1. It is large enough that it will probably get the economy out of a technical recession. Which is to say, GDP will stop dropping.
2. It’s too small and too badly constructed to stop the ongoing job losses. Fewer people will be employed in December than are today. [pdf]
3. There’s a lot of money for energy, but it’s not enough. Needs to be about 200 billion, and needs to have a long term commitment so that industry will get behind it hard.
4. There’s a lot of money for states and for schools and colleges. That’s good. There are some controls on the use of the money, but not as many as I’d like. In particular universities should be told to stop raising tuition faster than inflation, period. And states need some sort of stick to start cleaning up their own fiscal houses. Still, overall, they need the money, and this is one of the better parts of the bill.
5. Lots of money for health care, mostly to Medicaid and to help with COBRA payments, so folks who lose their jobs won’t become uninsured. Good idea and needed, but not a visionary plan that starts setting the groundwork for universal healthcare, by any means.
6. Less money for transportation than you’d think, with 30 billion for roads, and about 10 billion for trains and mass transit (although a fair bit of State money will be used for transportation, so probably you can double that or a bit more). Ten billion is, well, a joke. This is the time to be buying up rights of ways and planning for high speed train corridors. It’ll never be cheaper, and it directly tackles the real energy problem, which is less heating bills than use of oil for transportation—high speed trains will cut hard into both auto and plane use, and thus into oil use.
7. Six billion for broadband expansion is far less than required to be taken seriously. A lot more than that could easily be spent, given that the US has both worse broadband penetration than its competitors and far worse broadband (as in 5 to 10 times slower) than countries like Japan, Korea and even many European countries. America invented the internet, but it’s falling far far behind. Universal high speed, cheap, uncapped broadband would be a huge win for everyone, but it’s not in this bill.
8. The tax cuts allow companies to write off prior losses. This is bailout bill 2, hidden in the stimulus bill. Very clever of Obama. Since, as with other bailouts (except for autoworkers), there are essentially no conditions on this bailout, there will be no real changes in who runs things—the same people who caused the meltdown will remain in charge, with their bonuses, positions and salaries largely intact.
How This Will Play Out
This will be a technical win that the adminstration will be able to point to and say "see, we’re not in a recession!" For ordinary people however, there will be both wage deflation and real asset deflation, while there are fewer jobs. People will feel worse and be worse off in December than they are today. Private industry will take the money, but because there is no clear vision of the new economy, they will not massively invest in new hires, training and infrastructure. The surest bet will probably be military spending, because we know that Afghanistan will be going on for years, while most of this spending is too haphazard to base a business investment plan on.
Hopefully in 2010 Obama will get a do-over, and hopefully he’ll come up with a plan with vision. Or perhaps, through the year he’ll come up with one. But this isn’t it. Perhaps that’s unfair, as this is a stimulus bill, but when you’re spending this much money, probably your biggest shot of spending for the entire year outside the budget, where discretionary spending is limited, you should make it large enough, effective enough, use it to restructure the economy and provide a vision which private actors can get behind. The plan as it stands right now does none of those things.
End Notes:



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ZED!
Well, Ian, we shall simply have to ‘make’ President Obama do what is necessary.
Many arre imagining this ‘recession’ will be over within a year or so, I think we’re lookling at four to five, with considerable pain, which will be prolonged and fall mostly on those who are not of the top ‘percentiles’.
Which is to say; all of us who are not part of America’s Own Ari$tocracy or the Political Cla$$ …
What, by the way do you think of the apparent ‘off-shoring’ of the monies showered upon those’too big to fail’?
Have you heard Prof. David Harvey’s take on the ‘coup’?
DUGG by dwbartoo
Thanks for this, Ian.
I’ve seen little if any money for the States. In just a few weeks Arnold will not be sending out the Welfare Checks for Thousands of Americans that can least afford to lose what little income they have. Arnold is acting just like GW did when he was warned Katrina would be a catastrophe, he is doing nothing about it. Can you imagine what will happen when thousands of Families can’t pay their rent, feed their kids, pay for their Medicines to stay alive ?
And yet no one is mentioning this coming human disaster beyond wondering if IOU’s are legal for the State Treasurer to send out. What landlord or grocery will take your IOU come Feb.1 ????
Sure hope Obama’s plan is effective. If not, we’ve shot our wad and we’re in deep shit.
Before I read the post I thought I would supply some anecdotal evidence of the tanking economy.
I live in southern Westchester Co. Just above NYC. My area called Fleetwood abutts Bronxville, one of the richest areas in a rich county. To the west is Yonkers which is not so well off. To the south is the the northern Bronx which is not a high income area. Our little village has two main shopping streets with small shops – the usual – hair dressers, nail salons, produce market, shoe repair, real estate, banks, coffe shops, stationary/news stands, florists etc.
In the last several months the following have closed:
one real estate company/broker
a retail flooring store
twos hair dresser/salons
a travel agency
a locksmith
two cell phone stores
an internet “cafe”
In the 10 years I lived here all the stores on the two streets were rented and doing business
The company where I am working now for the last 6 months has put most of the staff on 4 day weeks, and cut back all paid holidays etc. They never had a health benefit so it’s basically you are paid for the days that you are there end of story.
This is not looking very good.
I expect there will be riots.
There’s always money for prisons, right?
There you have it.
Our ‘foreign policy’ consists of bombs and bullets and the willingness to use them.
Our ‘domestic policy’ consists of bullets and prisons and the willingness to use them.
Our ‘monetary policy’ appears to be to save the banks and admonish the people to personal ‘responsibility’ … and the willingness to ’screw America first’.
One audaciously hopes that this might soon change.
Getting people back to work has to be not only new jobs but placing workers who are losing their jobs into them.
Circuit City is closing putting 30,000 out of work. These workers are not going to slot right into green jobs or fix bridges and tunnels.
We need to really survey the work force and create jobs for the unemployed and more work for the under employed.
What will happen to all those empty stores? Will the property owners default on the property taxes? Will that cripple the towns they are in and cause cut backs in services and employment for cops, teachers, street cleaners and so forth?
We have entered into a growing and gathering momentum downward spiral. Our economy seemed to be too addicted to what amounts to useless spending on junk we really don’t need. But producing and selling that junk was the jobs which are now disappearing as well as the jerks on Wall Street who did nothing for big bucks.
We need to find a sustainable model which is less dependant on credit and consumer spending on “junk”.
We are in for some radical realignment of the “value” of things – everything and a change in attitude about what we “need” and what we can afford.
I seriously don’t think Obi’s guys truly understand that the gig is up and we need to try something completely different rather than print some money and drop it into the economy – especially the banks which do nothing to create jobs. Not one thing.
Too little.. too late… too unfocused….
but, here it is for your viewing pleasure
http://appropriations.house.go…..-15-09.pdf
Speaking as a college professor, the colleges will only be able to stop hiking tuition when the state governments stop cutting back on state funding. State support of higher education has declined steadily and dramatically over the last 40 years while costs have risen (in part owing to greater demands/need for high technology).
The speed of the unraveling is what will wake them up.
They thought they if they dropped the enormous sum of $350BB on Wall Street, attitudes would change and people would go on buying what they can’t afford – go one being wage slaves to “credit”.
It ain’t happening. The $350BB evaporated and didn’t do a thing, the numbers got worse. And they will get worse with the next $350BB dropped on Wall street.
Wall Street and banking is the place where INVESTORS make (lose and gamble) money. The fact of the matter is it has little to do with the real economy.
We’ve been lied to for 30 years about unemployment. It’s 2x what they say it is.
We’ve seen real income drop, people forced to work two and three jobs just to survive in the past 30 yrs.
We’ve seen a few tens of billionaires created and 1000’s of millionaires.
We seen more and more homelessness
We’ve seen more uninsured
We’ve seen a steady rise in bankruptcies.
We seen a staggering rise in uninsured and accompanied by the increase in the cost of medical care.
The only thing which has gone down has been the cost of telecom. Who needs that? I don’t need free call to all the USA?
Houston, we’ve got a problem and Obi’s team doesn’t have a clue.
Krugman is suggesting that we sacrifice some bankers.
January 17, 2009, 4:02 pm
An alternative economic strategy
http://krugman.blogs.nytimes.c…..-strategy/
Looks like he is getting desperate. Sacrifices might work, but surprised Krugman is into that Wickerman stuff. Will we all have to go out to Nevada to watch for the magic go work?
Saw a youtube of Feldstein and Stigltiz on Charlie Rose, both of whom echoed Krugman’s concern about nothing to replace the last ten years of bubble economy. Krugman nailed it with Borrowing money from Chinese to sell each other houses is not a feasible business strategy. But what else has the US done for last eight years?
Also read through slides by Oliver Blanchard on remedies for crisis. He seemed surprisingly pleased with the bailout (disappointingly in my eyes -he should know better dammit). But his thinking on what needs to be done in financial markets is better. He thinks that big reforms need to come to US and global financial markets (no more unregulated OTC derivatives trading -only on formal exchanges a la Blinder, global financial clearing house, internationally coordinated regulation, control of leverage).
The Financial Crisis: Initial Conditions, Basic Mechanisms, and Appropriate Policies
Olivier J. Blanchard
Prepared for The Munich Lectures in Economics
November 2008
http://econ-www.mit.edu/files/3586
The slides are very terse, but thought I would give the link.
I think Ian is correct, what we see now is not nearly enough. Must hope that we are seeing FDR strategy of holding cards close to vest until new admin actually has power. But we need to agitate for a much better plan.
Here in California they UC’s and state Colleges are talking about limiting the freshman class and turning away qualified students because of funding cuts and here the Rehtugs won’t let the Dems raise taxes to balance the budget! The Rethugs won’t even allow the rich to pay taxes on their Yachts like all the rest little guys have to on their little motor boats!
We need to stop the spending on the DOD / MIC – completely wasted money. But that employs millions so they need to be given work. We can shrink the armed forces to 15% their present size and be way over protected.
We need to close up all the bases in foreign countries.
We need to close all tax shelters and levie all corporations which play games and avoid paying taxes to this country.
If you have business in the USA you can’t move income around and pay a tax for every worker employed offshore.
We need to have all income brackets pay a minimum tax – No tax shelters, no phoney special deductions.
Everyone pays the same percentage of their before tax income to SS.
The CA GOP don’t even try to explain themselves anymore. They are refusing to return reporters phone calls or present themselves for interviews. I have heard at least a dozon news stories where the CA GOP perspective is “didn’t respond to our phone calls.” I think enrollment at US will be down 6% next year. The CA community colleges and state universities (which produces most of the states nurses and engineeers) will be hosed, and turning thousands away.
I guess they can study for real estate licenses…
The worst is yet to come.
Radical problems will then require radical solutions.
There will be riots. The rich will flee of get shot I suspect as more and more turn out to be thugs like Madoff. The wheels are coming off.
Be prepared. We are entering uncharted waters.
Right for the houses that won’t sell. The whole Republican party has become the party of GREED and nothing else! They will never learn that there are more of us than them and if they don’t want to fade into history the have to change their ways! But I don’t see that happening..
Everybody is hanging on. We need loan money for innovative small businesses that will employ real people across the country. We need retrofitting of green technology to power the cars we already have. We need retrofitting of homes for solar and wind. We need to make it easier for new technologies to succeed. We can push for these things. That is our job. And we need to insist that the top 1% pay more to live in their mansions. And we need to punish those who move jobs out of the country.
What makes you think this will stop the technical recession? Even if it slows or stops factors in the slide in the US, the whole world economy appears to be imploding. Is this really enough to protect us from the international forces? My gut tells me (hey, I’m from Texas, our guts are infallible) this stimulus package is just a speed bump on the downhill road to hell.
Well I have done my part and went Solar and after the first month we have a negative electric bill, whereas last year we were going broke paying for it. We will be saving around $150 a month! The company who did the work has their crews on 5 tens a week and their business is just growing!
new post—->
This is the site to get the dope on the economy:
http://theautomaticearth.blogspot.com/
“…Home prices will need to come down, probably at least another 50%, to get back to trendline levels and for home purchases to be attractive and affordable. The flipside of that, of course, is that that kind of plunging values will put tens of millions of Americans, British, Irish, Dutch, Spanish etc. etc. citizens a mile and a half below sea level on their mortgages. That is, opting to let real estate prices come down, which they must anyway, will mean a prolonged and painful period of bottom scraping. Going the other way, trying to keep home prices high, means that no-one can afford to buy a house. Except when they go into levels of debt that will bankrupt them down the line.
So on the one hand prices need to plummet to make homes affordable, but on the other this will raise debt levels through the ceiling and beyond. Meanwhile, it doesn’t help that governments refuse to help their citizens, but instead elect to put them deeper into debt by handing their money to banks, a move that doesn’t just not aid the public, but is utterly contradictory to the public’s best interest. What we see coming out of parliaments, government cabinets and presidential residences today doesn’t just not solve anything, it makes it all much worse.”
“…And each solution – and readers may substitute the word “bailout” for solution – brings more challenges and takes more resources. Finally, the available resources are worn out. Tainter observes that when the costs become high enough, people seem to give up. By the end of Roman era, for example, the burdens of empire were so heavy that people sold themselves into slavery to get free of them. So many people did so at one point that the authorities had to come up with another solution; they outlawed the practice. Henceforth, Roman citizens were required by law to remain free!”
“Bernanke and Obama offer solutions. But their plans to save the world from a correction are little more than a swindle. They offer to bail out the mistakes of one generation with trillions of dollars’ worth of debt laid onto the next.”
Well Ian thank youy again for great information. Read the Full Plan (speed reading). It seems the present deapartments/program will parcel the funds out.
WRDA seems to be 1/10 funded for what is needed for wastewater/water infrastructure.
Thge safety net appears weak and inadequate. But over all it seems comprehensive and broad.
The job link you posted by the consultants appear OK except job losse will eat up those gains.
We need three times what we have “loaned” the bank in order to heat up the economy. They got at least $2 trillion over the last 17 months. Alot of the funding seems for existing programs. That lowers the net stimulus.
We need about five trillion which would come back in taxes once jobs are created. The tax cuts for the “middle class” are a bit confusing. Yes they will have more disposable income but will they spend it? I doubt it.
Great post and back up data. Thanks. I forwarded it to my local officials at the County who are short road funds like the state…it should help them and the school districts.
The Republicans have demonstrated their intentions to obstruct every stimulus initiative to the maximum possible extent. Now it is clear that we must strictly hew to the line of financial austerity, haven’t you heard about the gigantic debts we’re facing. Damn that irresponsible Clinton Administration!
With the
TraitorsBluedogs joining the Republicans in making life hard, things that actually pass may be very different from what is now envisioned. The GOP Senators are already threatening to place a hold on Hilda Solis over Card Check and Right to Work gottcha questions. They’re worried she might represent one side of the Business-Labor equation to the exclusion of the other. We certainly wouldn’t want that to happen, would we? These fuckers have no sense of shame! If there really was a vengeful God, he would smite these assholes where they stand…This is also my concern. I have yet to go through the whole plan but from the rough outline of its size and its split between tax cuts and spending, I think at best it may keep us just on the edges of depression.
First, when the NBER finally got around to declaring the beginning of the recession at December 2007 its prime criterion seemed to be when employment started to tank. So I’m not sure that weak employment is going to convince the NBER that we have left a recession.
Second, I’m not sure that the overall size of the stimulus is sufficient to create real growth in the GDP. Along with this if the stimulus is increased in size but remains poorly structured, it will worsen significantly our debt situation without really helping us that much.
Third, the effects of the stimulus will last only about as long as the stimulus itself so if we are not using the stimulus as a transition to something else then we are looking at a double dip recession.
Fourth, there seems precious little in all this to address the underlying problems which led to the housing crisis and financial meltdown.
It is important to remember that the housing bubble burst with a bang in August 2007. We have been dinking with this for 18 months already. The Treasury has spent hundreds of billions and the Fed trillions with almost nothing to show for their efforts. Our budget deficit for 2009 is $1.2 trillion and could be $1.7-$2 trillion by the time all is said and done. Put simply we have already wasted enough time and money. I don’t think that we are going to have the resources for yet another “do-over” next year.
This is why I am pessimistic. Obama is starting 18 months behind the curve and his solutions don’t address effectively what led up to this crisis, where we are now, and where we need to go. To me, this looks like he’s already three strikes and out before he even begins.
Illuminating post Ian, in the fullness of time, methinks you will be vindicated in your observations. h/t to SanderO’s comments, well constructed, and delivered, clear, concise, well directed, and above all, helpful.
As observed in other postings, the best that the current ideology can produce is about 50% return on bailout investment. This will prove to be inadequate and result in a Japan-like extended miasma of economic doldrums and do nothing to address the underlying causes.
A much higher “return” on investment is needed to recover the economy. The only economic institution that has historically obtained such a return is that of capital, although ill-gotten in most cases in the hands of private enterprises. What has not been considered is the economic construction of “state capitalism” that controls the economic means of production at the national level for public good. We have experienced this in a modified form in the TVA, in the Bell Telephone before the pseudo-breakup of that monopoly, and several other examples. This “state capitalism” must have strict limitations, primarily that no corporation having less than 5% of the national market can be subjected to such controls. Those successful corporations having greater than 5% should automatically become subjected. This alone assures the breakup of economic oligarchy that owns and controls (or abuses their economic might). Only when the might of economic production is placed at public good, can the abuses be curtailed, and not a moment before then. This will provide the only tool with enough economic return to have any substantial effect on the current condition.
Government too must revisit and reconsider their position vis a vis the balance between corporate economic power and the position of Labour. The prime requisite is the provision of a level “playing field” between, and when that cannot be provided, an obligation to weigh in in behalf of the weaker party which historically has been Labour.
A mistake will be made in reducing the value of personally held property (mostly homes) in finding an adjustment to the present distortions. The loss must not be transfered to private property for public economic miss-direction or corporate malfeasance and theft. The source of the economic dislocation is in the return Labour receives from participating in the economic process, a dislocation that ensues with rampant, berserker, unrestrained private capitalism. By addressing the return for Labour as part of their economic participation, you avoid robbing the wealth value people have invested their lives in obtaining. That robbery of their “wealth” is utterly cruel and totally unnecessary should the real problem be addressed.
It would be effort well spent to revisit and reconsider what definitions of the words we use to communicate complex ideas with, some are indefensible.
3/4 for roads and 1/4 for trains encapsulates how the new approach is the same as the old approach – it should be exactly the opposite if anyone was serious about change. But the realty is that this is just more of the same old pigs slopping at the public trough – America just keeps on digging that hole under the “leadership” of Mr. Change.