Hurry Up and Waste

by Jonathan Chait | March 4, 2009

Republicans like to accuse Democrats of wasting taxpayer dollars and being condescending eggheads. But if President Obama's economic stimulus fails to prevent a depression--and I'm not saying it will--it will be because he didn't waste enough money, and didn't spend enough time being a condescending egghead.

Let's start with the egghead part. The stimulus bill is based on Keynesian theory, which I'll briefly explain in the condescending manner we liberals so enjoy using. When we're in a severe recession, good productive capacity goes to waste. Autoworkers sit home unemployed because nobody has money to buy cars, and cooks sit home unemployed because nobody has money to go out to dinner. The first thing for government to try is to reduce interest rates, to encourage businesses to borrow money to hire more workers and buy equipment. But, if interest rates hit bottom, then the government has to shock the system back to life by spending money directly. Say, Washington hires construction workers to build something, and those workers start buying cars and going to restaurants, and, after a while, the economy is running again. So Obama decided to spend a lot of money. The Republicans' hoary opposition technique is to boil any legislation down to one or two silly-sounding expenditures that Joe Sixpack can understand--Midnight basketball! A bear DNA study! Obama anticipated this critique and tried to eliminate all waste from the bill. He kept earmarks out and focused the spending on public investments like energy efficiency and education. The logic went beyond just politics. If you're going to spend a lot of money, you might as well get something useful for it. Yet a few downsides to this clever tactic have emerged. First, a stimulus can shock the economy back to life if it happens quickly, but there are only so many useful projects you can spend money on really fast. Mass transit and new electrical grids take years to plan and build. There are worthwhile programs you can fund right away, but the list runs dry after a few hundred billion dollars. So the stimulus is less than half the size of the projected drop in output. It might be enough to stave off disaster, but then again, it might not. Second, by emphasizing the worthiness of his spending proposals, Obama has allowed the debate to revolve around the merits of each project. Normal spending is judged on those terms--whether the goods or services justify their cost. The point of stimulus spending, by contrast, is simply to spend money--on something useful if possible, wasteful if necessary. Keynes proposed burying money in mineshafts, so that workers would be hired to dig it out. (Imagine what the GOP could do with material like that.) World War II was an effective stimulus that, economically speaking, consisted of 100 percent waste. If war hadn't broken out, we could have enjoyed the same economic benefit by building all those tanks and planes and dumping them into the ocean. Third, Republicans have simply carried on as if the stimulus were filled with pork anyway. In fact, the bill contains either zero pork or a vanishingly tiny amount, depending on how you define the term. But that didn't stop Rush Limbaugh from calling the bill "porkulus," showing, for a man of his girth, an unusual lack of self-consciousness about deploying porcine-themed insults. Even before the bill was written, Republicans decided its prototypical measure was a "mob museum" in Las Vegas. The basis for this claim was not that there was legislation funding a mob museum, or even that such legislation had some chance of becoming law, but that Las Vegas had wanted funding for a mob museum. Congress not only declined to fund a mob museum, it bent over so far backward to avoid frivolous projects that it forbade any funds going to a "casino or other gambling establishment, aquarium, zoo, golf course, swimming pool, stadium, community park, museum, theater, art center, and highway beautification project." (Because Lord knows the government has no business funding things like zoos or museums.) Congressional Republicans have continued to churn out lists of "wasteful" spending in the stimulus bill, highlighting such outrages as funding for Amtrak, making federal buildings more energy-efficient, flood-reduction projects on the Mississippi River, and the like. They have assailed the bill as a "wish list." Well, yes. If you suddenly had to spend $10,000, would you spend it on things you'd always wanted, or would you spend it on something you'd never even considered before? The mass ignorance on display was best exemplified by the contretemps over a provision to help undergird hemorrhaging state budgets. Most states are required to balance their budgets annually. During downturns, their revenue collapses and their costs (on things like Medicaid) rise. This forces the states to raise taxes and cut spending, the exact opposite of what you want in a recession. Thus, the notion of giving federal money to the states was probably the single most defensible provision in the whole bill. Naturally, it became a particular target of conservative ire. A Weekly Standard editorial declared: It's hard to argue that the $248 billion in transfers to the states will stimulate the economy. The money is being taken from one pot and put in another so that the states can balance their books and ensure the proper treatment of beneficiaries. It doesn't prime the pump. It just keeps the pump from falling apart. It's a breathtaking passage. It begins by insisting that helping state budgets won't stimulate the economy, then proceeds to methodically undercut its own assertion by pointing out that the stimulus will help states avoid cutting spending or raising taxes, and concludes with a metaphor that clinches the case: After all, keeping the pump from falling apart is a good idea, isn't it? Part of the problem here is that Obama never explained the theoretical basis for his plan. Even moderate journalists and members of Congress don't understand it. Democratic Senator Ben Nelson cut state budget support, which he called "non-stimulative" spending, apparently unaware that this is a contradiction in terms. In his press conference last Monday night, Obama summed up his approach like so: "I think that, over time, people respond to civility and rational argument. " A little intellectual condescension wouldn't hurt, though.

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