Stimulus Package Principles

The size and details of the stimulus package are, at this point, up in the air. The House version comes in at around $816B; the initial Senate version (yet to be passed by the Senate) at roughly $890B. Based on a few news stories I've heard, apparently the word "compromise" in Congress almost always means combining every one's pet projects, so the pundits are predicting that it will probably require approximately $1T to actually get a bill through Congress.

Based on the House Bill, here's the rough breakdown in percentages of the total:

35% - Tax Cuts. These are roughly divided in half...about 50% for reductions in payroll taxes and earned income expansion and about 50% for business in the form of accelerated depreciation and changes to the recovery of past taxes paid for current losses.

30% - Unemployment extension in time and small increase in payments. Increase in food stamp program and assorted other Health and Welfare sort-of programs. Expansion of COBRA benefits and government participation in COBRA payments; expansion of Medicaid.

12% - Infrastructure. School renovation, federal buildings renovation, improvement of national electrical grid, alternative energy research, highway construction, expansion of Internet services to rural areas, water projects.

10% - Education related expenditures, including expansion of Pell Grant Program (student loans).

10% - Aid to State and Local governments, but 61% of aid must be education related.
1% - Miscellaneous. Information technology for State Department, Census money, Park Service, Homeland Security, etc.

My conclusion is that this House Bill essentially reflects Democratic goals and in some cases (Pell Grants), puts money back in that they lost in prior battles, as well as sort of a back-door entry to universal health care. In other words, a lot of the Republican criticisms are correct. While I might support some of the Democratic proposals elsewhere in the budget process, not sure they belong in a supposedly "bi-partisan emergency economic stimulus package." This doesn't mean I agree with the Republican proposals (e.g. corporate tax cuts to make us more globally competitive...how many times have we heard that line?).

I do not understand the logic or methodology regarding how the above translates to jobs. Some is obvious, such as $30B in new highway construction; other expenditures, such as $20B defined only as "Programs for Health and Human Services" are not so obvious and there is probably some validity to the Republican fear that there is much here to permanently expand the U.S. Government.

Here, a word or two regarding my own background and philosophy may be in order. Over the past 40 years or so, my "careers" may be sorted into four categories. I spent roughly 10 years in education, 10 years in industry almost totally dependent on government contracting, 10 years in private, commercial industry and 10 years in civil service. As a result, I like to think that I have a broad understanding of what works best within which type of environment. In general, bureaucrats are paid (and rewarded) by following the rules. That may be dull and, in many instances, not as efficient, but it does provide stability and continuity necessary for sound government. Risk assumes a greater role in private enterprise and as a result that sector is more innovative and dynamic, but not as stable. But, there is no blanket rule regarding privatization vs. civil service and it largely depends on the task involved. For instance, I do not want a privatized tax collection system or a privatized police department, military or homeland security, but would want private contracting in most of our aerospace industry, highway construction, etc.

Perhaps a very flexible guideline would be that when dealing directly with the public (or citizen) or critical national security issues, you probably want to keep that within government. When you are dealing with a product to be delivered to the government, private contracting probably works better.

To return to the stimulus package, I am somewhat disappointed by the House Bill. While I agree with many of the Democratic policies, they may have been saved for a subsequent debate on the needs and priorities of the country. However, as the saying goes: "What goes around, comes around." The package is only slightly larger than the $750B dollar stimulus package for financial institutions, half of which seems to have evaporated into thin air, following the distributions, or the $750B Bush tax cuts, which expire in 2010.

On one hand, I am not overly concerned with the addition to the debt (we're still not to our post WWII level of gross debt-to-annual GDP ratio, which was over 100% while we paid off the cost of the war. On the other hand, I expect the mounting debt, coupled to a substantial reduction in annual GDP could take us to those prior highs. And, today, there is a lot more global competition than in the post WWII era, so "recovery" is apt to take longer.

In this sense, I would have liked to have seen a more dramatic shift to a "New Old Economy" in the package. The House Bill just sort of begins to catch us up socially where we left off with Bush and is not I am afraid substantial enough to genuinely "change" economic direction toward a renewed industrial base. I have little doubt that, within the Beltway and Washington, D.C., Obama will score a "success" and emerge with a "more or less" acceptable bi-partisan stimulus package. But within the context of the greater change for the country his candidacy promised, it unfortunately falls short.

As a sort of Postscript, conceivably the package will fail to create the necessary "stimulus," regardless of size. I believe the magnitude of the economic crisis is such that a distinct paradigm shift is needed. The absolute best the package may accomplish (without quadrupling its cost) will be to temporarily ensure continuing social stability. I think the house of cards is falling; going forward, we must be willing to accept, for a long time at least, a reduced presence in the rest of the world. It is time to step back from globalization, without necessarily abandoning it, and put our own house in order. Economically, in my opinion, this requires an overhaul of our financial industry regulation and oversight and at least the beginning of reorganizing the national economy. Whether this can be accomplished within the given political and social milieu (the influence of lobbyists, campaign financing, gerrymandered districts and an ideologically polarized country) is, frankly, doubtful.

In sum, as I look at the battle over the economic stimulus package, an old French proverb comes to mind: "The more things change, the more they remain the same."

Next: Back to Economic Basics and Fixing the National Economy in the Broader Global Setting.