Lehe: Understanding Stimulus; not a waste

By Lewis Lehe

According to a CNN poll, 54 percent of Americans believe that the American Recovery and… According to a CNN poll, 54 percent of Americans believe that the American Recovery and Reinvestment Act, or “the stimulus package,” has benefited bankers. Meanwhile, only one-third believes the ARRA has benefited the poor, and only one out of four Americans believes it has benefited the middle class. The overwhelming majority — three out of four — believes at least half of the stimulus money has been wasted.

This poll is the most depressing economic news I’ve heard lately. It means that very few Americans have any idea what Congress put in the ARRA. Once you understand what’s in the bill, it is impossible to believe that it benefited bankers but not poor people, and it is unlikely that so many Americans would call half of the package a “waste.”

The graph illustrates the ten most expensive items in the ARRA.

These ten items cost $470 billion. That’s 60 percent of the stimulus. Obviously, none of this money went to bankers. That’s why CNN’s polling director Keating Holland said, “It’s possible that the belief that the stimulus bill has helped bankers and CEOs is due to the public confusing the stimulus bill with the various bailout bills.”

Was this money wasted?

ARRA expenditures fit into three categories:

(1) Programs that directly aid individuals and families — such as tax cuts, unemployment payments, food stamps, COBRA insurance and Pell Grants. To believe that this money is wasted, you have to believe that individuals are not very good at spending money or that health insurance is wasteful.

(2) Programs that enable states to stick to their long-term spending plans — such as the aid to state Medicaid and public education budgets. Voters deemed these programs necessary and productive for decades. Why would they suddenly have become wastes of money over the past two years?

Consider that every few years, Pennsylvanians ask, “How much do we want to spend on education?” The answer should depend on Pennsylvanians’ priorities and the commonwealth’s long-term ability to generate income. No one would ever propose that it depends on house prices in Florida and California or the unemployment rate in Michigan. But if the recession forces hamstringed authorities to lay off teachers, postpone school upgrades and cut financial aid, then the education of the commonwealth’s children really does depend on such arbitrary factors.

(3) Programs that fund specific projects — such as highway construction, medical records technology, Smart Grid upgrades to the electricity grid, broadband for rural areas, public transit upgrades and tax credits for wind turbines. This category amounts for much of the spending not listed in the graph. This spending is doled out in small amounts to myriad causes.

It’s common sense that fast and complicated projects invite waste. But this whole category only composes a fraction of the ARRA. And the waste is often counterbalanced by huge gains on worthy projects. The $11 billion for a Smart Grid, for example, is desperately needed, unless you think it’s fine that unclipped trees in Ohio can induce an economic paralysis as severe as the Northeast Blackout of 2003.

There’s a perception that the entire ARRA was devoted to the third category. Rush Limbaugh, for example, recently argued for a hybrid stimulus plan: “… under the Obama-Limbaugh Stimulus Plan of 2009, 54 percent of the $900 billion — $486 billion — will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46 percent — $414 billion — will be directed toward tax cuts.”

The phrase “infrastructure and pork” implies that the ARRA only funds construction projects. That’s a plain falsehood. While it is easy to believe that unions forced Democrats to spend all the money repaving roads, that narrative is more story than history.

Why isn’t the ARRA working?

The ARRA did a good job of stimulating spending — i.e., growing the GDP. And the ARRA did a good job of preventing human misery — i.e., keeping people fed, housed, healthy and educated. But it hasn’t stymied unemployment. So, it’s two for three.

This recession has been a perfect storm for employment: A housing bubble bursting causes lots of job losses in construction, which is an especially labor-intensive activity. And the places where job losses are worst are, by definition, also places with rapid declines in housing prices, which makes it almost impossible for unemployed workers to sell their houses and move to places with jobs. It’s hard to imagine a government policy that would reverse such a vicious cycle. Maybe the best we can do is to stimulate the economy generally and help people ride out the storm.

Of course, the ARRA isn’t perfect. There will be outrageous instances of waste. Employed workers ended up saving most of the $116 billion in tax credits they received. Not enough money went toward encouraging private-sector employers to hire. But believing the ARRA could have been better is very different from believing it was a bad idea to pass the bill.

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