Chait's post on the number of jobs the stimulus is likely to create gets right at the point I was making yesterday, about this really being a technical debate rather than a political one. The GOP and the Senate moderates tried to cast the debate as a battle of political philosophies--Democrats are for big-government, Republicans are for small government, centrists are for moderation above all else. But this wasn't a debate about philosophies. It was a debate about the number of jobs we wanted to create. The House version of the bill was likely to create on the order of 3.5 million jobs.
The Wall Street Journal put the bits and pieces together today. Key passage: A key barometer for financial-sector health -- the London interbank offered rate -- soared in the fall after Lehman Brothers Holdings Inc. filed for bankruptcy, because banks quit lending to one another. On Wednesday, the three-month dollar Libor inched up to 1.23% on disappointment about the Treasury Department's financial-stability plan, but has been easing since the start of the year and is down sharply since its peak of 4.82% on Oct.
I don't want to take anything away from Obama, who by all accounts will get a big political boost out of the stimulus. According to David Rogers of Politico, it now looks like he could get 20 or more GOP votes in the Senate House,* which would be pretty remarkable and could have important implications for the rest of his agenda. I also don't want to take away from the substance of the package, which is by no means insignificant.
From The Architect's Wall Street Journal column today: The Democratic stimulus will slow recovery, but not stop it. Recessions don't last forever and, if history is a guide, sometime late this year or early next the economy will rebound on its own. When that happens, Democrats will argue that their untargeted, permanent spending actually revived the economy. I mean, where do you even start? We're on the verge of a deflationary spiral, and this guy's talking like it's a mild economic hiccup. Recessions don't last forever? Well, no.
Okay, I was wrong--I'll be the first to admit it. The conference committee didn't end up moving nearly as far toward the House version of the stimulus bill as I thought it would. The compromise, from what we know of it, looks much more like the substantively inferior Senate version: the cuts to state aid and school construction and COBRA subsidies more or less stand. So does the $70 billion Alternative Minimum Tax relief measure, which may be a perfectly fine idea, but isn't stimulus under any reasonable definition of the term. This is disappointing, to say the least.
The FT commentator has a disturbing column about the limits of the Treasury plan. I think he's somewhat pessimistic (not egregiously so, but somewhat). But, as he says, it's not clear we can afford not to be pessimistic. Also, he makes a great point about the difference between illiquidity and insolvency, which is really the key analytical issue here: All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic.
This, from today's Times, is the point I was driving at (maybe unsuccessfully) in my reaction to the Geithner plan yesterday: Frank Pallotta, a former managing director at Morgan Stanley and a veteran mortgage trader, said the gap was so wide between what banks were valuing their assets and what investors were willing to pay that the government would attract investors to buy only if it provided a subsidy of one form or another. "Right now, the banks aren't selling anything," said Mr. Pallotta, now a consultant to both buyers and sellers of distressed mortgages.
A couple thoughts:* First, as a political speech, which this partly was, I think it was strong. Geithner's challenge was to restore the credibility the Bush administration pissed away with its overly credulous, seat-of-the-pants approach to the banks last fall.
Barack Obama is nothing if not a master rope-a-doper. For months last year, anxious liberals pleaded with him to respond to John McCain's lacerating attacks. And, for months, Obama soared above the fray. Then, in early September, the McCain campaign squeezed out two ludicrously dishonest ads-accusing Obama of force-feeding sex education to kindergarteners and of calling Sarah Palin a pig.
Will Straw of the Center for American Progress has done some interesting state-by-state calculations comparing the benefits of the House stimulus bill to the Collins-Nelson compromise in the Senate. Here's the difference for a couple key states, in terms of fewer jobs created under the compromise (the numbers reflect an estimated range): Indiana: 10,177 - 12,436 Kentucky: 6,616 - 8,094 Maine: 1,831 - 2,316 Nebraska: 1,931 - 2,543 Ohio: 16,961 - 21,026 Florida: 29,607 - 35,706 That seems like a high price to pay for nice-sounding but intellectually vacuous centrism. P.S.