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Size matters (at least for stimulus)

The Fiscal Times interviews Rep. David Obey (D-Wis.):

The problem for Obama, he wasn’t as lucky as Roosevelt, because when Obama took over we were still in the middle of a free fall. So his Treasury people came in and his other economic people came in and said, “Hey, we need a package of $1.4 trillion.” We started sending suggestions down to OMB waiting for a call back. After two and a half weeks, we started getting feedback. We put together a package that by then the target had been trimmed to $1.2 trillion. And then [White House Chief of Staff] Rahm Emanuel said to me, “Geez, do you really think we can afford to come in with a package that big, isn’t it going to scare people?” I said, “Rahm, you will need that shock value so that people understand just how serious this problem is.” They wanted to hold it to less than $1 trillion.

Then [Pennsylvania Senator Arlen] Specter and the two crown princesses from Maine [Sens. Olympia Snowe and Susan Collins] took it down to less than $800 billion. Spread over two and a half years, that’s a hell of a lot of money, but spread over two and a half years in an economy this large, it doesn’t have a lot of fiscal power.

In reality, it was quite a bit less than $800 billion, as it included almost $100 billion for an AMT fix that had virtually no stimulative effect at all. So we got a stimulus that was less than half as big as what we thought it needed to be then, and then the recession we were facing turned out a lot worse than we'd anticipated.

(Via Paul Krugman)

By Ezra Klein  |  July 16, 2010; 10:57 AM ET
 
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Comments

CLEARLY this means that stimulus does not work and we should not spend any more money on stimulus.

Posted by: Levijohn | July 16, 2010 11:18 AM | Report abuse

(sarcasm)

Posted by: Levijohn | July 16, 2010 11:20 AM | Report abuse

$800,000,000,000 divided by 3,000,000 jobs saved or created is $266,667 per job, which is more than 4 times the annual salary paid to the median wage-earner.

That seems like a lot of stimulation: who were the businesses whose employees' wages are being paid for 4 years? I'd like to get in on that handout! I mean, really, for $266,666 dollars, I'd hire somebody... I could pay the worker $35k -- more than minimum wage -- and invest the rest in a nice safe foreign stock or just hoard the cash. Sound like a plan? Sound like what's happening?

Posted by: rmgregory | July 16, 2010 11:45 AM | Report abuse

rmgregory:

You're aware that 40% of the stimulus package was tax cuts, right?

And you're aware that labor isn't the only cost for constructing roads and buildings, right?

Or are you really just that stupid?

Posted by: lol-lol | July 16, 2010 11:58 AM | Report abuse

IBM has revenue of $104 billion a year and about 400,000 employees. According to rmgregory, the salary of an average IBM employee is $250,000.

This is what conservatives actually believe.

Posted by: lol-lol | July 16, 2010 12:06 PM | Report abuse

Here's my question: how do you spend $1.4 trillion in 2.5 years? More important, how do you spend $500-$600 billion in one year -- the time when you most need to spend the money? Annual state budget shortfalls are only $200 billion, and cutting a check for that amount will cause all kinds of moral hazard. Unemployment benefits and COBRA are another $100 billion. Food stamps are about $20 billion. Medicaid is at most $50 billion. So you're still a couple hundred billion dollars light in the first and most important year of the stimulus.

Posted by: moronjim | July 16, 2010 2:19 PM | Report abuse

moronjim:

Once again, 40% of the stimulus was tax cuts.

And you're ignoring the various "shovel-ready" transportation projects the stimulus funded as well as alternative energy initiatives.

It wasn't just emergency spending - it was infrastructure building to provide a long-term boost.

Posted by: lol-lol | July 16, 2010 3:12 PM | Report abuse

Not to mention the fact that to then get it through the DEMOCRATIC moderate gauntlet, they had to strip out the really important state & local stabilization funds in favor of useless (or at least far less stimulative) pork.

The stimulus as passed was crap, and unfortunately it set the tone for far too much of Obama's relationship with the Senate. He has made a pattern of accepting seriously inadequate policy outcomes just to get "wins," and that's led to the transformation of people like Nelson, Brown, and (worst of all) Joe Lieberman into virtual kings.

Understand, I say this as a person who supported the guy way back in 2007 and will probably vote for him in 2012. But he needs to be tougher. Not in the "I said 'kick their ass' on TV" sense, but in the, "I will face political consequences for screwing him" sense. Right now there are a lot of Senators who seem totally free to outsource the consequences of sleazy, self-interested, and irresponsible behavior to the White House. That needs to change.

Posted by: NS12345 | July 16, 2010 3:20 PM | Report abuse

@mj:Annual state budget shortfalls are only $200 billion, and cutting a check for that amount will cause all kinds of moral hazard.

It doesn't have to. The money could be contingent on states putting together a long term budget plan to either raise revenues or cut expenses. Before I help you get out of that hole, prove that you won't just dig another one.

@NS: The stimulus as passed was crap

That's a bit harsh. It was inadequate to the task of restoring the economy, but it did halt the slide into depression, begin the turnaround, and fund some very smart alternative energy and infrastructure projects. Having the AMT fix in there was kind of crappy. Money going to tax cuts and not spending didn't stimulate the economy (although it did help people drowning in debt a little) and so shouldn't have been in the stimulus. There should have been a separate tax relief bill to cut payroll taxes and fix the amt with all the stimulus (even though it would still have been too small) money going to states and direct job creation.

Posted by: srw3 | July 16, 2010 3:45 PM | Report abuse

Great title.

Good luck explaining that to Emanuel, though.

Posted by: jes7 | July 16, 2010 6:58 PM | Report abuse

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