts � had been enacted, it wouldn�t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.
Yet the centrists did their best to make the plan weaker and worse.
One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.
The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care � cut. Food stamps � cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.
On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the "flip your house to your brother" provision: it will cost a lot of money while doing nothing to help the economy.

My argument, all along, has been against the whole massive stimulus thing. But it does seem to me, that if you are going to up and spend $800 billion to $1 trillion, why in the world are you not doing it on health care or aid to state governments rather than $15,000 home buyer credits (because we really need to give people an incentive to purchase over-valued homes, right)? And, perhaps even more to the point, if you're really committed to going down the "hundreds-of-billions-of-dollars-fiscal-stimulus road," why are you cutting a paltry $80 billion out of the bill? What's $80 billion amid another $800 billion or so? I mean, let's face it, $80 billion is nothing in these days, when the government is fast becoming much more drunk on credit and deficit spending than all but the very most irresponsible citizens were at the peak of the housing boom. Are you one of those people who shakes their head in disbelief when you hear about stories of people with $50,000 of total yearly income purchasing a home for $500,000 on an interest only option ARM? Behold your own government, already broker than broke, leveraging its annual GDP and the future productive capacity of its citizens yet unborn to embark on an ill-conceived massive borrowing binge that will fund nearly every pet project heretofore conceived and much more. Assuming we can pay for it all--but why let that worry us in this time of dire emergency? But I digress . . .

It's nothing more than sheer madness, and it will be exposed (too our harm, unfortunately) soon enough. At least that's my uneducated "I-have-enough-sense-to-recognize-a-You're-the-Guaranteed-Winner-of-a-Million-Dollars-Just-Send-Back-the-Form-and-Purchase-One-Product-scam-when-I-see-it" opinion.

But, as long as we're committed to going down this crazy road, let's go all the way. The "centrist" Republicans look like idiots when they reaffirm their commitment to massive stimulus while simultaneously crow about shaving $80 billion off of the original bill--especially when they replace a portion of it with a $15,000 home buyer's credit. In the nigh-impossible chance this ridiculous and irresponsible plan ends up working, they'll have made it more ineffective than it would have been. And if it doesn't work, $80 billion won't be the straw that broke the borrowing camel's back.

And for that reason, I think that a watered-down stimulus might be one of the few things worse than the stimulus package itself.

filed in Politics and Economy

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