Covering the Effects of the ARRA: Self-Denying Columnist Department
Clive Crook, February 10, 2009:
Fiscal stimulus: repent at leisure: The administration was right to press for a big fiscal stimulus, I think, and it is better to have the bill that emerged from Congress than none. (The FT called it ugly but necessary: I couldn't have put it better myself.) Still, if ever a rushed extravagant purchase was likely to induce a touch of buyer's remorse, it is this one. Republicans have a point when they complain about the inordinate length of the bill.... Republicans are right to say that not a single senator or congressman voting for it can have read it.... Not every unread piece of legislation costs taxpayers $800 billion. It isn't too much to ask that the politicians voting for this law, even if they had to make an exception, had read it first. It will be interesting to see what is hiding in those 1,400 pages. Some disturbing early discoveries have already been reported. For instance, the bill appears to reverse or at any rate undermine the Clinton welfare reforms. It appears to ban the hiring of skilled immigrants in much of the finance industry. It appears to cap finance-industry pay much more aggressively than the Obama administration has proposed. Even if you don't think these ideas are harmful or unworkable or both, as I do, you have to admit that they deserved more of an airing than they received--which is virtually none--before they became law.
Clive Crook, March 7, 2010:
Good for America, as far as it went: Mr Obama finds himself at a disadvantage, his political capital running low. One reason is the public’s verdict on last year’s fiscal stimulus. Three-quarters of the electorate thinks the stimulus was mismanaged. The country’s children are being strung with debt, voters reckon, for no good reason. This perception that billions have been wasted makes everything else the Obama administration wants to do – notably, healthcare reform – even harder. The public is wrong about the stimulus...
<COLUMBO: Just one more question...> ...If Clive Crook really thinks that the belief that the stimulus bill was mismanaged is wrong, than why did he say a year ago that the stimulus bill was mismanaged? </COLUMBO: Just one more question...>
And why didn't Crook spend time explaining why the bill was far from ideal--that the solid "just say no" Republican front in the House required that the bill managers corral an extremely high proportion of Democrats, and the supermajority requirement in the Senate meant that a lot of sausage-making was needed to get from 50 votes up to 60? The disfunctional Senate and the bad actors in the Republican Party are at the heart of the problem. But Crook didn't say that then.
In fact, he cannot say that now: Crook goes on today:
Good for America, as far as it went: ...the error is understandable. As with healthcare reform, the machinations that produced it were gruesome. As with healthcare reform, the administration had no clear policy of its own, and relied on a dysfunctional Congress that the country does not trust...
Not that: disfunctional Congress. The words: Republican, filibuster, and supermajority simply do not appear anywhere in today's column. (In last year's column filibuster and supermajority do not appear. Republican appears here: "Republicans have a point.... Republicans are right to say.... Of course, it is hypocrisy for them to say this.... But that doesn't invalidate the criticism...)
The rest of the column:
Two other factors intervened. First, the downturn was deeper and more tenacious than expected. Second, not so well understood, the stimulus was smaller than it looked. Most economists agree that the downturn called for a big stimulus, and that it is working. Estimates by the independent Congressional Budget Office reflect this view. The CBO finds that the stimulus boosted output in the fourth quarter of 2009 by between 1.5 per cent and 3.5 per cent, and reduced the unemployment rate by between 0.5 percentage points and 1.1 percentage points – unspectacular gains, given the scale of the commitment, but valuable nonetheless.
Sceptics doubt these numbers. Writing in The Wall Street Journal, Harvard University’s Robert Barro argued that, judged over five years, “the fiscal stimulus package is a way to get an extra $600bn [€440bn, £396bn] of public spending at the cost of $900bn in private expenditure. This is a bad deal.” Mr Barro’s analysis is questionable. He sees the stimulus as a spending increase.... But as Gary Burtless of the Brookings Institution points out, more than half the stimulus took the form of tax cuts – either directly, or by avoiding increases in state taxes that would otherwise have been necessary. As the recession took hold, state governments saw their revenues drop. They face limits on their borrowing. Without federal assistance, they would have had to put their taxes up. Also, Mr Barro’s multipliers are suspect....
Stimulus sceptics are on firmer ground when they ask if concerns about future public debt are weighing on consumers. This is hard to judge....
Michael Woodford of Columbia University concludes a recent paper on the subject from the National Bureau of Economic Research by noting: “Careful signalling about the likely direction of future policy is likely to be as important as current actions.” Few would praise this administration for careful signalling. And the recent budget boosts public spending long after the economy is presumed to have returned to full employment. Common sense and modern macro theory seem to agree that vigorous short-term stimulus makes sense, but only if married to credible fiscal consolidation in the medium term. Even if the signalling had been better, the effects of the stimulus would still have been reduced by a point that is obvious, yet usually ignored: the fiscal role of the states makes the overall stimulus smaller. Mr Burtless is right that some of the stimulus was spent on avoiding higher state taxes. But you can look at that another way. As much as a third of the stimulus was instantly neutralised by the states’ limits on borrowing – by the need, in other words, to override the states’ automatic destabilisers. Discussion of the US budget deficit invariably focuses on the federal balance, not the general government balance. Since state expenditures are very large – more than a third of general government spending – this is misleading. A new study by Joshua Aizenman and Gurnain Pasricha, also published by NBER, which looks just at spending, concludes that “the aggregate fiscal expenditure stimulus in the US, properly adjusted for the declining fiscal expenditure of the 50 states, was close to zero in 2009”.
Even on this account, because the stimulus cut taxes as well, it helped. But it would have helped a lot more if it had been bigger; if its designers had commanded public confidence; and if a plan to control medium-term borrowing had been included up front.
