" The Squandered Stimulus

By Robert J. Samuelson
Monday, July 20, 2009

It's not surprising that the much-ballyhooed "economic stimulus" hasn't done much stimulating. President Obama and his aides argue that it's too early to expect startling results. They have a point. A $14 trillion economy won't revive in a nanosecond. But the defects of the $787 billion package go deeper and won't be cured by time. The program crafted by Obama and the Democratic Congress wasn't engineered to maximize its economic impact. It was mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.

As a result, much of the stimulus's potential benefit has been squandered. Spending increases and tax cuts are sprinkled in too many places and, all too often, are too delayed to do much good now. Nor do they concentrate on reviving the economy's most depressed sectors: state and local governments; the housing and auto industries. None of this means the stimulus won't help or precludes a recovery, but the help will be weaker than necessary.

How much is hard to determine. By year-end 2010, the package will result in 2.5 million jobs, predicts Mark Zandi of Moody's Economy.com. But as Zandi notes, all estimates are crude. They involve comparing economic simulations with and without the provisions of the stimulus. The economic models must make assumptions about how fast consumers spend tax cuts, how quickly construction projects begin and much more.

Depending on the assumptions, the results vary. When the Congressional Budget Office made job estimates, it presented a range of 1.2 million to 3.6 million by year-end 2010. Whatever the actual figures, they won't soon mean an increase in overall employment. They will merely limit job losses. Since late 2007, those have totaled 6.5 million, and there are probably more to come.

On humanitarian grounds, hardly anyone should object to parts of the stimulus package: longer and (slightly) higher unemployment benefits; subsidies for job losers to extend their health insurance; expanded food stamps. Obama was politically obligated to enact a campaign proposal providing tax cuts to most workers -- up to $400 for individuals and $800 for married couples. But beyond these basics, the stimulus plan became an orgy of politically appealing spending increases and tax breaks.


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There are growing demands for another Obama "stimulus" on the grounds that the first was too small. Wrong. The problem with the first stimulus was more its composition than its size. With budget deficits for 2009 and 2010 estimated by the CBO at $1.8 trillion and $1.4 trillion (respectively, 13 and 9.9 percent of gross domestic product), it's hard to argue they're too tiny. Obama and congressional Democrats sacrificed real economic stimulus to promote parochial political interests. Any new "stimulus" should be financed by culling some of the old.

Here, as elsewhere, there's a gap between Obama's high-minded rhetoric and his performance. In February, Obama denounced "politics as usual" in constructing the stimulus. But that's what we got, and Obama likes the result. Interviewed recently by ABC's Jake Tapper, he was asked whether he would change anything. Obama seemed to invoke a doctrine of presidential infallibility. "There's nothing that we would have done differently," he said. "


Entire article: http://www.washingtonpost.com/wp-dyn/content/article/2009/07/19/AR2009071901762.html?hpid=opinionsbox1