Thursday, January 29, 2009

"Wretched excess," quite possibly

This morning's Washington Post contains two thoughtful conservative criticisms of the economic stimulus legislation that was passed by the House of Representatives and that is now before the Senate.

George Will counsels congressional Republicans that President Obama deserves some deference on the stimulus package but also observes that,
Congressional Democrats have turned the 647-page stimulus legislation into an excuse for something that never needs an excuse -- an exercise in wretched excess. They have forfeited some of the president's claim to deference.
Will is right that the legislation has been larded up with spending that has little to do with the current economic crisis and a lot to do with Democrats advancing parts of their agenda.

At the risk of goring my own ox, one of these provisions is the $17.6 billion that would be spent on Pell Grants, infrastructure at colleges and universities, and other student financial aid, including student loans. There is considerable merit in some of this spending. There is also some need to address problems in the student loan programs that stem from the financial crisis. However, much of this spending could be addressed in other legislation and falls outside the "stimulus" category.

In another column, Martin Felstein writes
On this page in October, I declared my support for a stimulus. But the fiscal package now before Congress needs to be thoroughly revised. In its current form, it does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that's what it takes to produce a much better bill. We cannot afford an $800 billion mistake.
He goes on to criticize specific tax cut and spending increase provisions of the legislation. He points out that some of the personal tax cuts are likely to go towards savings and debt payments rather than spending, weakening their stimulative effects. Similarly, some of the "infrastructure investments," such as computerizing medical records, may have little effect on jobs growth.

While the legislation is portrayed as an immediate stimulus, it is in fact a multiyear bill. The Congressional Budget Office estimates that the net fiscal impact (spending increases plus tax cuts) from the legislation will be $817 trillion billion,* but this is the total over 10 years. Of this amount, $170 billion will be "spent" in what remains of FY 2009 (i.e., between now and September); $356 billion will be spent in FY 2010; $174 billion goes to FY 2011, and $114 billion doesn't appear until the out years of FY 2012 - FY 2019.

Some delays in spending are necessary. The government can't turn around and spend an extra $817 billion in a day. Many of the infrastructure projects will take time to complete. Federal agencies, state governments, and local governments need to be able to plan their spending. For many reasons, it's prudent to spread out some of the funding and to plan on continuing that funding into next year.

Some spending in out years is also reasonable. Unlike the last administration, which never included out year spending for war emergency spending in its budgets, the current administration is acknowledging what we already know--that many of the spending projects will continue to incur costs for several years. The government is unlikely to cut off funding for multi-year capital projects partway through their funding; it should budget and has budgeted accordingly.

Nevertheless, $288 billion (a third of the package) is slated for FY 2011 and beyond. Some of the $288 billion continues earlier projects, but a portion involves projects that won't be initiated until after September 2010. There's just no good reason to rush into those commitments.

As the legislation moves into the Senate, leaders there should look to trim some of the extras from the immediate portions of the bill and should strip out altogether new commitments beyond FY 2010. These other portions of the bill deserve more scrutiny and can be addressed later when we have more information about the effectiveness of the initial spending, the state of the economy, and other possible problems that we may confront.

* Corrected 1/30/2009, 8:10 a.m.