Political Capital Stimulus Spending

The stimulus sucks. I hate the House bill. Maybe the Senate one will do better, and since they both have to be reconciled to each other, maybe we'll be surprised by the political alchemy. I hate the Senate more than I hate the House, so you have no idea how much it chafes me to write this.

The current form of the "stimulus" is a complete waste of money. The tax cuts are just fucking stupid. A lot of the Democratic initiatives in the bill are fucking stupid, too. As far as I can tell, most of the spending is in the form of political caricature. Hundreds of billions going toward idiotic Republican tax cuts, and more hundreds on retarded government programs, with very little stimulative spending, with a large chunk going to states simply to keep them solvent, I suppose.

$42 billion, total, for transportation infrastructure development and expansion, outside of the state funding, which as far as I know does not have any sort of provision that would force states to augment this with their cut. Killing me here. Telecommunication and transportation projects should be half the entire stimulus, and instead we're talking about 5%? The proportion of junk/good stuff should look like the exact opposite of what we're getting from the House. I don't understand the necessity for that.

I'm sniffing a strategy here, and if I'm wrong, I will totally own up to simply being an apologist for Dems. I think that's fair, but I will defend myself by saying I don't agree with the strategy.

Let's say the economy can handle $400 b investment of infrastructure over the next two years. We just passed an $850 b or so bill which accomplishes very little to this end. So, best case scenario, the Senate axes $600 b of the stupid shit, gets a much smaller number, and is publicly prodded to double the stimulus specifically for infrastructure back up to that usable $400 b.

If it goes down like this, Republicans say they blocked the most egregious Democratic spending, Democrats get to say they blocked more Republican tax cuts for the wealthy, and both sides get credit for the robust infrastructure money. Republicans win because people think they are a strong opposition party asserting conservative values, Democrats win because people think they are an effective majority party with liberal bona fides, and Obama wins a victory for bipartisanship.

(He'll need all he can get when they eventually have to nationalize the banks in the Swedish model sometime this year. I don't think there's enough job creation out there that will buoy home prices, so I think this nationalization event is inevitable. This will probably be the big story out of this mess, so obviously it deserves treatment later on. )

The problem, as I see it, both in reality and in my pet theory, is that they started out with far too little of the easy win stuff. $42 billion for transportation? Don't get this at all. My only guess is that the $30 b in highway stimulus funding is probably the cap on smart spending in this area, but that seems low. If only there was a very likable Republican as the Transportation Secretary that could sell appropriations committees on the benefits of more investment in rail and other transit. With the construction industry taking such a hard hit, it would make sense to me to spend more money building shit, so I hope we're looking at more than transportation.

I'm almost 90% sure I'm giving all of the players in this too much credit, though it is my hope that I haven't shot too far. It's far too early to tell what the result will be, and I think there will be errors in judgment, but I really do think there's a plan here that will be evident later--Goddamn I hope there is, anyway.

This is here and now, though, and when we get to the other side of this mess, I don't think this bill will be much of a factor in the history of the recovery.

Limbaugh.

So, President Obama met with GOP leadership last week in an attempt to get this new stimulus bill passed. In this meeting, it is reported he said,

"You can't just listen to Rush Limbaugh and get things done,"

Goddamn right you can't. Unnamed white house staff insisted that this was an effort to make a large point about bipartisanship. Which is probably right, but I'm happy if Obama manages to marginalize Limbaugh, who is an asshat. And not just because his racist remarks don't go over as well on national TV as they do on his radio show. I'm not making an argument that this is a personal thing with Obama, but I'm sure it has to feel pretty good to needle Limbaugh all he can to make his political case.

Not one to take these things lightly, Rush responded:

There are two things going on here. One prong of the Great Unifier's plan is to isolate elected Republicans from their voters and supporters by making the argument about me and not about his plan. He is hoping that these Republicans will also publicly denounce me and thus marginalize me. And who knows? Are ideological and philosophical ties enough to keep the GOP loyal to their voters? Meanwhile, the effort to foist all blame for this mess on the private sector continues unabated when most of the blame for this current debacle can be laid at the feet of the Congress and a couple of former presidents. And there is a strategic reason for this.

Oh for fuck's sake. Nobody is blaming the markets for this mess, Mr. Limbaugh, you drug-addled piece of shit. Nice straw man. The blame rests on those in the government, Congress, previous administrations, etc, for opening the door to the kind of business behavior that is perfectly normal in a dysfunctional market.

Of course private institutions are going to maximize profits. They can do this by doing all sorts of things, the most egregious examples usually result in a feel-good movie about the little man fighting back, losing, and finding some token victory to cling to as the rain forest is cut down, chemicals continue to pollute, the neighborhood store closes down when a big box comes to town, or unsafe cars blow up their drivers, etc., etc.

Markets are doing what they do. There is nothing wrong with a company in a market trying to maximize profits. The market's function, in its entirety, is providing a way to buy and sell the products of capital and labor in the most efficient way possible. If they didn't, capitalism wouldn't work. To expect any more from it is both foolish and impossible.

This is the whole reason for government regulation. Left to its own devices, a market will eventually consume itself. With adroit regulation--rules of law governing market behavior, a market will not grow as rapidly, nor fall as low. Without it, you get market failure. Finding the right set of rules that continues to allow the market to operate to maximize profits in a sane, sustainable way that minimizes negative externalities is the government's job, as they are the only one who can impose rules on market behavior. Where the government fails to do its job, the market will inevitably fail in its wake.

Good Economic Policy

Let's pretend this represents the economy from say, 1980, and into the great beyond. Our economy began the 80s under performing. Then came tax cuts which did not restrain, nor were restrained by, federal spending. You have a sharp period of bullshit economic growth, with the eventual collapse well under the level of growth a healthy economy could provide (the first shaded pink area). For the sake of simplification, let's group the dot-com bubble with Bush tax cuts and the housing bubble (bullshit growth area #2), because there was a fair amount of overlap with very little constriction. Any sort of bubble effect is trying to cheat GDP, so you can assume we've been run by cheaters and liars for the past three decades. I hope that trend is broken this time around, but we'll have to see.

The thick red line is what we've had. Periods of bad economic policy providing unsustainable growth, with resulting collapses which make life suck more than it normally would, which hurts even more because life was sucking less than it should just a few months ago.

The problem today is that the collapse is the worse collapse since the Depression, so there is little doubt that the "life sucks" pink area, again, representing the difference between what we have and what we could have, will be very big, and last for a very long time. The financial sector of the economy is right up there with oil in terms of what keeps the economy growing, and that's why this is huge, and this is why we need to do it right.

Today, we have choices. We can do nothing, and let the red line continue until the economy bottoms out, only to slowly recover. Conservatives are half right when they say that we don't have to do anything, and the economy will recover. Of course the economy would eventually recover, and this has the added benefit of eliminating all of the poorly-run companies. But it would take a very long time to get back to a healthy growth rate, and would maximize the life sucks pink area.

We could just deregulate everything and let everything run its own course. But whenever we choose to do this, bad things happen. Read your goddamn history. The whole reason socialism was popular in the late 19th and into the 20th century was because emerging industrial capitalistic economies were always guided by stupid ass lassiez-faire economic policies, which did bad things to most people, like keep them really poor, without access to stuff they needed. It's not that you can't have outstanding economic growth with no regulation. It's just that you will experience more market failure, people can't afford to buy the shit they need, and they will eventually try to shoot your ass and take the shit from you. I'm not anti-capitalist. I am anti-socialist. And the best way to avoid socialism is to regulate capitalism.

We could simply let the market bottom out, but only reestablish regulation so that it never happens again. This would provide some confidence in the economy, so the growth rate would be faster if we did nothing at all. But, again, the economy would continue to get worse before it got better, and that's a very long time of life sucking for everyone.

The government could just go into debt by giving out tax cuts, without any resulting decrease in federal spending, or extending unemployment benefits. In the short run, this could provide a very small increase in economic growth in the form of consumption. In the medium run, there's a good chance it will shallow out the bottom of the economic free fall. But even if you assume this would stop the economy from bottoming out completely, in the long run the tax cuts would give you no assistance at all in the recovery, when the bills come due. It is still a very long hard road of paying back the tax debt, and life would suck for a very long time.

Better, the government could invest in things that would make commerce easier to conduct. But it could spend money on things like building fiber optic networks, expanding highways and constructing bridges. This is just like you and me buying shit, because it creates jobs. But it's also like you and me invested in something that promotes productivity, which also increase GDP, and has the added benefit of making money easier for everyone, which would allow people and businesses to make more money, driving up consumption and investment and tax revenues. Remember your GDP multipliers. If the government invests in things like renewable energy, we wouldn't have to buy so many fossil fuels from other countries, which would reduce the trade deficit, while still buying shit like consumers and investing like savers. This would still take a long time to get back up to our natural economic growth rate, mostly because there is only many, as Krugman says, "shovel-ready projects." It would put some people back to work very quickly, so there would be a short-term bump in economic growth. But in the medium to long run, as more and more of these projects come on line, our capacity for economic growth would actually be better than if we provided no government investment in capital growth. We would more quickly approach what we're used to, and exceed that quicker than any other single plan on the table.

None of these approaches work quickly enough to save us from having our life suck, though some are better than others. Here's a neat trick: You can stack them. You fund some of the short run stuff to stop the bleeding. You can cushion the economy from the effects of the short run stuff drying out by investing in some of the medium run stuff, like tax breaks. You can immediately start your long run infrastructure projects at the same time, capturing that short run bounce and the long run increase, and you can, and should, reorganize the government to pay closer attention to the markets, regulate where they can, deregulate when they can, and most importantly, make sure we do not stray too far from our natural growth rate.



These are our choices. Yes, the economy is that bad. No, the economy will not be good again for a long time. Yes, life will pretty much suck. No matter what, though, we will recover, and life will improve. The point is, if we get our shit together and establish good economic policy, we can recover much more quickly, and come out of the recession much stronger, than we went into it.

The monetary policy component will have to be a major part of the recovery process, and it's something I don't even want to speculate on, simply because I'm not smart enough. I do know that you can pour trillions of dollars into it and you will never get it back. You can set aside money to back every shitty mortgage, but when we're hemorrhaging a half million jobs a month, who the fuck is going to pay those mortgages? There's no guarantee that the commercial banks are going to start loaning money out again, which is the whole goal of the exercise. You have to create jobs so people can pay their mortgages and escape foreclosure. That's the easiest way to stabilize housing prices. Otherwise you're just transferring bad debt to the government with nothing to show for it.

The housing and monetary crises today belie the fiscal problems. Printing money or taking money out of the economy are band-aids, though seemingly very expensive ones. $700 billion for this is a drop in the bucket. But no matter what we do, we cannot simply print money to make the underlying economic situation better.

Jobs, jobs, jobs and infrastructure to support it. Whatever it takes, is the order of the day.

Let me be clear when I say all of this stuff will have to be handled very adroitly and deftly if they are to work at all. Over-regulate, you stagnate the economy, under-regulate, you create another bubble. Miss the tax break by a few billion, you add debt without doing anything, cut too much, and you're basically creating another bubble. Get hamstrung in trying to create infrastructure projects, you retard economic capacity, making recovery longer, create too much, and you can't afford to maintain it.


How quickly we get it right will determine how much life will suck, and when it will stop sucking. There are other problems looming on the horizon, but we will be in a much worse position to handle them if we dick around with the recovery.

I have to hope things are fixable, and we use some common sense, and not stupid ass politics, to get the stimulus done. We're at the end of the rope in terms of how much too cute by half creative accounting we can tolerate.