Over-stimulated?

Over-stimulated?
Obama, Congress discuss stimulus plan. Some fear unintended consequences.

By Eric Kulisch

   President-elect Obama urged Congress Thursday to quickly pass a giant government-spending bill designed to revive the ailing U.S. economy, saying dramatic action is needed to prevent the recession from dragging on for years and the unemployment from reaching double digits.
   In a major speech at George Mason University in Fairfax, Va., Obama said worries about adding to the deficit are legitimate, but that government was the only actor able to provide the short-term boost during such a deep economic crisis.
   On Friday, the Labor Department reported that payrolls shrank by 524,000 jobs in December, bringing the annual job loss to almost 2.6 million and the unemployment rate to 7.2 percent from 6.7 percent in November. The drop in employment last year is the largest since 1945.

Obama

   The Congressional Budget Office estimates the federal deficit for 2009 will be $1.2 trillion, not counting the additional cost of the stimulus plan. The figure is two-and-a-half times the figure of last year’s record deficit. The national debt is projected to balloon an additional $2 trillion from the current $10.6 trillion.

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   Obama advisors have said they are considering an economic stimulus package in the $800 billion range, a large portion of which would be devoted to infrastructure projects that return long-term benefits.
   The president-elect said his plan would invest in clean-energy production, modernizing federal buildings and schools, digitizing medical records, upgrading the electric grid, and pre-approved highway and bridge projects that need funding at the state and local level.
   He repeated his intent to reform the business of government to rein in wasteful spending and increase accountability for funding decisions.
   “That also means an economic recovery plan that is free from earmarks and pet projects. I understand that every member of Congress has ideas on how to spend money. Many of these projects are worthy, and benefit local communities. But this emergency legislation must not be the vehicle for those aspirations. This must be a time when leaders in both parties put the urgent needs of our nation above our own narrow interests,” Obama said.
   A recent interview by Rep. Jerry Lewis, R-Calif., shows that old Washington habits may be hard to break. He recently told the Riverside Press-Enterprise that “the earmark business is kind of out of fashion,” but added: “We’ve got a job to do to bring every dollar we can back to the district. My intention is to do everything I can to see that Southern California and our district get their share.”
   Obama’s speech sounded more like a campaign event than a policy one, and lawmakers are eager to get specifics about the stimulus plan.
   Many politicians and analysts have questioned how so much money can be spent quickly without large amounts of money getting wasted on projects that don’t improve core infrastructure. Among the thousands of project requests forwarded to Congress by mayors is a proposal from the city of Miami to build a waterslide.
   Sen. Jeff Sessions, R-Ala., said at a Senate Budget Committee hearing the same day that the rush to spur economic activity may lead to mistakes.
   Proposals for spending $175 billion on highways and bridges during the next two years are triple the expenditure in the current federal budget. “I just can’t image that can be spent efficiently. There’s just not enough cement mixers to make it work without surging prices unnaturally. So we’ve really, really got to be careful about that challenge,” Sessions said.
   He urged that the recovery plan be kept as leans as possible because the enormous debt being added to the government’s balance sheet will eventually have to be repaid.
   Sen. Sheldon Whiteside, D-R.I., noted that government borrowing has immediate consequences as evidenced by the $260 billion in interest expense in last year’s budget. For that amount, the government could provide universal health care in America, double Pell grants for college students, double the Head Start program for school age children and fix 95 percent of the bridges that need repair.
   The interest expense is likely to worsen as interest rates and deficits increase in out years.
   He criticized the Bush administration for racking up a $7.7 trillion debt, not counting the recent financial and other industry bailouts, when it should have been setting money aside during the boom economy.
   “It strikes me that if we’re going to have to do stimulus spending and we’re in a very bad deficit environment it makes sense to do as much of the stimulus as you can for infrastructure on two grounds. One, you’re probably going to have to pay for the stuff anyway, sooner or later, so why not do it now and frontload it into the stimulus. And, two, when you’re done with it you’ve got a tangible asset in a probably non-economic or accounting sense.
   “You’re taking a cash asset of the country’s and moving it to become a tangible asset of the country’s and not making the country any worse off, assuming you’re spending wisely. And if you’re spending very wisely it can actually make the country much better off because it could be a wise capital expenditure,” Whiteside said.
   Robert A. Sunshine, acting director of the Congressional Budget Office, agreed that infrastructure investment can be beneficial.
   “If you can do things that both stimulate the economy and make it more productive in the long term that’s the best possible combination. The challenge is to define the infrastructure investments that actually do that. And that’s not so easy when you’re trying to do it quickly and trying to infuse a lot of money into the program. But if you can do it right, (many) infrastructure investments do have a positive return and they enhance the productive capability of the economy.” ' Eric Kulisch