Is it stimulative?

Our editorial on Friday notes several of the problems with the proposed stimulus package that Congressional Democrats crafted with the help of Obama aides. It contains many items that are ideological and/or pork-barrel projects disguised as stimulus, whose funds will not even be spent until 2011. It gives gradual fiscal support–again, most of it coming after 2011–to states that have simply mismanaged their budgets with over-generous welfare policies.

The package contains a version of Obama’s promised “Making Work Pay” tax credit against payroll taxes. While laudable as a tax relief measure, this credit is basically a re-do of last year’s stimulus checks. As Mitt Romney pointed out on Capitol Hill last week, a $500 check cannot restore a worker’s economic confidence or cause anyone to return to spending at normal levels. On the other hand, policies that encourage private business investment and hiring could ease economic fears could let consumers breathe easy once again, even without a $500 check.

But the package has very little for small businesses, whose recovery is essential for economic confidence to return. Rep. Eric Cantor (R., Va.) misspoke earlier today when he said that the Democrats’ bill contains $4 in spending on landscaping for the National Mall for every $1 in small business tax relief. In fact, it contains $5 for landscaping the National Mall for every dollar in small business tax relief.

Is it affordable?

There’s a lot more at stake in the debate over the stimulus package than a narrow ideological battle. The high numbers and the high stakes involved suggest that Obama may already be making the most important decision of his presidency. The reason for this begins with the CBO’s January projections for the U.S. government’s budget. At $1.2 trillion, the projected deficit for fiscal 2009 alone will be nearly twice the cost of the Iraq War so far. That is 8.3 percent of the nation’s GDP, a post-World War II record. And that is without a stimulus package. The projected deficit for 2010 is $703 billion, again without a stimulus package. This number far exceeds any of the federal budget deficits we have run in the last decade.

If you add those two numbers together with an $825 billion stimulus package, you get more than $2.7 trillion. This means that by the end of 2010, we would have a gross federal debt of at least $13.1 trillion, or 90 percent of CBO’s 2010 estimate of GDP. And that is based on an assumption that the recession will be over by then.

The unfortunate math of the federal budget dictates that Obama will have one chance and one chance only to get it right.

“Once we’ve done this, we can’t go back to the well for another $850 billion stimulus package in 2010,” says Bill Beach, director of the Heritage Foundation’s Center for Data Analysis. “If we don’t get control of the debt and deficit, especially with the coming crisis with entitlements, the rating agencies could downgrade the government’s debt.”

The result of careless action could be an eventual recovery with unnecessary expenditures, requiring tax hikes later, or–even worse–a much bigger national debt with no recovery.

Is it helpful?

Aside from its monster $825 billion price tag–between $206,000 and $275,000 per job created–another problem with the stimulus package is conceptual. Can a government’s deficit spending cure an ailing economy?

We have several recent historical examples of deficit spending to look at, since we’ve been outspending revenues every year since President Bush took office. “If deficit spending were capable of stopping this decline, it would have already worked a long time ago,” says Rep. Jim Jordan (R., Ohio), one of the authors of the conservative alternative stimulus plan.

The strongest argument against deficit spending in this situation relies on the fact that government can only redistribute wealth but cannot create it. If government takes money out of the economy through borrowing, and then puts it somewhere else in the economy (minus administrative costs), has it really stimulated any economic activity?

Even assuming that deficit spending can have a positive effect, Obama’s new chairwoman of the Council of Economic Advisors, Christina Romer, is among those skeptical of the idea that it does. In 1994, Romer co-authored a technical 72-page economics paper titled “What Ends Recessions,” containing specific warnings about the limitations of deficit spending in saving the economy. Her conclusion: “Although there is substantial variation in the estimates of policies’ impact, the results suggest that monetary policy has been crucial in ending recessions, while fiscal policy has contributed very little.”

Romer’s paper leaves open the possibility that fiscal policy can make a difference theoretically. But she notes that in nearly all historical cases, it has played little or no role because. The government, she writes, always acts too late when it reacts to a recession, as it is doing now. “[T]he historical record contradicts the view that fiscal policy is essential to ending recessions or ensuring strong recoveries.” This is particularly relevant in the light of the CBO report from last weekend, which suggested that much of the infrastructure spending would not be disbursed until as late as 2011.

Will it be changed?

Conservative Rep. Jim Jordan (R., Ohio) told me last week that he was worried by the testimony of Treasury Secretary Tim Geithner, and it had nothing to do with the secretary’s personal tax problems. In his opening remarks, Geithner praised the stimulus package set forth by congressional Democrats, strongly suggesting that the administration has taken ownership of the plan currently before Congress.

“In a crisis of this magnitude,” Geithner said in his testimony, “the most prudent course is the most forceful course. Now, the American recovery and reinvestment plan that is now before the Congress will meet that test. It provides powerful and direct support to help get people back to work, to encourage private investment, to break the cycle currently crippling our economy.”

Even though President Obama has proven willing to meet with them, the Republicans have no real power and no right to expect that the president will listen to their pleas. They would like to see a greater focus on tax relief for businesses, and an abandonment of bad ideas such as stimulus checks, which have already failed in recent memory.

If you believe in Obama’s narrative of changing Washington, then perhaps he’ll embrace this as one of those rare moments when the problem is just too terrible for power politics to continue. But this is Washington’s cold, hard reality, not the dreamy rhetoric of the Obama campaign.

If the stimulus package relies on rebate checks and pork-barrel spending, it is hard to see how it has any more chance of success than the similar enormous spending bills and stimulus packages that Congresses of both parties have been producing for a decade now.

How is this stimulus?

As we learn more about the stimulus package under consideration this week, it increasingly resembles a typical pork-laden appropriations bill of the sort Congress has passed every year for the last eight.

House Republicans are focusing on the any individual wasteful spending items contained within the stimulus. Here is a good one:

$650 million to extend the coupon program to subsidize the purchase of analog-to-digital TV converter boxes.

In order to stimulate the economy, they create a subsidy that discourages people from buying new television sets. But more to the point–if fewer people are watching television because they didn’t buy a converter box, doesn’t that already stimulate the economy?