By Irwin Stelzer
If, like John Maynard Keynes, you believe that spending, any
spending, will revive a flagging economy, the freshly minted,
1,000-page American Recovery and Reinvestment Act of 2009, calling for
$504 billion in deficit-financed spending, is for you. Well, not quite.
It seems that most of the money will not be spent very soon. About 30%
won't hit the economy until 2011, and the balance is likely to be tied
up in the procurement processes of the federal and state governments
until well into 2010, and beyond. Besides, much of the spending will
end up boosting other economies — subsidies for wind machines will
benefit workers in the other countries in which such machines are
manufactured, not our very own horny-handed toilers. And much of the
spending will not create jobs for the unemployed: laid-off car workers
do not have the skills to design the software to manage the "smart
grid" that is the apple of the greens' eye.
If you have not jumped onto the new Keynesian spending bandwagon,
but believe with Christina Romer, chairman of Barack Obama's Council of
Economic Advisers, that tax cuts are more certain than spending to turn
the economy round, you should love this bill, with its $286 billion in
tax cuts and credits. Well, not quite. True, individuals earning less
than $75,000 a year and families earning less than $150,000 will
receive credits of $400 and $800, the earned income-tax credit for
working families with three or more children is increased, and there is
something for pensioners, disabled veterans, families of college
students and a host of others.
Reflection suggests, however, the tax-cut contingent is doomed to
disappointment. Much of the money will be saved or used to pay down
credit-card balances, not bad things, but not very stimulative. Much
will be spent in Wal-Mart, earning Congress the applause of Chinese
trainer and t-shirt manufacturers. And much will never be claimed: the
specific subsidies for college education are simply too small to have
much effect on college enrolments.
If you are a supply-side enthusiast, a reading of this bill will add
your personal depression to the national recession. Reforms that might
increase employment in the oil and gas industries by removing
restrictions on drilling are nowhere to be found. Environmental
restrictions on the sorts of cars that Americans want to buy remain in
place, consistent with Congress's drive to have the
begging-bowls-in-hand car companies produce Schumermobiles, named after
the New York senator whose passion is electric vehicles and cars too
tiny to need much petrol or to survive in a serious crash. A change in
rules that would permit the construction of needed transmission lines
without lengthy court reviews initiated by environmental groups remains
off the Obama agenda and out of the bill. Most important is the absence
of steps to encourage the flow of private capital into toll roads, an
alternative to government-financed highways, and into schools free to
compete for vouchers, rather than schools built by governments in towns
that already have too many classrooms.
The explanation for these omissions was simply stated by the
president, responding to those who want even more tax cuts and some
supply-side stimulus, "We won." Not very satisfying intellectually, but
who needs intellectually satisfying arguments when his party controls
the White House, the Senate, and the House of Representatives?
Enough quibbles, though. If, like any sensible person, you're not
sure spending will work, but not sure it won't; not sure that the bulk
of tax cuts will be spent on US manufacturers, but not sure they won't;
and not sure that doing nothing is a good, though tempting idea, this
bill is about the best that can be extracted from a Democratic
Congress.
So Obama has his stimulus bill, but he has paid a very high price.
He now owns the recession. He has asked to be judged by whether this
bill and other measures he will propose create or "save" 3.5m-4m jobs,
the number lost so far since unemployment turned up. Forget "save" — if
unemployment keeps rising, voters are not likely to rally round the
slogan "It would be still worse if I hadn't spent your trillions". What
the president has done is to promise what he certainly can't deliver in
time for the congressional elections next year — a reversal of job
destruction, and millions of new jobs. If the voters prove patient in
2010, they are unlikely to remain as forgiving when the presidential
election rolls round in 2012. Since employment is what economists call
a lagging indicator — employers are not confident enough to start
hiring until economic recovery is well under way — Obama will have a
lot of explaining to do. Unless, of course, the Republicans find a
candidate so inept the president can once again rely on his very
attractive persona to see off challengers.
Finally, there is what is now being called the Tim Geithner no-plan.
The president used a nationally televised press conference to announce
that his Treasury secretary would the very next day reveal to the
nation, and indeed to the world, a plan to save the banks and provide
relief for troubled homeowners. But Geithner's speech was so lacking in
detail the stock market plunged by about 400 points. The
administration's economists have not solved the problem of valuing the
toxic assets on the banks' balance sheets — pay too much for those
assets and the taxpayer gets the bill; pay too little and the banks
have to take bankruptcy-producing writedowns.
By the time you read this, Geithner will have met with his G7
colleagues in Rome. Unless he has worked out some effective way of
spending the $2 trillion that Washington rumour says new bailouts will
cost, a gaggle of finance ministers will head home disappointed. For in
between their public attacks on America, they privately say that only
America can lead the world out of its current difficulties.
However, with Congress whipping up popular hatred of bonus-grabbing
bankers, Geithner & Co will have a hard time persuading the
legislators to spend taxpayers' money to prevent the banks from going
not-so-gently into that good night in which Lehman Brothers resides.
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