American Recovery & Reinvestment Hocus Pocus Explained

[WhiskeyGirl]

I've been wondering about some of the buzz words like "formula" used in the summary of this stimulus.  Also, the numbers.

I hope this helps others like myself.

January 28, 2009
Economic Stimulus Pushed by Flawed Jobs Analysis
by Curtis S. Dubay, Karen Campbell, Ph.D. and Paul L. Winfree
WebMemo #2252

A recently released report by Christina Romer, chair of the President's Council of Economic Advisers, and Jared Bernstein, the Vice President's chief economist, is being widely cited by Administration officials (including the President) and Members of Congress as proof that the stimulus package currently being debated in Congress--especially the spending portion--will actually stimulate the economy.

The Romer–Bernstein report finds that the stimulus plan will create about 3.7 million jobs and reduce the unemployment rate by about two percentage points from where it would have been without the stimulus by the fourth quarter of 2010.[1] The report is supposed to lend academic creditability to a plan based on political considerations, but the estimates created are founded on loose assumptions that lack academic rigor. The report should not be relied upon as an accurate measure of the impact of the Obama fiscal stimulus plan because it relies on rules of thumb and other back-of-the envelope calculations rather than sound economic analysis.

Romer and Bernstein are right to be uncertain of the multiplier they use, especially the spending multiplier. Economists generally estimate the size of the spending multiplier in their analyses by looking at historically similar experiences. Romer and Bernstein, however, rely on a model based on historical data that is not comparable to current economic conditions, because an increase in government spending as large as this one has never been tried as a stimulus before. Rather than take the time to estimate a more accurate multiplier, Romer and Bernstein use one estimated for much lower levels of spending and assume it applies to the massive spending program under analysis.

Hmmm...sound like more laxatives derivatives for the economy - gambling and the taxpayer always loses.

If spending money really helped the economy, that $20 trillion bailout of Wall Street, AIG, and all those others would have paved the streets with gold...imho

They then apply the spending multiplier to the proposed total spending in the stimulus package. They ignore the fact that the stimulus package contains spending on a variety of items--everything from money for the National Endowment for the Arts and new sod for national monuments to infrastructure spending. Romer and Bernstein, therefore, assume that all spending affects the economy equally.

More hocus-pocus/voodoo economics?

Not to Be Trusted

The Obama Administration and Members of Congress are relying on a flawed report as evidence of the effectiveness of the stimulus plan. The report should not be trusted. It is based on faulty assumptions that even the authors admit create significant margins of error. More rigorous research has shown that tax rate cuts will create millions of jobs and cost less than the Obama plan.[8] Taxpayers deserve better information before their money is spent on things that will not offer the return they were promised.

Lots of stuff here -

http://www.heritage.org/Research/Economy/wm2252.cfm

jmho

[WhiskeyGirl]

The FDR myth explained -

A Bad Deal Revisited — Obama and FDR 

The myth in a nutshell is that FDR was elected in 1932 after the free market failed in the United States. He quickly heartened the country with his speeches and brilliant, far-reaching New Deal policies that jump-started the economy — putting America back to work and ending the Great Depression.

That just isn't so. Even the Franklin D. Roosevelt Presidential Library and Museum acknowledges that "the effects of the Great Depression stubbornly held on into the early 1940s." Roosevelt was elected after berating Herbert Hoover for being the "greatest spender in history." The Republican administration, said FDR, had "piled bureau on bureau, commission on commission ... at the expense of the taxpayer." Roosevelt the candidate was against big government and demanded an end to deficit spending. (The Roosevelt Myth, 1956 edition, John T. Flynn) Before he was elected, Roosevelt promised to reduce the budget by 25 percent and seek a balanced budget.

In office, however, crackpot ideas became federal policy. Cartel codes were created: businesses were told to keep prices and wages high and also to reduce output. Farmers were targeted as well. As summarized by Chris Edwards of the Cato Institute in 2005: "The Agricultural Adjustment Act of 1933 similarly restricted production to keep prices high. 'Excess' output was destroyed or dumped abroad. While millions of Americans were going hungry, the government plowed under 10 million acres of crops, slaughtered 6 million pigs, and left fruit to rot. Production of milk, fruits, and other products was cartelized to boost prices under 'marketing orders' begun in 1937."

By the time Roosevelt was running for his second term, federal spending had doubled. In 1937, the stock market crashed again, part of the depression within the Great Depression. Between September 15 and December 15, 1937, notes Amity Shlaes, "the jobs started to disappear, with employment moving back to 1931 levels."

Henry Morgenthau, who served as Roosevelt's treasury secretary, admitted to a congressional committee in May 1939 (as quoted in the recent book New Deal or Raw Deal? by Burton Folsom, Jr.): "We are spending more money than we have ever spent before and it does not work.... We have never made good on our promises.... I say after eight years of this Administration we have just as much unemployment as when we started ... and an enormous debt to boot."

Class warfare was certainly part of the arsenal of Roosevelt, who railed against "economic royalists" and berated the evil rich with other epithets as well. So it is with Obama. Before he was elected, Obama told interviewer Charlie Gibson that he would raise taxes on capital gains even if it meant that revenues were reduced. The goal is to take the money from the "rich."

FDR used a crisis situation to accrue power to himself and his supporters. In his first Inaugural, Roosevelt insisted, "We must move as a trained and loyal army willing to sacrifice for the good of a common discipline." Should Congress not heed his wishes, said FDR, he would seek "broad executive power to wage a war against the emergency as great as the power that would be given me if we were in fact invaded by a common foe."

Obama the dictator?  We have to pass MY stimulus package now or else?  What exactly?  Dictator for life?

If the new president gets even a portion of what he is hunting for as he models himself after Franklin Roosevelt, the only people singing "Happy Days Are Here Again" will be left-wing partisans with faulty memories. Or masochists.

http://www.thenewamerican.com/reviews/correction-please/760

What will the Obama legacy be?  A twenty year recession?  Maybe seven or eight generations to dig out of these debts?  All so that the good times of the past 10-15 years can continue?  How does a nation rebuild after dictatorship?

What happened to fiscal responsibility?

jmho

[WhiskeyGirl]

While Obama told us previously that it was central to the recovery, we are now told by the (as usual uninformed) MSM that NAFTA and WTO sanctions would result if it pressed forward. The Canadian PM called Obama to express his displeasure. Obama told us that we needed to "soften" the legislative language. Let's look at the law.

First, the exceptions to "Buy American" are found in The Trade Agreements Act of 1979 (in part):

the President may waive, in whole or in part, with respect to eligible products of any foreign country or instrumentality designated under subsection (b) of this section, and suppliers of such products, the application of any law, regulation, procedure, or practice regarding Government procurement that would, if applied to such products and suppliers, result in treatment less favorable than that accorded—(1) to United States products and suppliers of such products

Of course, we now need to ensure that the stimulus legislation didn't specifically override that law. It did not. Links are below, but trust me. There is, however, an interesting twist. It seems that the stimulus language was less restrictive than existing law. Let's compare the two.

Existing law (since 1933):

• nly such unmanufactured articles, materials, and supplies as have been mined or produced in the United States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States, shall be acquired for public use.[/color]

Now the stimulus package - Proposed HR1 as amended in the Senate (TITLE XVI--GENERAL PROVISIONS):

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

Key words:

Existing law: Unmanufactured items - mined or produced; manufactured items - substantially all mined, produced, or manufactured.

Stimulus package: Manufactured items - produced.

Clearly, the existing law from 1933 is broader than the proposed stimulus law. More specifically, if the stimulus package left out the "Buy American" language, then more American good would have been bought.

A Canadian commentator picked up on something similar, and tossed this log onto the fire: "As they say in the Obama White House, ... never let a serious crisis (or a fake one) go to waste."

A "fake crisis"?

The Buy American clause and the ensuing "backdown" by Congress meant nothing. Those policies have been in place for decades; they still are. It sounds unreal, yet - Buy American and Buy America aren't demagogic slogans. They are the legal titles of U.S. legislation that goes back to the '30s. It says public spending on things like roads and bridges must go to U.S. companies, but it includes waivers for countries like us that have deals like NAFTA with them. The waivers only apply to direct federal spending, not to spending by state or local governments that receive federal funding. So we're seriously, but not totally, out of luck. End of story. These rules would apply whether Congress added them explicitly to the stimulus package or not.

It seems everyone knew the stimulus "Buy American" clause was meaningless except Obama, the MSM, and Congress.

How sad is that?

http://www.examiner.com/x-3132-Philadelphia-Conservative-Examiner~y2009m2d6-Obamas-fake-Buy-American-crisis

What is the point of a stimulus/jobs/recovery/reinvestment package/debt if we aren'tinvesting in American jobs?

[WhiskeyGirl]

"The tragedy of the Obama stimulus is that we are getting so little for all that money."

President Obama has started to play the "catastrophe" card to sell his economic stimulus plan, using yesterday's terrible January jobs report to predict doom unless Congress acts. No doubt he'll get his way, but the tragedy of this first great effort of the Obama Presidency is what a lost opportunity it is.

...A major cut in the corporate tax favored by Republicans could have been added to Democratic public works spending for a quick political triumph that might have done at least some economic good.

Instead, Mr. Obama chose to let House Democrats write the bill, and they did what comes naturally: They cleaned out their intellectual cupboards and wrote a bill that is 90% social policy, and 10% economic policy. (See here for a case study.) It is designed to support incomes with transfer payments, rather than grow incomes through job creation.

...The 11 Democrats who opposed it in the House didn't do so because they want to hand Mr. Obama a defeat. The same is true of the Senate moderates of both parties working to trim their $900 billion version. They've acted because they can't justify a vote for so much spending for so little economic effect. You know a piece of legislation is in trouble when even its authors begin to deny paternity, as economist Martin Feldstein has recently done.

Who is Martin Feldstein?  New name for me.  I just continue to see a "rip-off" of taxpayers, and for future generations of Americans.  mo

...A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP.

But that same dollar can't be conjured out of thin air. The government has to take that dollar away from someone else -- either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.

Hmmm...borrow a dollar, spend a dollar on imported goods...spend the next 100 years paying back the money, plus interest and the money goes offshore.  When does the money come home to stay?  Back in the U.S.A.?

Some Democrats claim these transfer payments are stimulating because they go mainly to poor people, who immediately spend the money. Tax cuts for business or for incomes across the board won't work, they add, because those tax cuts go disproportionately to "the rich," who will save the money. But a saved $1 doesn't vanish from the economy, unless it is stuffed into a mattress. It enters the financial system, where it is lent to others; or it is invested in the stock market as capital for businesses; or it is invested in entirely new businesses, which are the real drivers of job creation and prosperity.

Hmmm...save money or spend it on imports?  Any jobs for Americans?  I'm not seeing any.   

The biggest gamble with this stimulus is what it means if the economy doesn't recover. Monetary policy is already as stimulative as it can safely get, and the Obama Administration is set to announce its big financial fix on Monday. Stocks rallied Friday on expectations of the latter, despite the job loss report, with big bank stocks leading the way. If done right, this will help reduce risk aversion and gradually restore financial confidence.

We hope it does, because the size and waste of the stimulus means we won't have much ammunition left. The spending will take the U.S. budget deficit up to some 12% of GDP, about double the peak of the 1980s and into uncharted territory. The tragedy of the Obama stimulus is that we are getting so little for all that money.

http://online.wsj.com/article/SB123396623933859023.html?mod=rss_opinion_main

How many generations will Americans be paying for this stimulus?  Stimulus that will just decay and crumble.  What are the chances that anyone will maintain all this new infrastructure?  It looks like a stimulus custom made for special interests.

my opinions

[WhiskeyGirl]

A Spending Education
Milwaukee gets money for unneeded schools.

To understand the problem with the stimulus bill, it helps to focus on specific parts. Take the $142 billion for schools, which is nearly double the total outlays of the Department of Education in 2007. Now consider that much of this cash would go to public-school systems that don't even need the money for its earmarked purposes.

The Milwaukee Public School system, for example, would receive $88.6 million over two years for new construction projects under the House version of the stimulus -- even though the district currently has 15 vacant school buildings and declining enrollment. Between 1990 and 2008, inflation-adjusted MPS spending rose by 35%, per-pupil spending increased by 36% and state aid grew by 58%. Over the same period, enrollment fell by a percentage point and is projected to continue falling, leaving the system with enough excess capacity for some 22,000 students.

"In general, MPS facilities have been described by school officials as being in good to better-than-good condition," reports the Milwaukee Journal Sentinel.  "The kind of situations that create urgent needs for renovation or new construction in some cities have not been on the priority list for MPS officials in recent years."

The Milwaukee situation is instructive for another reason. The city is home to the country's oldest and largest school voucher program, which provides public funds for children to attend private schools. Families who participate in the means-tested voucher program receive $6,700 per pupil, while the city spends more than $13,000 per student. In addition to saving the taxpayers money, voucher students graduate at higher rates and outscore their counterparts on reading and math exams, which is one reason waiting lists for the program are common.

That $142 billion is little more than a huge stimulus to the teachers unions and lousy school districts to keep doing exactly what they've been doing.

read more here - http://online.wsj.com/article/SB123396676711659061.html

From the Journal -

School Board member Michael Bonds, chair of the finance committee, said he agreed MPS does not need new buildings. "I'd be the first to admit we don't need more facilities," he said. But he said he wants to use the funds to improve existing buildings, including installing air conditioning in schools that don't have it but do have summer school programs, "greening" more school buildings and improving science and technology capacities in many schools.

One non-MPS source suggested thinking of the construction fund not just as aid to MPS but as aid to Johnson Controls, the major locally-based corporation that does the kind of energy and heating/air conditioning work that the money is likely to support. After all, it's labeled an economic stimulus plan, not an education improvement plan.

http://www.jsonline.com/blogs/news/38824927.html

... the district has 15 vacant school buildings, a large surplus of property and no plans for new construction.

No district in the state would stand to benefit as much as MPS. In addition to the construction money, the district would get $115.5 million for special education and low income students over two years, according to detailed projections developed by congressional staffers. That totals $204.2 million for Milwaukee.

Overall, the 400-plus school districts across the state would get $729.6 million for those uses, including $317.2 million for construction.

In other words, 28% of the total number would come to Milwaukee.

Enrollment is declining every year, and the last major wave of construction in MPS - the $102 million Neighborhood School Initiative launched in 2000 - resulted in projects that are underused, have not met enrollment projections or have closed. A series in the Journal Sentinel in August detailed how tens of millions of dollars in construction spending did not produce the expected results, and the project as a whole has not led to a higher percentage of students attending neighborhood schools.

http://www.jsonline.com/news/education/38762217.html

My views about MPS are biased.  I know people that work with the schools and from memory they have some other ideas.  What comes to mind are the numbers of special needs students, and the higher cost to educate these individuals.  Good students without behavior problems can probably go anywhere for $6,000.  Students that aren't so good or need some help probably stay in the public schools - they use greater resources, smaller classes, extra help, etc.  From memory, need more teachers, textbooks, library resources/books, assistants, paper and writing utensils (for the very poor), and other basic things.  I've also heard some horror stories about buildings over the years.


This is from August 2008 -

SUBTRACTION BY ADDITION:
A Watchdog report on MPS' failed construction program

Milwaukee Public Schools spent $102 million on a building spree that would transform it from a busing-based to a neighborhood-based system. Today, many of those classrooms are going unused.

Many interesting things at this link.  Lots of pictures and charts and stories.

Buildings rise, test scores fall
The $102 million investment in bricks and mortar did not make the schools better academically. Test scores have fallen sharply at many of the schools that received shiny new classrooms, science labs and libraries.

 

http://www2.jsonline.com/index/index.aspx?id=326

Apples v. Oranges for needs...

[WhiskeyGirl]

Post-Mortem on MPS Building Program -

Neighborhood Schools director Aquine Jackson
Role: Directed construction phase

Position then: Promoter of neighborhood program

Position now: Defends building upgrades, but says MPS should have scaled back construction and spent more on marketing

School Board member Charlene Hardin

Role: Former board vice president, voted to approve plan

Position then: New buildings would help improve learning environment.

Position now: Educational quality still needs work.

School Board member Bruce Thompson

Role: MPS board president when plan was approved

Position then: Key early supporter

Position now: Disappointed in results; says it could have succeeded on much smaller scale

Former MPS Superintendent Spence Korté

Role: Success as school principal inspired plan; retired in 2002

Position then: Strong neighborhood schools are key to MPS' survival.

Position now: It was too ambitious, too focused on bricks and mortar.

more at link -
http://www.jsonline.com/news/education/32614354.html

[caesu]

Obama Has Upper Hand in Stimulus Fight

Obama’s 67% approval rating on the stimulus is more than twice that of Republicans


by Frank Newport

PRINCETON, NJ -- The American public gives President Barack Obama a strong 67% approval rating for the way in which he is handling the government's efforts to pass an economic stimulus bill, while the Democrats and, in particular, the Republicans in Congress receive much lower approval ratings of 48% and 31%, respectively.

http://www.gallup.com/poll/114202/Obama-Upper-Hand-Stimulus-Fight.aspx

[WhiskeyGirl]

Stimulus for Dummies: How We Could Really Get Our Economy Moving Again

Seems pretty simple, doesn’t it — so simple it’s shocking that’s not exclusively being discussed in Washington right now.

After all, the Congressional Budget Office — the government agency responsible for reporting economic data to our Senators and Representatives as well as rendering opinions on budgets and spending bills — made it clear last Wednesday that the stimulus plans currently being debated on Capitol Hill will have a negative impact in the long run.

If CBO is correct about this, shouldn’t all deficit spending be off the table right now with Congress exclusively considering tax cuts? If the $800 billion currently thought of as an adequate stimulus were put directly into the consumers’ hands this year rather than politicians’, how might that get the economy going?

Before answering, consider that if you add interest expense to that figure, the real cost is about $1.3 trillion, which just so happens to represent about half the tax receipts taken in by the federal government last year. With this in mind, for the same amount of money, you could give all Americans –- including companies –- a six month tax holiday.

What might happen when John Q. Public opens up his paycheck every two weeks finding a few extra hundred dollars there?

The cynic in Washington says John would just save that money. Or pay down some of his debt.

Sure, this would probably be the case with the first check. Maybe even the second.

But by check number three or four, after some bills had been paid off, and the savings account massaged a tad, the desire to head to the mall would become too great.

After all, John’s an American, and Americans like to spend almost as much as their elected officials do.

More excellent ideas here -
http://foxforum.blogs.foxnews.com/2009/02/09/sheppard_stimulus-2/

Why not let the long suffering workers have a few extra dollars in their pocket.  Everyone else seems to be getting extension, more money, more bailout...

jmho

[WhiskeyGirl]

I wonder where I can apply for one of the those $300,000 jobs in the stimulus bill?  Maybe I'll get lucky and get one of the 1 million dollar ones instead.

Why didn't they just send every American taxpayer $300,000?

Why doesn't the bill address the failed policies of the Federal Reserve?  Easy credit for generations, one bubble and recession after another, erosion of real earning power, and generational debt.  Where will prosperity be in ten years?

I think those communities that don't spend the money quick enough...will see their money get funnelled to places like Chicago, California, and New York.  There will be no effort to pay off the debt.

Where is healthcare reform?  Getting the best deal for taxpayers? 

[WhiskeyGirl]

Gerald Warner: Obama's pork barrel is open – and it is stinking

Published Date: 15 February 2009

STIMULUS is one of those neutral, unexceptional words that is suddenly appropriated by politicians and debauched, so that ever after it will have connotations that are sinister, ironic and sleaze-ridden. Barack Obama's "stimulus" plan will be long remembered as the occasion when political euphemism triggered economic disaster.

There is no terminology available to express adequately the appalling irresponsibility of this naked political banditry. To have squandered a fraction of the near-$1 trillion cost of Obama's pork barrel in days of prosperity would have been more than reprehensible; to do so at a time of financial crisis is unforgivable. Obama likes to pose as the heir of Abraham Lincoln: as this shameless bribery demonstrates, he is heir only to the Chicago Democrat political machine that spawned him.

read more here -
http://news.scotsman.com/opinion/Gerald-Warner-Obama39s-pork-barrel.4982005.jp

[WhiskeyGirl]

Todd Martin, a visiting instructor at Fairfield University and head of Todd P. Martin Economic Services in Fairfield, said that despite the $787 billion price tag, the package lacks much money for infrastructure. The Congressional Budget Office analysis found that the $787 billion bill includes just $27.5 billion for highway construction with only $12.4 billion spent in the next two years.

"The whole point of doing Keynesian stimulus spending is to get money out there as quickly as possible," Martin said. "If they are not allocating funds in the most efficient manner, then we can have some problems."

"What should have gone to the House was a streamlined stimulus package," he said. "Part of problem with the political process is that it has given people the feeling that this is loaded with pork. But instead of cutting the fat, they cut the muscle out of it," he said.

http://www.connpost.com/ci_11706540

Pork spending is job one in Congress.   

mo

[WhiskeyGirl]

Last week Giulio Tremonti, Italy’s finance minister and Mr. Geithner’s host for the weekend, gave a tart review of the Obama administration’s stimulus in a local newspaper here.

“If the problem is an excess of debt, the cure is not adding more debt, whether that debt is public or private,” he wrote in the Corriere della Sera. Italy is one of the most indebted countries in Europe. Its debt surpasses its annual gross domestic product.

The national debt of the United States, by contrast, was about 40 percent of G.D.P. at the end of 2008, but Moody’s expects that to rise to 60 percent by 2010 as a result of the recession and spending tied to the federal bailout and stimulus programs.

He also addressed a barrage of questions about when more details about the administration’s bank rescue plan would be disclosed. “We are going to move quickly to lay out a broad design,” he said. “But we also want to make sure that they work.”

At home, "we don't know if it will work." 

http://www.nytimes.com/2009/02/15/business/worldbusiness/15g7.html?ref=business

The U.S. is special and will spend their way out of bankruptcy.  For some reason when it doesn't work, who knows.  What happens to others?  Hyper-inflation?  The wiping out of the remaining investments of hardworking Americans?

mo