Stimulus Watch: Senate Pare-Down?

All that “bipartisan compromise”…just to end up with a recovery package just as large as the one that came out of the House. Yesterday morning’s Washington Post reported (based on news as of Friday evening):

[Republican Senator Susan Collins] called the Senate legislation “a considerable improvement over the House-passed bill,” which she described as “loaded, expensive and ineffective.” The new version, she said, “will help Americans throughout this country who are struggling because they lost their jobs.”…

The Senate changes bring what had been a $920 billion package down to about $820 billion. [The House-passed bill costs $819 billion.] Among the largest cuts: $40 billion from a $79 billion fund aimed at helping states preserve school funding as they try to balance their budgets. And negotiators cut in half $15 billion in “incentive grants” for states that meet certain goals for their initial education allotment…

Other (fresher) stories suggested the bipartisan group had reached a lower figure of $780 billion. CQ reported on Saturday afternoon that:

The exact cost of the compromise remained somewhat in flux as the Senate engaged in three hours of debate Saturday and Democratic leaders put the finishing touches on legislative language. While the revised plan released Friday night carried an estimated cost of about $780 billion, amendments adopted during Senate floor debate are likely to push the total cost past $800 billion. Those additions include a provision sponsored by Johnny Isakson, R-Ga., that would create a $15,000 tax credit for homebuyers.

But both news sources made it clear that what the Senate had done was first added about $100 billion in tax cuts to the House version, then taken away nearly $100 billion in spending programs, setting Congress up for a conference battle between House and Senate that’s not going to be easily resolved–or at least not likely to get resolved without pushing the cost right back up to that $900+ billion level. CQ describes the Senate pare-down:

At the behest of moderates, the Friday night compromise shaved about $108 billion from the original Senate proposal. Appropriators cut $83 billion in discretionary spending from the Senate plan, including funding for school construction and other programs favored by Democrats in the House and Senate. The Finance Committee pared back health care spending provisions by $7 billion, and scaled back the tax cut package by $18 billion.

In other words, spending was cut by $90 billion and tax cuts by just $18 billion. And the Washington Post describes the trouble with that (deficit-financed) AMT relief that the Senate added:

Negotiations with the House could also dramatically alter the package. While the bills in the two chambers are now likely to be similar in size, the Senate has increased the percentage of its legislation devoted to tax cuts. The biggest change is the addition of a $70 billion provision that would protect more than 24 million families from the alternative minimum tax.

House moderates oppose including the AMT provision in the stimulus package, arguing that the issue should be addressed in the regular budget process so that its cost can be offset by spending cuts or tax increases…

With AMT in and some of House Democrats’ top spending priorities out, the package could become much more difficult for many House members to swallow, Democratic aides said. House Majority Leader Steny H. Hoyer (D-Md.) said House Democrats will push hard to restore the Senate’s deletions. That means, lawmakers said, that the overall cost would grow to around $900 billion to accommodate the AMT fix.

In other words, forget this bipartisan “paring down” exercise. Sounds like we’ll be back to the usual “bipartisan” “piling on” business soon, when the recovery bill heads into House-Senate conference negotiations.

Comments

[John Lounsbury:]

A question about the $40B cut from education support? Is it money that would have (1) supported operating budgets or (2) money that would have made capital improvements? If (1), it may not have been stimulus, depending on how it would have been used. If (2), they have cut a stimulus.

Tax cuts have little current stimulus effect, but may or may not have longer term effects. It seems to me that this entire process would have been easier to sort out if the legislation had been divided into at least two separate bills. The first to address 2009 stimulus and the second to address 2010 (and beyond). The 2010 needs are certainly not clear at the present time and that legislation could have been delayed about 3 months or so. It also could have been designed with some flexibilty to respond to how the economy unfolds in the second half of 2009.

Diane, thanks for the latest news and analysis.

Feb 08 03:04 PM

[Obama is Bu...:]

The CBO (which is currently dominated by economists appointed by democrats) has researched the stimulus package and concluded what everyone should already have known intuitively: it will hurt the country long term
www.washingtontimes.co.../

The U.S. has lived beyond its means for decades. We have far more capacity to produce "stuff" than we have economic need for it. By keeping interest rates artificially too low, the Fed created artificial demand -- at the expense of future tax hikes.

Now we have reached the future. The artificial demand could only be maintained for a short period-- but rather than admit this, the government (both parties) wants to throw more than twice as much money to create less than half as much artificial demand.

The effects of compounding guarantee this "stimulus" package will be far less effective than earlier ones -- which were harmful in the long run. After every "stimulus", we have lots more debt (which stays with us long term) but the artificial demand goes away.

Lets stop kidding ourselves: this is ****NOT**** stimulus. This is borrow from the future to artificially inflate the present. It has been tried many times before, and it doesnt work.

Lets also stop the silly "we must act now!" rhetoric. We have all heard the sky is falling, and its nonsense. The artificial demand was always artificial. Any business that cannot survive without artificial demand (aka a government subsidy) is by definition not economically viable.

This is not a stimulus package. This is yet another shameful effort to avoid living within our means -- and stick our kids with the bill.

This is not "free money" -- this is $850 billion +/- in future taxes and/or inflation.

Feb 08 03:22 PM

[John Lounsbury:]

gramps2 - - -

I agree with some of the things you said, but I do want to discuss the Washington Times article you referenced.

Did you read the entire Washington Times article? It states that the CBO estimates that the effect of the stimulus would be between 2.6% and 7.7% aggregate increase in GDP for 2009 and 2010. The cost is estimated to be 0.1% to 0.3% less GDP (on net) by 2019. Do you know what "on net" means? I don't know what "on net" means, but it would be logical if it means over ten years the aggregate GDP is 0.1% to 0.3% lower. If that is the case, then, if we gained 5.0% GDP in 2009 and 2010 (the middle of the GDP range of CBO estimate), then we would get a diminished GDP of 5.1% to 5.3% for 2012 - 2019. Annually, we would gain an average of 2.5% GDP for two years and lose an average of about 0.66% GDP for eight years.

The question to be debated is more complicated than your comment indicates. The debate should have two facets:

(1) Can a better stimulus be done than what has been "compromised on on Capitol Hill"?

(2) If the current proposal continues as is, is the trade-off of up to 3 - 7% more GDP over the next two years worth the loss of 5% over the following eight years?

The author implies that the answer to the first question is: Yes - a better plan could be devised. I agree and made some suggestions in the first comment (above). Obviously some people disagree. You (gramps2) have stated some thoughts in disagreement.

If there is going to be a stimulus, is it worth the long term hit? That is question 2. We only have to face this question if we ignore the answer to question 1 (yes) and do not get a better long-term plan.

My reading of the current economic collapse is that an imperfect stimulus is better than no stimulus. I do feel that there should be certain no-nos, including not interfering with the decline of house prices to the historic trend level, and not using taxpayer money to benefit the management of insolvent banks. Unfortunately, there does not seem to be the political will to follow in those directions - but I will still keep arguing.

gramps2, am I misinterpretting your position? My sense is that you would do nothing to stop the current collapse. If I am wrong, please discuss what you would do. As stated above, I disagree with doing nothing. I am not happy with settling for a compromise between a group of social engineers and an opposing group that believes tax cuts will solve all ills.

I think there is a lot to discuss about this stimulus bill mess and the two of us have hardly scatched the surface.

Feb 08 06:45 PM

[Obama is Bu...:]

Mr Lounsbury:

I think you are seriously misrepresenting the situation. A very standard political ploy is to estimate the costs of a program over a seemingly arbitrary time-frame -- arbitrary except that it is chosen to make the proposal look less bad than it is.

I would challenge you to provide a shred of evidence that the $850 billion in debt is going to be paid by 2019 ... Are you at all familiar with the US government?

This Keynesian nonsense sounds great in theory -- run deficit "stimulus" spending during recessions, and then pay it back during economic booms. But in the real world, it doesn't work that way -- and its high time ALL commentators stop lying. We have had both political parties controlling Congress, the White House, both or neither -- they are all the same. Spending ALWAYS goes up, in bad times AND in good times.

Mr Lounsbury: if you were honest, you would have to weigh the short term benefits of this mis-named stimulus package against an infinite future of lower growth. It won't stop in 2019-- you have no credible evidence that it will ever stop. The debt taken on today will be rolled in perpetuity, interest accruing all the way.

In short, the CBO estimate greatly underestimates the cost. An extra 3-7% growth in GDP (assuming that happens) does not compare to the negative infinity cost of perpetual debt.

Even your guestimate of 3-7% increased growth is dishonest. Have you checked your math? GDP is about USD $12 trillion. Lets go with your higher number of 7%. 7% of $12 trillion is $840 billion -- or $10 billion LESS than the proposed cost. That is assuming your UPPER estimate (which is doubtful, to be diplomatic) and it doesn't consider the interest expense.

I can't believe anyone would be absurd enough to suggest that 100% of the spending will go to stimulus, and there won't we any fraud, waste or pork spending. You are not asking us to suspend disbelief -- you have to be insane to even think it.

How does it make sense to spend $850 billion (ahem!) to get back $840 billion? Can you name any large scale government program that did not go massively over budget?

Programs like the Big Dig, the interstate thruway system, or the Hoover Dam were planned for months or years -- and they all went way over budget. Those are the stimulus "success" stories. This latest fiasco has almost no planning (maybe three months planning if you want to suggest Obama skipped Christmas). How can you argue with a straight face that this proposed spending is anything other than unplanned?

There is no way the government can prop up asset prices (securities or houses) to bubble levels -- other than running punitive levels of inflation. The $850 boondoggle isn't going to fix this and it is fraud to suggest otherwise.

Warren Buffet has been trying to figure out how to spend $47 billion in cash now for 4-5 years. I simply refuse to believe that the clowns in government can spend 20 times as much in three weeks. This is not an investment, this is corrupt politicians trying to create the illusion of growth.

Could the government spend money to increase long term GDP growth? Theoretically yes. But the key words are "long term". Politicians, like their constituents, want instant gratification. Real education reform might make for smarter graduates (ie more productive workers) in 20 years -- but who will remember the politician who made it happen 20 years earlier?

Congress isn't going to invest for long term growth -- its not in their personalities, and it is not in the "corporate culture" of Washington.

Decades of real life experience, as opposed to theory, have shown us clearly how this works. Politicians borrow from the future to artificially and temporarily perk up the present. The benefits are short term, the debt is not.

Mr Lounsbury, our government has not run balanced **spending**, never mind a surplus, since long before George W Bush or Barack Obama were born. Unless and until spending discipline is actually established -- not theorized -- it is a lie to suggest this debt is anything other than permanent.

Washington has no leadership. We are a country full of debt addicts, and our so called leaders are nothing but pandering enablers. The reason addicts have to go away to rehab is because their family has enabled their addiction (intentionally or unintentionally) ... The only difference here is that our enablers (the politicians) are also addicts

Anyone who has bothered to look has seen the effect of unlimited spending and debt has had on other countries. We are acting like the banana republics that we used to make fun of. We are acting like former world powers did when they were well into their decline.

This is NOT a stimulus package, this is a spending package -- pure and simple.

A real stimulus package would require a completely different culture in Washington, a population that lives within its means, a government purchasing system that wasn't rampant with fraud and waste, and a group of **LEADERS** (not pandering enablers) to sort out the good investments from the bad.

Maybe Obama or someone else can create those necessary prerequisites -- in time. But the economy will likely fix itself long before Washington's culture is changed.

I don't want to be part of a dishonest discussion Mr Lounsbury. There are two things that will fix our economy: increased savings / reduced debt levels ... and time.

The desire for instant gratification got us into this mess -- I don't believe it will get us out, not even if you mislabel it as stimulus

Feb 08 09:17 PM

[sleepless_o...:]

gramps2 - - -

I am not representing anything. I am quoting all aspects mentioned in the Washington Times article as best I understand them. If you have a better understanding of the specifics, please give them. I did not represent that any amount would be paid back at any time. I would like to discuss what the specific numbers in the article you introduced for discussion mean.

I would like to have such a discussion without personal insults. I have not questioned your honesty or your motives. I made a statement that I thought your position was that nothing should be done and asked you to
discuss what should be done. I see one answer: "increased savings/reduced debt levels ... and time." Therefore my assumption appears to be correct that you believe the government should do nothing. So we disagree - I refuse to insult your honesty or your opinion because we disagree. If you have to insult me to express your disagreement, then my side of the discussion will end.

Following are two quotes from the Washington Times article that you referenced:

"CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary."

and

"CBO said there is no crowding out in the short term, so the plan would succeed in boosting growth in 2009 and 2010.

The agency projected the Senate bill would produce between 1.4 percent and 4.1 percent higher growth in 2009 than if there was no action. For 2010, the plan would boost growth by 1.2 percent to 3.6 percent."

You said in your last comment: "Even your guestimate of 3-7% increased growth is dishonest."

I made no guestimate. I personally have no idea what the impact will be. I merely quoted the numbers in your reference. The minimum effect in 2009 was estimated to be 1.2% and in 2010 1.4%. Total 2.6%

The maximum effect in 2009 was estimated to be 4.1% and in 2010 3.6%. Total 7.7%. In my comment I rounded the numbers from 2.6-7.7% to 3-7% for the two years.

I had hoped to have a discussion about the Washington Times article you referenced. It seems you do not want to have that discussion.

I had hoped to make sure I understood your opinions and to express my own. You appear to have had a different agenda.

Feb 08 11:10 PM

[John Lounsbury:]

gramps2 - - -

I apologize for answering your comment from my neighbor's house. I should have waited until I got home so it wouldn't show up as his comment.

Feb 08 11:30 PM

[Obama is Bu...:]

Mr Lounsbury:

I read your reply in which you the debate has two facets... In #2 you said GDP growth would be (with the stimulus) 3-7%. I assumed this was your guestimate?

I did not mean any sort of personal attack -- but I do think the discussion of this "stimulus package" is very dishonest:
(1) The history of these stimulus packages is very questionable. There hasn't been one that was a resounding success (ever). Even in cases where economist "think" the stimulus helped, we have no control to compare to. We don't know how things would have progressed with no stimulus. Thus, any claim that "we must do something" is unsupported by any actual data
(2) Whether you take offense or not: if you want to measure the effects of this stimulus through 2019, please tell everyone how you plan to pay off this $850 billion of extra debt. Everyone has ideas about the programs they don't like -- tell us how you are going to pay this debt off in real life... how are you going to get Congress to go along with whatever cuts you propose? I have yet to hear a single stimulus advocate give ANY answer to this.

If you don't have an answer of how to pay back the debt, then the cost of perpetual debt is infinite, and the stimulus is prima facie a bad idea. Real investments pay for themselves -- frivolous spending does not.

As for what the government should do: sure, in a perfect world I think the government could make some good long term investments. But the incentives for our politicians are to favor the present at the expense of the future. While a few politicians may have investment or business experience, the vast majority have expertise elsewhere. Our election process rewards those who can survive on no sleep and still make witty sound bites -- not those who can make good long term choices

I do not share your view that government is omnipotent, and I think history is on my side. If the government cannot achieve a result better than doing nothing -- then it should do nothing. First, do no harm...

Whatever stimulus package you want to advocate should pay for itself (and the financing costs) in a finite amount of time. I think anyone who is business has done a cost/benefit analysis and asked how long it would take for an investment to pay for itself... This same common sense must be applied here as well.

How long will it take these "stimulus programs" to pay for themselves? How long will it take to get our $850 billion, plus interest, back? The answer seems to be: "it doesn't matter, we plan to stick our kids with the bill"

If you have a plan to pay back the $850 billion plus interest, please lets hear it. If the stimulus plan actually achieves 7% GDP growth, that works out to 0.07 x $12Trillion, or $840 billion. I don't know if I accept that 7% estimate (history suggests the results will fall short), but lets go with the esitmate

Even if the tax rate was 100%, the program doesn't pay for itself, much less the interest. It obviously doesn't provide any positive return above the costs.... Ergo, it is not an investment at all

Feb 09 01:03 AM

[Obama is Bu...:]

Mr Lounsbury: If you didnt see it already, please take a look at the Washington Post's (as opposed to Washington Times) analysis of the spending package ... hat tip to the SA author (calafia beach pundit) for reminding me and mentioning it first on SA.
seekingalpha.com/artic...

As you can see from the WP's excellent analysis -- this thing is a gigantic spending package, not a stimulus package. There are provisions for all sections of the government -- many are things that are clearly not stimulus, they are spending "wish list" items that have appeared regularly for decades.

This is nothing but a shameful grab for increased spending by unscrupulous politicians -- preying on a scared populace and taking advantage of a bad situation

Feb 09 08:30 AM

[sabre_jenn:]

I don't know if gramps2 was trying to make a personal attack or not -- after working on Wall Street for years, many of us have developed rather thick skins and we don't always remember that people elsewhere in the country will interpret our statements like "normal people" (as opposed to the very aggressive personalities common to a trading floor).

What I do know is that I take enormous offense to anyone calling this blatant pork spending a "stimulus package".

I am not an idiot. I can read Obama's spending proposal, and the changes made to it by Congress. So can the people at the Washinton Post and the CBO. This is ****NOT*** a stimulus package, and it is absolutely insulting that the politicians thought they could get away with lying to us.

The bulk of this pork spending program will happen in year 2 -- which is perfect timing to get Obama re-elected. If there really is a crisis that demands government action now -- then why is most of the spending deferred for a year or more?

If the spending can be deferred, it means the Obama administration does not see a crisis. There is no reason why we need constant Bush-like fear mongering, with tax cheat Geithner telling us we had better pass this thing sight unseen or else the sky will fall.

Welcome to the third term of the Bush administration...

Feb 09 09:56 AM