Tuesday, February 24, 2009

Politics Over Stimulus Bill

This an excellent and concise post I've copied and pasted complete from Betsy's Place.

Robert Samuelson argues that politics and the desire of Democrats to spend money on their policy choices overruled the need to craft a stimulus package that would get the money into the system now and not some time in the future.

Yet, the stimulus package offers only modest relief. Using funds from the stimulus, states might offset 40 percent of their looming deficits, says the CBPP's Nicholas Johnson. The effect on localities would probably be less. Congress might have done more by providing large, temporary block grants to states and localities and letting them decide how to spend the money. Instead, the stimulus provides most funds through specific programs. There's $90 billion more for Medicaid, $12 billion for special education, $2.8 billion for various policing programs. More power is being centralized in Washington.

No one knows the economic effects of all this; estimates vary. But Obama's political strategy stunts the impact from what it might have been. By using the stimulus for unrelated policy goals, spending will be delayed and diluted. There's another downside: "Temporary" spending increases for specific programs, as opposed to block grants, will be harder to undo, worsening the long-term budget outlook.

Politics cannot be removed from the political process. But here, partisan politics ran roughshod over pragmatic economic policy. Token concessions (including the AMT provision) to some Republicans weakened the package. Obama is gambling that his flawed stimulus will seem to work well enough that he'll receive credit for restarting the economy -- and not blamed for engineering a colossal waste.

Whatever state the economy is in come the next election, the Democrats will argue that it would have been much worse if their plan hadn't been passed. The real questions is how it would have been if a better plan had been passed instead. We'll never know, but the comparison isn't this plan versus nothing, but this plan versus a more tightly targeted stimulus package, but the Democrats will pretend that the only other option was doing nothing.

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