"Spendulus," and Other Rants

I'm going to start and finish nice today.

First - brace yourselves - I'm going to give Nancy Pelosi a free pass on something she said.

Yesterday, she reportedly slipped up when discussing the massive deficit spending bill (let's just start calling it the MDSB, for short), when she said that the US economy is losing 500 million jobs a month.

Now, I'm not for one minute suggesting that there isn't a fairly strong likelihood that the Speaker doesn't have a clue what she's talking about when she weighs in on matters economic. But I'm inclined to give her a pass on her order-of-magnitude error.

See, in Washington, trillion is the new billion, billion is the new million, million is the new thousand. Rep. Pelosi is likely so caught up in the conversion that such an error is understandable.

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On to the MDSB. A Wall Street Journal piece dated January 28 found a number of items in the bill that just don't seem to have much stimulative impact. To wit:

-$1 billion for Amtrak, "the federal railroad that hasn't turned a profit in 40 years." Maybe they need to upgrade the Acera Express train that carries Vice President Biden from his Delaware home to the capitol.
-$50 million "for that great engine of job creation, the National Endowment for the Arts." Though with my daughter entering college next fall to major in Commercial Art, hey, if it improves her job outlook, I'm all for it - though by its very nature, "commercial" art is more likely to create job opportunities anyway, even without spending millions on the NEA.
-$650 million more to pay for digital TV conversion coupons. Maybe if enough TV screens went blank in this company, the couch taters would go out and do something productive for the economy.
-$6 billion on mass transit. Now, I've heard arguments that this will reduce commuting costs and thereby put more cash in households' pockets, cash they can go out and spend buying more stuff they don't need, thus stimulating the economy and creating jobs making said stuff. Yeah, in China maybe. That's falling back on the old thinking that got us into this mess, that spending is the engine of growth. Plus, the WSJ writer notes that "most urban transit systems are so badly managed that their fares cover less than half of their costs. Howerver, the people who operate these systems belong to public-employee unions that are campaign contributors to ... guess which party?" But I suppose we're to believe that if we throw a huge pile of cash at them, they'll start operating more efficiently.
-$600 million for the federal government to buy new cars. The Journal notes that Washington "already spends $3 billion a year on its fleet of 600,000 vehicles." Maybe this is a subversive way of giving Detroit enough cash to cover its burn rate for another month or two.
-$7 billion to modernize federal buildings and facilities. Didn't John Thain come under fire for spending a million bucks to "modernize" his office?
-$66 billion for education, but with the stipulation that "no recipient ... shall use such funds to provide financial assistance to students to attend private elementary or secondary schools." So the only teachers that would benefit from the increased spending would be ... you guessed it, union members. Two teachers in Alabama filed suit against the NEA when they uncovered a plot that, in violation of union rules, was diverting members' dues into the NEA's PAC, which contributed heavily to the Obama campaign.

The WSJ went on to rightly question whether these increases in non-stimulative spending would "become part of the annual 'budget baseline' that Congress uses as the new floor when calculating how much to increase spending the following year." I concur with the writer that it's highly unlikely lawmakers will seek to cut spending on these programs once the economic ship rights (if it ever does, assuming passing of the MDSB).

The writer did identify some things that are much-needed - the kinds of things President Obama has cited when he talks about the urgent necessity of the MDSB:

-$30 billion for infrastructure repairs, like fixing bridges or improving highways. President Obama did use the tragic Minneapolis bridge collapse to his political advantage the other day in selling the MDSB.
-$40 billion for broadband and electric grid development (which my scientifically-minded friends tell me is a good thing), airports (and anything that will make the unfriendly skies more friendly, I'm all for), and clean water projects.
-$20 billion in tax cuts, which truly are stimulative.

Add it all up, and what do you get? About $90 billion of spending on projects that will actually stimulate the economy, though as the Journal piece points out, "Peter Orszag, the President's new budget director, told Congress a year ago, 'even those [public works] that are "on the shelf" generally cannot be undertaken quickly enough to provide timely stimulus to the economy.'"

That's $90 billion, folks - nine-oh. Just 10% of the $900 billion MDSB. But again, trillion is the new billion in Washington. Guess we should just be thankful it's not $90 trillion. Might as well be.

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Speaking of the MDSB's size, remember during the transition when the Obama team was said to be looking at $775 billion, because they wanted $800 billion to a trillion, but they thought there'd be resistance to a number that big? Now, after deliberations by Senate Dems, the original $819 billion proposal has swollen to more than $900 billion. Are we surprised?

The reason the Obama camp wanted $800 billion to a trillion is because a bunch of Chicken Little-esque Keynesian economists told them it would take a package that big to provide meaningful stimulus to the US economy. Never mind that some 300 economists recently signed their names to full-page ads in newspapers across the nation, purchased by the Cato Institute, with the headline, "With all due respect, Mr. President, that is not true," in response to the rookie President's claim that there was "no disagreement" that such massive spending was necessary (it would have been 301 had they asked me, but given that the list included several Nobel laureates, it's weighty enough without little old me on the roster).

So apparently they wanted "a really big number," but they could only find about $90 billion that would really stimulate the economy. So they pumped the sucker full of pork until it hit their range.

Remind you of anything? Like the Treasury's justification for the size of the TARP: "The number's not based on anything, we just wanted to throw out a really big number."

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Another WSJ op-ed piece broke down the targets of the stimulus by industry. Excluding tax cuts, the MDSB - the earlier version that was $825 billion, that is - amounted to $550 billion in spending. Some 39% of that is directed toward state and local governments, where the unemployment rate was just 2.3% in December. Another 17.3% is earmarked for health and education, where unemployment was 3.8%. By comparison, joblessness in manufacturing and construction were 8.3% and 15.2%, respectively.

The support for the MDSB's "stimulus" impact was based largely on calculations made by Washington's new favorite economist, economy.com's Mark Zandi. Astute readers will recall that Mark was the recent topic of a post on this blog, where I referred to him as "Economist Lite - a third less knowledgeable than your regular economist."

That might have been generous on my part.

From the WSJ:

"Mr. Zandi's current estimates have government employment growing by 330,400 over two years as a result of the House bill ... Yet even that updated figure still amounts to only 8.3% of total jobs added, even though state and local governments are to receive 39% of the funds ($214.5 billion). Spending $214.5 billion to create or save 330,400 government jobs implies that taxpayers are being asked to spend $646,214 per job."

Hey, I tried to tell you, Mark's not very adept at number-crunching.

The WSJ goes on:

Simulations with his macroeconomic model, according to Mr. Zandi, reveal that 'every dollar spent on unemployment benefits generates an estimated $1.63 in near-term GDP.' By contrast, such 'multipliers' simulate that tax cuts for business or investors would add only 30-38 cents on the dollar. But econometric models are parables, not facts. The big multipliers for transfer payments and tiny multipliers for capital taxes in Mr. Zandi's model reveal more about the way the model was constructed than about the way the economy works. If model builders make Keynesian assumptions, their model will generate Keynesian results."

So, so true. For the economics-challenged, here's a more real-world explanation of the above, in the form of a question: in the middle of an economic crisis, who's likely to spend more money, thus stimulating demand and creating jobs - people drawing unemployment benefits, or businesses and investors?

Here's a simpler explanation: Mark Zandi is a deficit-loving idiot who finally has Washington's ear, and he's making the most of it. He's certainly stimulating his own bottom line.

But an IMF economist in 2006 noted that "several studies find that reductions in government spending 'can have expansionary effects, since they can contribute to a consumption and investment boom owing to altered expectations regarding future taxation.'"

Translation: if Washington spends a trillion bucks on top of a trillion-dollar deficit, every business and employed individual is going to tighten up the purse strings mightily in preparation for the inevitable massive tax increase.

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Yesterday I praised President Obama's new casual approach to life in the White House. Today, I read something about it that raised my hackles. Granted, he didn't say it, but it reflects an aspect of the man that came under fire during his campaign, after he made the seemingly elitist "bitter people cling to their guns and their God" remark.

A news article discussing the new President's habitual tardiness compared it to that of President Clinton. The article quoted one Presidential historian as saying such disregard for punctuality means one of two things: "Bad organization that can be corrected, or arrogance. It sounds to me like this is arrogance." Okay, but that's just his opinion.

But a former advisor to President Clinton said, "I would make the opposite observation. I would say that taking time to accommodate your schedule to regular citizens is not an act of arrogance. It's an act of humility."

What??!!

President Obama, sir, I sincerely hope this man does not speak for you. Because I would politely remind you that this "regular citizen" pays your salary. You work for me; you may be the President, but I am a shareholder. And I will hold you accountable. So plan on regularly taking the time to tell me what you're doing with my money.

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As promised, I'll finish on a nice note. I found another thing that President Obama is doing that I like: he's expanding the role of the White House Office of Faith-Based Initiatives created by President Bush. I'll reserve further judgment until I find out just what he plans to do with it. But it's a positive move, thus far.