Economic Recovery Plan Becomes Law Today
The economic stimulus package dramatically ramps up spending for a broad array of social programs for needy Americans in a way not seen since the launch of the Great Society programs. “We are seeing a paradigm shift,” said Paul L. Posner, a former Government Accountability Office official who teaches at George Mason University.
…All of the new spending is temporary, with most of it slated to end after two years. And given the nation’s bleak budgetary outlook, even many supporters of the programs say there will be no option but to roll back the increases once the immediate economic crisis passes.
At the same time, many of the new initiatives dovetail with the policy goals of President Obama and congressional Democrats, who have talked about the need to rebalance the nation’s economy so more benefits flow to middle- and low-income Americans, whose incomes have stagnated. Some analysts think the increases will prove politically difficult to pare back once the initial round of funding expires, and they see the stimulus package as part economic shock treatment, part social policy transformation.
Don’t Stop Now
As Obama moves on to issues such as health care and energy, liberals are debating how to ensure that the stimulus outcome does not define the outer boundaries of his agenda, so that future legislation is not limited, as the stimulus was, by the demands of centrist senators such as Susan Collins (R-Maine), Olympia J. Snowe (R-Maine) and Ben Nelson (D-Neb.)…
…But as many liberals see it, the package is also notable for its omissions. They saw the bill as the launching of a new era of public investment, a sequel to the transformational presidencies of Roosevelt and Ronald Reagan … Obama supporters had envisioned big initiatives to rebuild schools, overhaul aging infrastructure and expand the safety net.
The bill includes just under $50 billion for roads, bridges, transit and rail, less than many mayors and governors had hoped — though the White House did manage to slip in $8 billion for high-speed rail … The final deal dropped a $16 billion school-construction fund in the House version, $11 billion to cover the unemployed in Medicaid, and billions in aid to states.
And as big as it is, the final bill is smaller than what initially passed in the House and Senate, and it falls well short of filling the $2 trillion gap in demand that many economists foresee. With a third of the bill’s cost devoted to tax cuts, the spending is $507 billion.
“The economic stimulus is like CPR for a patient with heart disease, and it will resuscitate the patient if we’re lucky,” said Jacob Hacker, a political scientist at the University of California at Berkeley. “But it won’t provide the cure. What we need is a new New Deal.”
…the gaps and hesitations in this recovery bill should be the first things we repair. To wit:
– make aid to states and localities flexible and open-ended. The goal should be to stop all cuts in public services and layoffs of staff. States and localities should be offered a simple deal: no service cuts and no changes in tax rates. In exchange, the federal government will cover the gap in their revenue for the duration. Alternatively, the federal government could simply offer general revenue sharing on a per capita basis.
– establish and fund a full-fledged National Infrastructure Fund with the capacity to finance and to coordinate public investment projects on an ongoing basis. Congress would therefore largely delegate decisions over the type of local capital investment, including school construction which was cut from the Senate bill for no defensible reason.
– increase Social Security benefits across the board. The purchasing power of the elderly as a group is now gravely eroded by the collapse of stock market values, and the policymaking community needs to realize that the grand experiment in funding retirements via the stock market is ending. For the future we will need more Social Security, not less. And that means that the historic political link between Social Security benefits and the revenues from the payroll tax should be suspended.
– declare a full payroll tax holiday for the duration of the crisis. A holiday has advantages over the credit scheme, as it can be implemented at once for all workers and employers. The holiday could be made subject to a trigger, so that when the economy does begin to recover rapidly, part of the tax can be restored.
– pursue the foreclosure moratorium just announced, establishing the equivalent of a Home Owners Loan Corporation to deal with troubled mortgages, via renegotiation or conversion to rentals. This can be done, largely, through Fannie Mae, Freddie Mac and the Federal Reserve Board, but it will require sufficient staff to inspect and supervise mortgages at the retail level. Apart from this, and the ongoing nationalization of commercial paper markets, there isn’t much more to expect from the Federal Reserve at this point.
Dean Baker urges Obama to protect Social Security for boomers: However, there is one step that President Obama can take to boost the economy without going through Congress: He can reaffirm his support for Social Security and assure the baby boomers nearing retirement that he will not allow their benefits to be cut. If this huge cohort in their late 40s, 50s and early 60s knows that they can count on getting their promised benefits, they will feel more comfortable spending and supporting the economy at a time when it badly needs a boost.”
Digby adds: “If they want to see the baby boomers put their remaining money in the mattress or bury in the back yard instead of prudently investing it, they’d better stop talking about ‘entitlement reform.’ This is a politically savvy generation and they know what that means.”
Here’s Your Bipartisanship
Leaderless after losing the White House, the party is mostly defined by its Congressional wing, which flaunted its anti-spending ideology in opposing the stimulus package. That militancy drew the mockery of late-night television comics, but the praise of conservative talk-show stars and the party faithful.
In the states, meanwhile, many Republican governors are practicing a pragmatic — their Congressional counterparts would say less-principled — conservatism.
…Across the country, from California’s Arnold Schwarzenegger to Florida’s Charlie Crist and New England’s Jim Douglas in Vermont and M. Jodi Rell in Connecticut, Republican governors showed in the stimulus debate that they could be allies with Mr. Obama even as Congressional Republicans spurned him.
Reality-Based Community’s Mark Kleiman: “Barack Obama has engineered a split between the nation’s Republican governors, who have to actually do things, and the party’s irresponsible, ideological Congressional wing. Good work!”
Politico reports House wants more confrontation in Senate: “…after last week’s stimulus votes, Hoyer called on Senate Majority Leader Harry Reid (D-Nev.) to force Senate Republicans to mount actual filibusters if they want to stand in the way of bills ‘so that the American people can see who’s undermining action.’”
OurFuture.org’s Bernie Horn: “the right wingers decided to pursue a strategy that appeals exclusively to their base and abandons independents and other swing voters. This could cripple the ability of conservatives to appeal to mainstream voters in 2010 — if only those voters know what has happened.”
Banking Revamp Still Evolving
…Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.
They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled…
…the chief appeal of the public-private partnership is that it solves the problem of how to price assets. The private money managers who provide capital for the fund would decide which assets to buy, and at what price, taking government bureaucrats out of that difficult task.
Moreover, the private contribution lowers the total amount of money the government would need to put at risk. Also, the government would require private investors to incur any losses before the government does, reducing taxpayers’ exposure to potential losses (but also potentially depriving them of any windfall profits).
But there were multiple complications: How much government financing would be needed? What other incentives would be needed to get private firms on board? Where would the government get the money? What assets would the fund buy? Would the government have a say in which banks they’re bought from? Might there be more than one fund?
Naked Capitalism worries “There are no real stress tests going on.”
McClatchy Newspapers on nationalization prospects: “For now, the administration isn’t talking about bank nationalization. That topic attracted more attention Sunday when South Carolina Republican Sen. Lindsey Graham mentioned the possibility on TV.”
Exec Comp Rules Still In Flux
The White House signalled on Sunday it would seek a deal with Congress on pay controls for bank executives…David Axelrod, senior adviser to the president, said the administration would work with leading legislators on implementing a provision limiting bonuses paid to top executives of government-assisted banks to a third of their salaries…
…Wall Street executives are angry at the provision in the stimulus bill on bonuses, which would also oblige affected payments to be made in stock that cannot be sold until funds from the government are returned in full.
Unlike rules set out by the administration, the provision would apply to past as well as future recipients of government assistance.
Some argue that because the controls in bonuses amount to a substantial pay cut, the provision could have the counterproductive result of increasing base salaries – where they are not affected by the $500,000 limit set out by Mr Obama – or create the risk of losing leading executives from the industry.
I suspect we are going to be distracted by an emerging debate between Congressional Democrats and The White House on how to handle the CEO pay caps written into the economic stimulus bill. This is a distraction because, in all honesty, the pay caps aren’t real…
…Dodd’s amendment did improve on the original Geithner/Treasury Department proposal by extending the cap to more higher-ranking executives, imposing a “clawback” feature (meaning, we can demand a refund on pay given to executives if they lie or misrepresent earnings or revenues–a common occurrence in the age of CEO greed) and instituting a “Say on Pay” or an annual shareholder vote on approval of executive compensation…
…[But] the real money CEOs pocket comes in massive pensions that are quite often much bigger than the sum total of the pay and benefits CEOs earn when they are working … neither Dodd’s proposal nor the Treasury’s proposal address pensions–at all.
The Future of Infrastructure
Rahm Emanuel tells Politico the President insisted on a last-minute funding increase for high-speed rail. “The president wanted to have a signature issue in the bill, his commitment for the future.”
W. Post looks at challenges ahead for the smart electric grid: “Yet the $2 billion in the stimulus package devoted to transmission lines is a tiny part of what’s needed. “I see it as seed money,” said Jon Wellinghoff, acting chairman of the Federal Energy Regulatory Commission. “We need $100 billion to $200 billion worth of investment, and I believe we’ll see that money coming from the private sector,” he said, though current credit conditions make that difficult.”
The $787 billion economic stimulus bill aims to create millions of jobs around “shovel-ready” projects. That’s where Paul Prouty says he can help: He has 500 projects ready to go.
Prouty heads the U.S. General Services Administration, an under-the-radar government agency that owns or leases more than 352 million square feet of space in 8,600 federal buildings in 2,200 cities and towns.
Among other responsibilities, the agency is tasked with cutting costs and emissions in the buildings it controls. The stimulus bill provides GSA with $4.5 billion for energy efficiency…
…Experts say the investment could create up to 130,000 jobs, save the government more than $1 billion in annual energy costs and improve worker productivity.
[Energy Sec. Chu] said straight out that one of his first priorities is to unclog the department’s project pipeline and get companies like Sage Electrochromics the loan guarantees and grants they’ve been tapping their feet for. Fast. But now, all of a sudden, there’s a whole new stack of grants and loan guarantees to shove through, as well. … while officials don’t want to lavish this money on the first shady entrepreneur that strolls along, they also don’t want to get so bogged down in scrutinizing projects that nothing ever gets the green light. That wouldn’t be very stimulative, would it?
So Chu has to revamp the agency. In a big way. This is mostly boring, bureaucratic stuff — but the success of those gigantic green provisions in the stimulus bill pretty much hinge on all this boring bureaucratic stuff! One potential snag, meanwhile, is the little-known fact that the bulk of the Energy Department’s $25 billion budget actually has nothing at all to do with energy — most of the budget goes toward overseeing the nation’s nuclear weapons arsenal and cleaning up former weapons labs. DOE simply isn’t an agency whose primary focus is transforming the nation’s energy economy… yet that’s precisely the task Congress just told it to undertake.
That’s why, of late, various think-tank types and government officials have been wondering whether it might make sense to remove the Energy Department’s nuclear-weapons portfolio, so that the department can focus on, you know, energy.
The Takeaway on transit troubles: “Despite the eight billion dollars the stimulus will pump into the nation’s transit infrastructure, local transportation agencies around the nation are in for a potentially devastating year.”
AP has a breakdown of how much funding each state will get for traditional infrastructure projects
The Future of Education
NYT on what the econ recovery bill means for education: “The $100 billion in emergency aid for public schools and colleges in the economic stimulus bill could transform Arne Duncan into an exceptional figure in the history of federal education policy: a secretary of education loaded with money and the power to spend large chunks of it as he sees fit … Mr. Duncan must develop procedures on the fly for disbursing a budget that has, overnight, more than doubled, and communicate the rules quickly to all 50 states and the nation’s 14,000 school districts. And he faces thousands of tricky decisions about how much money to give to whom and for what.”
USA Today notes historically black colleges are severely impacted by recession:”Historically black colleges and universities, which for decades have been educating students who cannot afford to go — or cannot imagine going — elsewhere, have been particularly challenged by the U.S. economic meltdown. Enrollments at the schools have declined at the same time endowments have dropped and fundraising sources have dried up. The same is true at most universities, but often students at black college and universities need more aid to stay on course.”
Auto Industry Plans Due Today
The blueprints are intended to show how GM and Chrysler will put themselves on a sustainable financial footing, which means shedding labor costs and the debt burden that the automakers must carry into the future.
Under the terms of the government loans, GM and Chrysler must also show that they are developing a more competitive mix of vehicles.
Continuing negotiations between the carmakers and the United Auto Workers over jobs and benefits costs were reportedly progressing late Monday, though the union was resisting making major new concessions before bondholders and other creditors also agree to accept cuts. Progress was also reported on the negotiations with bondholders.
…G.M.’s plan to shrink its way to profitability will not mean much without an agreement with the U.A.W.
On Monday, G.M. pressed union leaders in a meeting in Detroit for a deal on financing what was the centerpiece of the 2007 U.A.W. contract — a perpetual, G.M.-financed trust to cover health care costs of hundreds of thousands of retired hourly workers and their surviving spouses.
Both sides were hopeful that either an agreement, or at least significant progress, might be achieved by the time G.M. submitted its plan, according to three people familiar with the substance of the negotiations.
As a special assistant and strategic adviser to the steelworkers’ president, [Ron Bloom] grappled with many of the problems plaguing Detroit’s automakers. He helped the union revive bankrupt companies and consolidate the nation’s steel makers to make them profitable — and to save jobs.
“He’s going to Washington to help the administration sort out problems, and that’s his gift,” said Leo W. Gerard, president of United Steelworkers. “Ron has been a problem solver. He has worked on 50 bankruptcies over the last 20 years. He has a lot of experience and knowledge. There’s a big problem — we want to save the auto industry in America — and that’s what Ron is going to help them do.”
Mr. Bloom, 53, developed the union’s restructuring recommendations in negotiations with several beleaguered steel and tire companies with the aim of helping them survive while minimizing pain for their workers. Moreover, he is one of the nation’s foremost experts in the special, separate health plans for retirees that his union and the U.A.W. have established with various financially stretched companies.
Politico rounds up industry complaints about the new task force: “auto industry analysts charge the panel is short on experience specific to the auto industry, made up of nine federal agencies and, so far, only one outside expert in Bloom.”
That’s why we have unions. NYT looks at the plight of non-unionized, laid-off white-collar auto industry workers: “Unlike union workers laid off from idled factories, salaried workers have no safety net of health care or guaranteed income for a year. At best, it’s a small severance or buyout, and a voucher for a discount on one of the hundreds of thousands of unsold cars that G.M. or Chrysler has sitting in inventory … The market for the skills of auto engineers or designers in the prime of their careers has evaporated, with no hope in sight for a turnaround. Moving to another city is hardly an option when there are so few buyers for the suburban homes that would have to be sold first.”
Obama Housing Plan On Wednesday
LA Times previews, includes proposal for courts to rewrite agreements:
Obama has dropped hints about the broad outlines of his housing plan, estimated at $50 billion to $100 billion. Speaking in Indiana last week, he said he would push for a new law that allows judges to rewrite the terms of a mortgage for homeowners who land in bankruptcy court.
Without such a law, people are being forced into foreclosure “who potentially would be better off, and the bank would be better off, and the community would be better off, if they’re at least making some payments, but they’re not able to make all the payments necessary,” Obama said at the event in Elkhart.
The following day, in Fort Myers, Obama outlined an arrangement in which banks would accept lower payments from homeowners in return for an equity stake once housing prices recover.
A congressional Democratic aide said Monday there will be two pieces to Obama’s housing plan. One will involve changes in law that can only be made by Congress — such as empowering bankruptcy judges to restructure mortgages. The other will involve actions Obama can take by executive fiat.
House Minority Whip
Newt Gingrich Eric Cantor starts attacking the plan as too expensive. Balloon Juice: “He’s going to have House Republicans oppose Obama’s mortgage plan, whatever it turns out to be.”
Big Picture’s Barry Ritholtz: “I will reserve comment until I read the details of the plans when they are released Wednesday … [but] none of this addresses the key issues: Too many people live in homes they cannot afford, purchased with loans they cannot service.”
Protectionism Panic Overblown
The clearest attempt to wall off foreign companies from U.S. spending came in a “Buy American” provision. That rule requires that only U.S. iron, steel, and other manufactured goods be used for public buildings and public works funded under the bill. However, it comes with several key caveats. For one, the language states that the Buy American policy must not violate U.S. obligations under existing international trade agreements. Nor does the rule apply if American goods aren’t available in sufficient quantities or if they’ll increase the cost of the overall project by more than 25%. Federal highway, transit, and airport projects are already covered by similar Buy American requirements…
…The final version of the bill included a measure that makes these companies jump through extra hoops in order to employ H-1B visa workers, but doesn’t ban them from doing so. Critics of the H-1B program hailed the inclusion of the amendment as a victory. “The demand to reform corporate recruiting policies that ignore highly skilled local talent now moves center stage,” says Donna Conroy, director of Brightfuturejobs.com, a lobbying group for visa reform.
What Conservatism Has Wrought: California
McClatchy: “With budget negotiations still hung up in the California Senate, Gov. Arnold Schwarzenegger plans to send 20,000 layoff warnings to state workers Tuesday morning.”
Mydd’s Todd Beeton: “…up until recently no one in the media seemed to get just what a failure of leadership Arnold represents. The irony is that with California’s ridiculous rule that requires a 2/3 majority in both houses of the state legislature to raise revenues or pass a budget and the fact that Democrats come just a few seats shy of that threshold, a true consensus builder and a real maverick Republican in the governor’s mansion might have actually exerted some leadership in Sacramento and gotten something done. Instead, Arnold has thumbed his nose at the Democratic majority trying to broker impossible compromises and has refused to stand up to the obstructionist Republican minority, which is holding the state hostage as Democrats try to hammer out a state budget that will somehow deal with the state’s crippling $41 billion budget shortfall.”
FireDogLake’s Ian Welsh: “I hope everyone who voted for the recall, and for tax cuts, and for Republicans is happy: they’ve succeeded in turning CA into a third-world country.”
Eschaton: “Because of the Republicans in California, the state is going to spend a lot of money to shut down public works projects and then, presumably, some time in the future spend a lot of money to start them up again. Responsible!!”
Digby: “Any of you who are journalists or are other interested parties who would like to see what happens when three bats**t insane Republicans have the power to take the state down because of their ‘principles,’ read down the page. It’s almost unbelievable — except it’s true. They are political sociopaths.”
Calitics is providing detailed coverage.
Terrance Heath contributed to today’s Breakfast.