Republicans Increasingly Critical Of Economic Recovery Plan
W. Post lists Republican complaints about the American Recovery and Reinvestment Plan: “Sen. Arlen Specter (Pa.), who gave Vice President Biden a 17-page list of spending requests, said he opposes the proposed increase in funding for Pell Grants for college students because it would do little to spur short-term economic growth. House Minority Leader John A. Boehner (Ohio) said the plan lacks enough “fast-acting tax relief,” such as a temporary halt to payroll taxes and more relief for businesses. Sen. John Thune (S.D.) said the nearly $1 trillion price tag would add too much to a federal deficit that is already predicted to top $1.2 trillion for 2009 … Sen. Charles E. Grassley (Iowa), the ranking Republican on the finance panel, said he could “buy into 90 percent” of the emerging plan but opposes the nearly $90 billion in aid to states for Medicaid because some governors would use the money to mask poor decisions in other portions of their budgets.”
Dean Baker corrects Specter on Pell grants: “The grants, which help to pay for college for people with low and moderate income families, actually would provide stimulus in roughly the same way as tax cuts to these families would. They provide them with more disposable income, which is likely to lead them to spend more.”
Former McCain econ adviser Mark Zandi previously debunked Grassley’s state government claim: ““Additional federal aid to state governments will fund existing payrolls and programs, providing a relatively quick economic boost [as they] quickly pass the money on to workers, vendors and program beneficiaries. Arguments that state governments should be forced to cut spending because they have grown bloated and irresponsible are strained, at best. State government spending and employment are no larger today as a share of total economic activity and employment than they were three decades ago.”
Also, Stateline today: “State leaders struggle with tough cuts”
Congressional Dems are not phased in W. Post piece: “‘Yes, we wrote the bill. Yes, we won the election,’ House Speaker Nancy Pelosi (D-Calif.) told reporters yesterday … ‘If it’s passed with 63 votes or 73 votes, history won’t remember it,’ [Sen. Dick] Durbin said.”
TPMCafe’s Dean Baker rips selective leaking of the CBO report to undermine economic recovery plans: “First … The Congressional Budget Office projects a year-round average unemployment rate of 9.0 percent for 2010 … If the CBO baseline projection is accurate, then we should be glad that the stimulus package will sustain spending into the 2011 fiscal year. The economy will still badly need it. The second issue to keep in mind is that if these are projects that are otherwise valuable, then the portion that does take place when the economy is in a depressed state is in effect free. At the moment, the economy’s problem is too little demand. If the government spends less money right now it doesn’t mean that more resources go to investment, exports or some other use. It means that more people go unemployed.”
Meanwhile conservatives continue to try to make hay of the CBO report, including perennially silly, whiplash-inducing David Brooks, who lambastes the House proposal after praising Obama’s similar package to the skies two weeks ago.
Debate Over Shape Of Econ Package Continues
Economist’s View’s Mark Thoma responds to the conservative “tax cuts only” argument: “just as there’s a limit to the number of public sector projects that are shovel ready, there’s also a limit to the number of private sector projects that are ready to go (though the planning stage does involve some spending, just not as much as when the public or private sector investment projects are going full throttle). There’s also a question about how strong the reaction will be to a tax credit when the economic outlook is so gloomy, a question that doesn’t arise when government is making the investments.”
Conservative pollster Frank Luntz finds deep support for infrastructure investment: “This isn’t “soft” support for infrastructure either. It stretches from Maine to Montana, from California to Connecticut. Democrats (87%) and Republicans (74%) are prepared to, in Barack Obama’s words, put skin in the game, which tells you just how wide and deep the support is. And Americans understand that infrastructure is not just roads, bridges and rails. In fact, they rated fixing energy facilities as their highest priority. Roads and highways scored second, and clean-water treatment facilities third. But there’s more: Accountability. The poll found that Americans are far less interested in doing projects quickly than in doing them right.”
Health Access California’s Anthony Wright praises healthcare components in The Treatment: “The U.S. House Ways and Means Committee has put out legislative language for their version of an economic stimulus. As expected, the health components include increased Medicaid matching funds for states, subsidies to help the unemployed pick up COBRA coverage, and investment in health information technology. All of these are appropriate given the economic crisis: They will provide help and coverage to people losing insurance because of the recession and they will quickly increase government spending to stimulate the economy. But what makes the provisions particularly promising is that they represent a ‘first round’ of health reform.”
The Next Right’s Amy Menefee tries to spin, “the insanity of spending more (taxpayer) money where we’re supposed to be reducing costs in health care,” failing to understand investment in technology that cuts costs over time.
Earth2Tech notes “The Obama administration’s $825 billion economic recovery package, nicknamed the “Green New Deal,” is packed with references to doubling renewable energy generation, funding public transportation and energy-efficiency projects, and investing in clean water and environmental restoration.”
And Climate Progress reports: “House Ways & Means embraces refundable renewable tax credits … Refundable tax credits are not the sole answer to the problem of financing and launching capital-intensive projects in a credit crunch, but they are a big piece of the puzzle.”
But relative lack of transit funding continues to be a concern. Smart Growth America’s Will Schroeer makes the case in Reality-Based Community: “transit can often act as a faster stimulus than roads. Transit ridership around the country has continued to rise despite moderating gas prices, yet transit agencies from coast to coast are announcing doomsday budgets of service cuts and fare hikes. The most shovel-ready project in the country is simply stopping those cuts and hikes.”
If you’re looking to cut government spending somewhere, private contracts look like a good bet. W. Post reports: “federal contractors are quickly getting obese at taxpayers’ expense. Uncle Sam spent ‘an astounding $532 billion last (fiscal) year, shattering the previous year’s record of $465 billion’ on contracts, Sen. Joseph I. Lieberman (I-Conn.) … said yesterday. He called federal contracting ‘a black hole for taxpayer dollars’ as he released the Government Accountability Office’s latest ‘high-risk’ report on Capitol Hill. This biennial update covers programs and policies that the agency says ‘are at high risk for waste, fraud, abuse and mismanagement or those in need of significant transformation.’”
Will new White House Challenge China on Currency?
Economist’s View’s Tim Duy seeks to put in broad context Treasury nominee Timothy F. Geithner’s blunt remarks about China “manipulating” its currency.
Taken together, these bits and pieces imply the Obama Administration is attempting to thread a very tight needle: Provide enough stimulus to keep unemployment from soaring well into the double digits while taking long term concerns about the national debt seriously. This would account for what many believe to be a relatively tepid and insufficient stimulus package. Presumably, they want to avoid “long tails” for policy that extends stimulus related deficit spending into the time horizons when the US Treasury will be forced to float publicly traded debt to fund entitlement obligations. Silly as it may seem given the recent runaway demand for Treasuries, the incoming officials may be greatly concerned about the sustainability of that trend.
At the same time, they want to lessen dependence on China, which requires that Chinese policymakers stimulate domestic demand to a sufficient extent to allow for China to ease purchases of Treasuries and allow the Yuan to appreciate in a nondisruptive fashion.
Seems like a steep expectation for the export-dependent Chinese, you are now faced with faltering growth rates. If the Chinese don’t cooperate, a portion of any US stimulus is lost to higher imports – always remember that the US doesn’t have much excess productive capacity in tradable goods. The excess capacity exists in China. And Congress would be less than happy to see US tax dollars supporting Chinese jobs.
And, as if that wasn’t enough, the Fed would have to cooperate, and allow US rates to rise to encourage private investors to purchase debt as Chinese purchases ease. That, however, would raise borrowing costs to consumers (who are not in a position to acquire more debt anyway) as well as mortgage rates (which are bouncing upwards).
Would Bernanke & Co. be willing to allow rates to rise, even on the long end, given recent avowals to support consumer spending and housing markets at virtually any cost? Tough to see…especially if unemployment is well into the upper single digits, and given concerns about withdrawing stimulus too early. As it is, I imagine the Fed is already getting nervous that efforts to contain mortgage rates have been less than effective.
Moreover, China is only one player. Geithner & Co. would have to convince European policymakers that it was no in their best interest to take advantage of US and Chinese stimulus to depreciate the Euro. In other words, we need to all rise together or all sink together.
(More Than) TARP Developments
WSJ sees congressional Dem anxious for White House to release new TARP plan: “The White House’s economic team is under pressure from Congress to finalize its financial rescue plan within a week … The team is hammering out a three-pronged approach that focuses on stemming foreclosures, revamping the government’s bailout program and purchasing toxic assets weighing down bank balance sheets and pressuring stock prices. White House spokesman Robert Gibbs said Thursday the plan will be completed ‘shortly.’ The scale of the effort is almost certain to be larger than the $350 billion secured last week through [TARP]. Lawmakers say that means they need a proposal from the White House within days so they can appropriate more money. Congress could do that by either attaching the funds to the economic-stimulus plan already totaling $825 billion, or by approving legislation that expands TARP and includes new restrictions on banks that receive money.”
…this approach harks back to the approach originally taken – but eventually abandoned – by Hank Paulson, the former US Treasury secretary. The proposal suffers from the same shortcomings: the toxic securities are, by definition, hard to value. The introduction of a significant buyer will result, not in price discovery, but in price distortion…
…In my view, an equity injection scheme based on realistic valuations, followed by a cut in minimum capital requirements for banks, would be much more effective in restarting the economy. The downside is that it would require significantly more than $1,000bn of new capital. It would involve a good bank/bad bank solution, where appropriate. That would heavily dilute existing shareholders and risk putting the majority of bank equity into government hands.
The hard choice facing the Obama administration is between partially nationalising the banks, or leaving them in private hands but nationalising their toxic assets. Choosing the first course would inflict great pain on a broad segment of the population – not only on bank shareholders but also on the beneficiaries of pension funds. However, it would clear the air and restart the economy.
Naked Capitalism responds to Soros: “The experience in Sweden and countries that took similar approaches was a sharp fall in GDP that lasted roughly 2 years, but then a strong growth rebound. However, the other test cases took place against a less awful global economic backdrop.”
OurFuture.org’s David Sirota praises House for symbolic vote against second release of TARP funds and “the House’s vote yesterday to attach more strings to the bailout money, and with our work in getting the Senate – through Ohio Sen. Sherrod Brown (D) – to pass a bailout regulation bill, and we’re seeing real progress – or, dare I say, the possibility of real, actual, substantive change.”
Cap-and-trade this year?
Climate Progress analyzes Greenwire article, “Pelosi sees cap-and-trade floor debate this year”: ” I think it would be a mistake to have the House floor debate prematurely since we can almost certainly get a stronger bill next year — but only if the Administration does the necessary foundation-building this year … Pelosi does leave open the possibility of a floor vote at the end of the year … which may be the best compromise, since the House can probably pass a stronger bill than the Senate.”
NYT overhypes Pew poll claiming “Environmental Issues Slide in Poll of Public’s Concerns” which falsely pits environment versus economy. Other polling shows public sees green investment as helping the economy (including Luntz poll mentioned above.)
Can conservative GOPers hold their caucus?
Reality-Based Community’s Mark Kleiman analyzes the vote for the Lily Ledbetter equal pay legislation: “Snowe, Collins, Murkowski, Hutchinson (!) and Specter crossed over to vote for it as well … The cloture vote was even more lopsided, 72-23. If that means that some Republicans will tend to support cloture even while voting against the underlying legislation, we’re in clover.”
New anti-EFCA ad
Marc Ambinder looks at new “business-backed Workforce Fairness Institute” ad: “The ad praises Obama is glowing terms — perhaps too glowing. They contrast his ‘priorities’ with those of ‘Congressional leaders’ and ‘big labor bosses.’ … ‘Payback’ is the phrase they want to resonate … A labor strategist e-mails: ‘If this is going to be their paid media strategy I will dance a jig … these are the exact same words and images they attacked Senate candidates across the country with millions of dollars of ads during the last cycle … Every one of those candidates won.’”
Tougher antitrust enforcement?
WSJ on antitrust developments: “The Obama administration is assembling a new antitrust-enforcement team that is expected to impose stiffer merger-review standards and file more cases against companies that use market dominance to raise prices than was done under the Bush administration. The White House on Thursday nominated Christine Varney, a former Federal Trade Commission member and Internet-law expert, as Justice Department antitrust chief. Jon Leibowitz, a current FTC member, is the leading candidate to head the commission but the decision isn’t final, people briefed on these deliberations said. Both officials are known to favor aggressive enforcement and would mark a change from the Bush administration’s approach.”