No. 1 Obama Disappointment: The Stimulemon

NEW YORK, New York -- So that's it. Barack Obama is president. That's a relief. But as CNN, CBS, MSNBC and whoever else continue to marvel at how cute Obama's daughters are or for the 89th time ask Puff Daddy, Kevin Johnson and Seal how they feel about the fact that a black man is president (they still feel pretty good), somebody has to keep the president on his toes. So, as promised, we'll be doing some dirty dancing at the Stimulemon Ball to cap off the inaugural evening -- expressing why we feel the proposed stimulus package is the greatest Obama disappointment thus far.

First of all, here's my understanding of the plan, with line items expressed in $bn:

$300 - tax breaks

$177 - education spending

$102 - benefits for low-income/unemployed

$90 - infrastructure

$87 - Medicaid assistance for states

$70 - energy/science/broadband

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$826

There are three main problems with it: It may be too small; less of it should go toward tax refunds; and more of an emphasis should be put on what will streamline, transform or update the economy and workforce for the future.

1. First, size: I've hardly done my own analysis, but I haven't heard anyone effectively rebut Krugman's critique, so in my mind it stands: http://www.nytimes.com/2009/01/09/opinion/09krugman.html

Put more succinctly, as Martin Wolf of the Financial Times noted, if the CBO is estimating output to be 7% less than its potential the next two years, a stimulus of 5% is too small.

(See also the FT's Clive Crook on this.)

2. Tax refunds: $300 million, or 40% of this, is going toward tax refunds.

Over $100 billion was for businesses, which seems absolutely unnecessary. Democratic legislators seem to have realized this as well, since reports now say this part of the tax cut is in jeopardy.

The rest of the tax cut is to be directed at people in the form of $500 checks. People earning up to $200K get these. Here's the rub: These tax cuts are being given with the sole and explicit purpose that people spend them to revive the economy. In reality, very few people will spend these.

I earn substantially less than $200K, and I have no intention of spending the money. I don't think anyone but the poorest among us is going to spend this money. The problem isn't that most people don't have any cash; the problem is that they're afraid they might have less of it in a year. Giving fairly well-off people checks isn't going to stimulate anything; it'll just result in huge fiscal deficits that will take years of tax increases to pay off -- or, if not paid off, much worse consequences. (Again, Crook is smart on this issue.)

I find this part of the plan (also known as the "John Boehner part of the plan") to be the most frightening thing about it. The fiscal deficits we're facing are unprecedented and 40% of what we're now adding to them comes from greasing businesses and people who don't need the money, because John Boehner (pronounced "Boner") thinks it's a good idea? That's a big mistake.

3. Focus on transformative infrastructure that puts this $800bn toward giving us long-term economic competitiveness: Obama and his aides have put a consistent emphasis on "shovel-ready" projects, with the tacit understanding that this means repairing roads and bridges. That's not good enough. There are huge needs for long-term investment in infrastructure to amend the 20th-century infrastructure we have. Car traffic cuts billions from GNP. Port, air and rail delays hurt efficiencies (and GNP) more. Why spend billions to get a few freshly paved roads that, in 20 years, will be as cracked and congested as they are today? In a word, transportation system needs a major rethink, and lots of investment.

The current infrastructure plan seems like it will rely on fixing roads in Iowa that neither transform the economy, create new sources of long-term demand for the private sector to meet, nor streamline our efficiencies as an economy. That sort of transformative infrastructure is needed, as Joe Garreau wrote last year in the Wilson Quarterly, and as cities like New York are strongly urging Congress -- with some success -- to undertake.

Fired up and ready to go: Congress passed this idea for a system of regional high-speed train networks in October 2008

Moreover, despite what Congress takes as conventional wisdom, this can all be done quickly, since many people have spent many years thinking about it (including banker and diplomat Felix Rohatyn).

Let's also take a big step back into the fun land of fiscal deficits. As Martin Wolf has harped on, the country's biggest problems down the road will be the deleveraging and growth in the private-sector "real economy" needed to fix the current-account structural deficit. Deleveraging isn't really the purview of the stimulus, it's more to do with TARP. But creating real growth hinges on finding new sources of demand and new ways to be competitive. New sources of demand come about when you have a transformative public-works package. Putting tar on roads in Alabama does not do that. Investing in public-private high-speed train lines does: It creates demand to employ large numbers of people to build items for which there is a long-term, constant need.

NYC alone has tens of billions in backlogged large-scale mass transit and other projects (and many worthy smaller ones), which are getting dusty as the city's own coffers run dry, deprived of real estate income from bankers buying condos. And the country as a whole should be reconnected by rail to improve regional commerce and make it more attractive for people to travel from, say Cleveland to Kansas City on business (since commercial air service is dying in second-tier cities), or to manufacture and ship things quickly and cheaply to other cities in their own region.

So what do we do? Well, take that $300M in tax cuts, and slash it. Give people earning $40K and less the $500 checks, because they'll spend them. Don't give them to the rest of us, because we won't. Let's say that's about $140 billion in tax cuts. We take the leftover $160 billion and give it to infrastructure -- transformative infrastructure -- so that what we have looks like this:

$140 - tax breaks

$177 - education spending

$102 - benefits for low-income/unemployed

$87 - Medicaid assistance for states

$70 - energy/science/broadband
$250 - infrastructure
............$50 billion - traditional infrastructure
............$175 billion - new/ "transformative" infrastructure
..................................$100 - mass transit (high-speed intercity rail, light rail, subway, BRT)
..................................$25 - airports (renovations, new airports/runways in places like NYC)

..................................$25 - ports
..................................$20 - sustainable construction (urban infill, brownfields, green buildings

and, most importantly, mass-transit hubs -- high-density mixed-use
development built around transit stations; to be achieved primarily
through tax incentives)

..................................$5 - public art projects (see WPA precedents)

...........$25 - "manufacturing infrastructure" -- in the form of funds for research into advanced

manufacturing processes and greentech research to create the infrastructure for a large new class of jobs; biotech/health, defense and space research could also be eligible for these funds

-------

$826

How do you manage this? Public-private partnerships should be sought out as a way of determining what sort of projects can make money and should be pursued. Additionally, giving infrastructure into private management cuts down on public costs in the years to come.

And a blue-ribbon Infrastructure Reinvestment Bank should oversee funding decisions on what what big-ticket (>$500 million) items get built, not congressmen or state governments. Only that way would Obama cut down earmarks and focus on projects that would benefit the long-term structural competitiveness of the economy.

Other creative ideas abound; clearly, repaving Alabama backroads like Cool Hand Luke is hardly the only way to guarantee that projects with an immediate impact on the economy are chosen. The only benefit of those "shovel-ready" projects is for the congressmen who get donations from construction companies (aka the Mob) that are too thick to think a little bit more creatively.

In short, there is no shortage of ways to spend money that could put people back to work and meet long-needed structural demands of the economy/society. Bush famously didn't invest in this country for eight years. Obama was elected to do that, and now he's bending over backwards to compromise with Boehner and McConnell. And what we seem to be getting is an Obama who doesn't want to be Obama, when he was resoundingly elected to be just that -- himself, and not Bush.

The WSJ/NBC poll shows that Americans by a 2-to-1 margin think the stimulus should have more public spending and less tax refunds than it does -- alas, Mr. Obama is forcing us to take money we don't want because we know we won't spend it and that what we need is structural change to create medium- to long-term jobs growth.

Help Us Decide What to Do With Our Stimulus Checks

BOULDER, Colorado -- After the release of the economic stimulus plan proposed by Democrats in the House of Representatives, Republican Minority Leader John Boehner (it's pronounced "boner" - it really is, I promise) called the $825 billion dollar plan "disappointing."

Itchy and I are also very disappointed with this stimulus package, but probably for very different reasons than Rep. Boehner. We believe that Barack Obama and the Congress are squandering an opportunity to make this a transformational moment for the American economy. This watered-down proposal looks to be little more than a series of Reaganite tax cuts, porkbarrel road-paving projects (a side note: incoming transportation secretary Ray LaHood has very close ties to the paving industry in Illinois. Does anyone else realize that means he totally has connections to the mob?), and stupid refund checks.

As someone who does not make enough money to actually pay federal income tax, I resent the fact that government is going to send me a $500 check anyway. What about paying for all this new spending Obama has promised, like his renewable energy initiative, improving healthcare coverage, and investing in mass transit? We are tired of this populist pandering, so we are staging a protest. The government wants us to go out and spend those checks to "stimulate" the economy, but we are not going to do that.

Itchy wants to just put his in the bank, but I thought we could have some fun with the refund checks and ask our readers to decide for us what we should do with the $500. So, to the left of this posting you will find a poll of what we should do with that check that really isn't beneficial to the economy on the whole. Should the voting reach a reasonable quorum, I will do (I can't really speak for my partner) what the readers desire, and post the results here for all to see. Now, there is no guarantee that refund checks will be a part of the final legislative package, but if that day should come, here are a list of things I would rather do with $500 than put it towards a new Chrysler:

1. Put it in the bank
2. Bet it all at the dog track
3. Donate it to New York City's struggling MTA
4. Donate it to the Kalamazoo Promise, so some kids in Michigan can go to college
5. Give the money to whoever is running against America's Dumbest Senator, Richard Shelby (R-AL), in the next election
6. Donate it to a Palestinian relief organization
7. Have the check framed and never collect the money, like Rickey Henderson did with a $1 million bonus from the Oakland A's
8. Buy a plane ticket to Washington, DC, and try to strike a member of Congress in the face

So vote now and vote often, and once we get this awful, compromised bill made into law (and I get my dumb, wasteful check), I will let you know the results.

We Need a New Deal, Not Another Refund Check

NEW YORK, New York -- After reading in various media (here, here and here, for starters) that the estimated $500 billion to $800 billion stimulus package being prepared is rumored to include -- perhaps as a carrot to get intransigent, knuckle-dragging Republican congressmen like Mitch McConnell and John Boehner on board -- up to $310 billion in tax refunds, I want to send a quick note to the Obama economic team. Maybe, though, they'd be better if they read (or re-read) these thoughts first, from the CEO of IBM.

Jan. 4, 2009

To the Obama team:

Sirs, please do not let fear of the McConnell-Boehner Roller Derby push you into the tax-cut corner. That will not give our economy the help even Reagan's economists say it needs, either in the short term or the long term.

This is a George Bush way of stimulating the economy -- in fact, he tried it; and it didn't work.

I can only speak for myself. I am an American who makes a salary above the national median, but not that much. And, since I live in New York City, I have expenses well above the median.

I do not need a tax refund. I'll do with it exactly what I did with Bush's tax cut -- put it in my bank account. My neighbors might pay down their mortgages with theirs; or buy a new flat-screen TV, fresh off the Shenzhen, China, assembly line.

For the love of God, invest the once-in-a-lifetime amount of money you'll have wisely. We need to bring our country into the 21st century. Invest in basic research centers for Midwestern cities, so that they might create advanced manufacturing techniques that will allow us to actually produce goods rather than send trillions to China for everything we need. Build worker re-training programs to give those Midwesterners (and South Carolinians and Rhode Islanders) the flexibility to get a job in a new, growing industry. Invest in high-speed trains to link those Midwestern cities with the coasts, and with one another. Help cut transport costs to get American goods to American cities without any logistics costs -- or problems. Invest in a smart grid. In broadband. In medical research. In healthcare and education -- removing huge health costs from the shoulders of employers and preparing a new generation of people to re-energize their companies. That's what will create jobs in the short term and put our economy on better footing for the long term.

Or you could give me another $500 to put in the bank; or give my co-workers $500 to buy a new made-in-China flat-screener. But having a new 31-inch TV won't bring our nation forward, give us job security today, or prepare US students to compete with, as Candidate Obama liked to say, Berlin, Beijing and Bangalore tomorrow.

Would You Like a Vice President With that 72-Year-Old Shake?

NEW YORK, NY -- Two Republican Party elders voiced support for Barack Obama today, part of a torrent of Republicans jumping ship.

Ken Duberstein, Reagan's chief of staff, endorsed Obama today, saying the following:

"I think it has very much undermined the whole question of John McCain’s judgment. You know what most Americans I think realized is that you don’t offer a job, let alone the vice presidency, to a person after one job interview. Even at McDonald’s, you’re interviewed three times before you get a job."

And Lawrence Eagleburger, secretary of state under Bush Sr. and a man whose support McCain has often touted, brought further pain today on NPR, where he said Alaska Gov. Sarah Palin was "of course" not ready to be vice president.

It seems unprecedented that so many grandees from one party should voice support for the other party's nominee. If McCain wins, it won't just be a rejection of Obama or the Democrats, but even of thinking Republicans including writers and party elders. It will be the true ascendancy of the idiocracy.

UPDATE: House Minority Leader John Boehner. What a boner.

From the Miami University (Ohio) Miami Student newspaper: "Now, listen, I've voted 'present' two or three times in my entire 25-year political career, where there might have been a conflict of interest and I didn't feel like I should vote," Boehner said.

"In Congress, we have a red button, a green button and a yellow button, alright. Green means 'yes,' red means 'no,' and yellow means you're a chicken shit. And the last thing we need in the White House, in the oval office, behind that big desk, is some chicken who wants to push this yellow button."

Is this the first sign of the idiocracy?