Thursday, February 12, 2009

The Compromise Stimulus Bill

The cutting of most of the $40 billion in aid to states from the US Senate’s version of the federal fiscal stimulus bill was a triumph of politics over economics. Senators that claimed that this money does not represent stimulus have exposed themselves either to be woefully ignorant of the basic economic concept of stimulus or more concerned about political considerations than the welfare of the nation and its citizens. Either one is inexcusable.

This transfer to states represents the very best type of stimulus. It will fill in for lost state revenue, so it will begin to be spent immediately; it will go to existing programs, so it will be spent effectively; and the spending will go to the most vulnerable populations, the very people who are most adversely affected by the economic downturn. Additionally, much of this money would go to save off cuts in education funding - the very best investment we can make in the future prosperity of the country.

In exchange what did we get? Well, $70 billion spent on fixing the Alternative Minimum Tax for one. The AMT might be a bad thing in need of a fix, but a fix is terrible stimulus. It increases income of relatively well-off families and a good portion of this income can be expected to be saved so won't do much to stimulate the economy.

So at the time states are cutting spending and, in some cases, increasing taxes - very direct and powerful anti-stimulus, the federal government is responding AMT fix that provides only a fraction of an antidote. Amazing. Imagine what spending this $70 billion in block grants to states would achieve?

I am very seriously starting to wonder if this bill will do more harm than good. An ineffective bill that saddles us with a huge debt burden is worse than no bill at all.


Dave Porter said...

I'm for a large stimulus but I am outraged by the priorities in this bill. On my own blog I've a post titled "Taking money from schools to build roads is ABSOLUTELY CRAZY." See here. It begins:"Oregon, and probably the US as a whole, is now going to try a grand experiment: whether cutting funding from education while building roads and bridges can be the path to our economic future. Seems crazy to me. Absolute folly. Raving mad!"

Jeff Alworth said...

This relates to your post below about jobs and stimulus. I'm reminded of an exchange I heard on some program between a Republican senator (forgot who--sorry!) and Barney Frank. The senator kept decrying the state spending, arguing that it would just go to shore up deficits. Only stimulus that went to private enterprise was stimulative. An astounded Barney Frank kept asking--"so it's not stimulus if it keeps cops on the street? It's only stimulus if it's the private sector?"

I'm astounded, too, and depressed. Here we stand, less than a month into the Obama admin, and we're already listing like a leaky sloop.