Obama Adviser: Stimulus Plan is 'Totally Impractical'

What White House economists were saying before they were White House economists.


This is a classic CapCom that got lost in the post-election shuffle but is relevant for today, I think:

When Barack Obama's pick for budget chief, Peter Orszag, ran the Congressional Budget Office, here is what it had to say about a stimulus plan almost exactly like the one Obama is now proposing (bold is mine):

"Practically speaking, however, public works involve long start-up lags. Large-scale construction projects of any type require years of planning and preparation. Even those that are "on the shelf" generally cannot be undertaken quickly enough to provide timely stimulus to the economy. For major infrastructure projects supported by the federal government, such as highway construction and activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent.

Some of the candidates for public works, such as grant-funded initiatives to develop alternative energy sources, are totally impractical for countercyclical policy, regardless of whatever other merits they may have. In general, many if not most of these projects could end up making the economic situation worse because they would stimulate the economy at the time that expansion was already well under way."

Also here is an analysis of the new CBO report on the slow-motion Obama stimulus plan from the Tax Foundation:

According to CBO, the plan includes $604 billion in new spending and $212 billion in tax cuts for a total cost of $816 billion over the 2009 to 2019 period.  While supporters of the plan claim that it must be enacted soon to get government cash into the economy, only 15 percent (or $93 billion) of the spending will occur during this fiscal year which ends in October. Only 37 percent of the spending would occur in FY 2010, which means that roughly half of the plan's spending will occur in FY 2011 and beyond. The economy is going to be well back to health on its own by the time any of this takes effect.

While economists differ on whether Keynesian demand-side spending can boost economic growth in the short run as much as it hurts in the long run, even the most ardent advocates would agree that the plan spends too little in the short run to make much of a difference.  CBO estimates that GDP will total $28.8 trillion over the next two years but the plan spends $318 billion during the same period -- just 1.1 percent of GDP. This is like pouring a teaspoon into the ocean.

On the tax side, only about 36 percent of the $212 billion in tax cuts will benefit taxpayers this year and the rest will benefit them next year. To make matters worse, the tax provisions are heavily weighted toward "refundable" tax credits for families which are little different from the ineffective tax rebate checks Congress approved in 2008.