Sunday, February 8, 2009

A Line by Line Critique of the Stimulus Package, revised

Note: After doing more research and speaking with people, I've revised this, including my conclusion.

In summary: 53.8% of the House Appropriations-approved stimulus (excluding tax cuts) looks to me to be pork. No wonder it got 0 Republican votes.

For my stimulus conclusions, go all the way to the bottom. To see how I got there, read on.

There's been lots of debate about the stimulus package recently, and rightly so. One WSJ author noted that (paraphrasing) "while Obama has been off being an intellectual with Volcker, Summers and Geithner, he's been ignoring the fact that the Senate has completely politicized the stimulus package and turned it into a lot of pork projects that, whether or not they are worthy for other reasons, don't constitute a good stimulus." Many Democratic pundits have been arrogantly and condescendingly derisive of some legitimate Republican stimulus skeptics, while many Republicans have used some truly atrocious reasoning to combat the stimulus.

To try and make heads and tails of it, I'm gonna go line by line through the stimulus package. My criteria are these:

1) It needs to have a direct "utility-economic" benefit to the country. No spending a million dollars to build a bridge and another million to blow it up (it'd be more efficient to just cut taxes by 2 million dollars).

2) It needs to be an efficient way of getting GDP moving again (lots of jobs for low cost, etc)

3) Exceptions to the above two points for very high ROIC (return on invested capital) projects. If a project is going to return 13 or 15% (or more) on investment every year for a long time, then the number of jobs it creates isn't quite as important; it's a good economic investment for a country that faces large and growing budget deficits, and this stimulus is about the economy.

4) The ability to reduce the funding is important. If something will create a million jobs for only 80 billion dollars, but those jobs don't do much and it's gonna be very hard to STOP spending that 80 billion dollars when the economy picks up, unemployment drops and we could really use that money and that labor elsewhere... then it may not be the best idea.

I'm using the January 28th Stimulus Announcement, because that's what's available to me right now:

Since then, there have been cuts, many of which I liked and a few of which I didn't (to appease Republican concerns, mostly):

Bold is stuff I think is good. Italics is the stuff that looks more questionable to me. More after the list.

***Clean, Efficient American Energy***

Smart Grid ($11B)
Renewable Energy Loan Guarantees ($8B)
GSA Federal Buildings ($6.7B)
Local Gvt Energy Efficiency Grants ($6.9B)
Energy Efficiency Housing Retrofits ($2.5B)
Energy Efficiency and Renewable Energy Research ($2B)
Advanced Battery Loan Guarantee and Grants program ($2B)
DoD Efficiency ($1.8B)
Energy Efficiency Grants ($1.5B)
Home Weatherization ($6.2B)
Smart Appliances ($.3B)
GSA Federal Fleet ($.6B)
ELectric Transportation ($.2B)
Carbon Capture and Sequestration ($2.4B)
DoD Research ($.35B)
Alternative Buses and Trucks ($.4B)
Industrial Energy Efficiency ($.5B)
Diesel Emissions Reduction ($.3B)

Total for Clean, Efficient American Energy: $54B.
No complaints here. In addition to the greenhouse gases issue, energy emissions reduction projects tend to be very high ROI and reduce the trade deficit. I'm not a huge fan of the Industrial Energy Efficiency project and the Carbon Capture and Sequestration projects because they're demonstrations, not actual implementations, but there are all sorts of technologies that need to be implemented and nobody wants to be the first mover. Overall, this section is no problem.

***Transforming the Economy with Science and Technology***
Wireless and Broadband Grants ($6B)
National Science Foundation ($3B)
NIH Biomedical Research ($2B)
University Research Facilities ($1.5B)
CDC ($.462B)
DoE ($2B)
NASA ($.6B) (See my prior post on NASA!)
Catastrophe Protection ($.9B)
Oceanic and Atmospheric Satellites and Sensors ($.6B)
NIST ($.3B)
ARS ($.209B)
US Geological Survey ($.2B)
Small Business Credit ($.43B)
Rural Business Credit ($.1B)
Industrial Technology Services ($.1B)
Economic Development Assistance ($.25B)
DTV Conversion Coupons ($.65B)

***Science and Technology total: $19.301B***
$6 billion for wireless and broadband grants makes very little sense to me. The government claims every dollar invested in wireless means $10 injected into the economy... but that number is for each dollar put into wireless in areas with lots of people. This targets places with few people. I also bet you the calculation used numbers "creatively" (a common problem with government projection)... and how exactly does the government think it's going to do a better job than the private sector in sorting out a very complicated standards war?

The EDA doesn't work, and is tailor made to be highly inefficient - give money to "economically distressed areas" (typically places with industries that are dying anyway) and ask them to use the money in an economically efficient way? That's just gonna go towards prolonging the deaths of said dying industries. I'd rather see that money go towards retraining employees in shrinking industries for skills in industries that are going to need more people.

DTV coupons I don't understand at ALL. Firstly, we watch too much TV as it is, so if people can't convert to digital and some cut down on their TV, that'd be fantastic. Secondly, it's something that's probably going to be spent privately anyway, so this is an area with a LOT of crowding out.

The rest I don't have much of a problem with. There are lots of construction and renovation projects in here, oddly, but still- these generally have very high ROIC, create lots of jobs, and/or have an overall societal benefit. The ones on credit help relieve a lending freeze and some of it should come back to us as loans.

Wasteful spending total so far: $6.9B


Highway Infrastructure ($30B)
Public Transit (2.5+2+7.5 = $12B)
Amtrak ($1.1B)
Airports ($3B)

Explosive detectors ($.5B)
Coast Guard Bridge Removal ($.15B)
New Social Security Administration Center ($.4B)
Farm Service Agency ($.245B) (? Amount)
State Department Tech Security ($.276B)
USDA repairs and security improvements ($.044B)
DoD Facilities (3.75+.455+2.1+1.2+.154+.360+.4 = $7.469B)
Veterans Medical Facilities ($.95B)
Veterans Cemeteries ($.05B)
Border Ports of Entry ($1.25B)
Job Corps Facilities ($.3B)
Public lands and Parks ($3.1B)
Smithsonian and NEA ($.2B)
Clean Water ($9.5B)
Water Resources ($5.624B)
Hazardous Location Cleanup ($1.6B)
Closed Military Base Cleanup ($.3B)
Habitat Restoration ($.4B)

Wildfire Prevention ($.85B)
Indian Affairs ($.5B)

***Infrastructure Total: 79.808B***

Some of these address critical needs we have, or are important long-term investments to make in healthcare, education, etc. Others are things that fall into the "hey it would be nice, but isn't critical" category. In some cases, it's an issue of amount (Does the Farm service really need $241 million for upgrading their IT?), and in other cases it's whether it's useful at all (cemetaries, while pretty, are hardly the nation's most crushing need). Others are just downright shameful (the DoD needs EVEN MORE money? are you kidding?)

Special note on habitat restoration. This one was a tough one to exclude, but I think you can make a decent argument that we have larger environmental problems right now than habitat loss. It's bad, and it shouldn't be ignored by communities, but if you could take that $400 million and spend it on wind power, I think you have to do it...

Infrastructure total wasteful spending: $14.758B
Total wasteful spending so far: $21.658B

***Education Spending***
School Construction: $20B
Education Technology: $1B
Higher Education: $16.14B
K-12 Education: $26.616B
Early Childhood Development:$4.7B

***Education Spending Total: $68.456B***

While I acknowledge college student debt is a problem (I just need to look around for that, and Harvard's financial aid is MUCH better than most schools'), it doesn't stimulate GDP, there are other more pressing educational and social needs (For example, early childhood and K-12 education initiatives, lack of which results in a lot more unproductive people than college stuff). I let the rest of the education spending stand, because it's actually critically important for the long-term economic health of our country. It's mixed in short-term stimulus, but we should be interested in short AND long term stimulus.

Education wasteful total: $16.14B
Total wasteful spending so far: $37.798B

Health Information Technology: $20B
Prevention and Wellness Fund: $3B
Healthcare Effectiveness Research: $1.1B (? Amount?)
Community Health Centers: $1.5B
Training Primary Care Providers: $.6B (? How will it be spent?)
Indian Health Service Facilities: $.55B

***Healthcare Total: 26.75B***
I can't imagine $1.1 billion is necessary to figure out which medical treatments are the best. That's a LOT of money. There is a shortage of primary care doctors in this country, but there's also a low acceptance rate into medical schools. As long as medical schools have the ability to accept more students (which, as far as I can tell, this provision doesn't target), supply/demand should help alleviate the primary care shortage without government help. If I'm misinterpreting the provision, then obviously that would change.

Health Information Technology has some serious implementation issues and is a textbook industry that would be better handled by a private standards board. Most of the others have too high an opportunity cost. I'd love to see more on how this relates to universal healthcare. Prevention and wellness is a big one for long term GDP, though, so it stays.

Healthcare Wasteful Total: $23.75B
Total wasteful spending so far:$61.548B

Training and Employment Services: $4B
Vocational Rehabilitation: $.5B
Employment Services Grants: $.5B
Community Service Employment for Older Americans: $.12B
Benefits Extension: $27B
Increased Benefits: $9B
Extending COBRA Healthcare for the Unemployed past 18 months: $30.3B
Medicaid Coverage for the Unemployed: Not listed, but probably a good thing.
Public Housing Capital Fund: $5B
HOME investment partnerships: $1.5B
Native American Housing Block Grants: $.5B

Neighborhood Stabilization: $4.2B
Homeless Assistance Grants: $1.5B
Rural Housing Insurance Fund: $.5B
Self-Help and Assisted Homeownership: $.01B

Lead Paint: $.1B
Rural Community Facilities: $.2B
Assorted Food and Nutritional Programs: $21.176B
Extra Social Security Payments: $4.2B
Community Block Grants: $2B
Emergency Food and Shelter: $.2B
Home Energy Assistance: $1B
Child Support Enforcement: $1B
Social Security Claims Processing: $.5B
Centers for Independent Living: $.2B
Americorps: $.2B

Compassion Capital Fund: $.1B

Worker Protection: $.08B

***Workers total: 115.586B***

This one is HARD, and has a lot to do with the role of government, etc. I'm pretty moderate on a lot of these issues, I think, in that I believe that the government should provide a safety net to people in the country, but I also believe that it's important to do so in a manner that doesn't distort peoples' incentives, and doesn't ignore opportunity cost.

While a few of the things I highlighted as wasteful seemed trivial (ie, the employment services provision, which creates 'job boards' to match people with jobs. Hello,, more of the ones I highlighted were because they are inefficient in terms of opportunity cost. In other words, while I believe deadbeat dads should be punished, there are lots of people in this country who need help in a way that actually boosts the economy. Enforcing transfer from deadbeat dads to deserving mothers doesn't stimulate nearly as effectively as something like a nutrition provision plan does, where you have people who desperately need food, so you fill a social need while also preventing chronic and costly preventable diseases like heart disease or cancer.

Very few of these actually stimulate to any large degree, so they're mostly role-of-government issues. I "approved" the ones that didn't distort the incentives of unemployed individuals to find jobs post-haste and that had ancilliary economic benefits, and "nixed" the ones that didn't meet these characteristics.

Almost none of this money helps short-term GDP, though. Cue Republican pounce about welfare states and big government.

Workers wasteful spending: $83.89B
Total wasteful spending so far: $145.438B

Medicaid Aid to States: $87B
Direct to Local School payments: $41B
State Fiscal Relief: $79B
Temporary Assistance for Needy Families: $2.5B
State and Local Law Enforcement: $4B
Census: $1B

Total Services: $214.5B
Lots of important things, most of which should wait. Medicaid aid and fiscal relief for states are big deals in recessions, because state spending is pressured by lower tax revenue, but the states won't default in the next couple years, by which time hopefully things will have improved on the economic front. It's also not a bad thing to force states to start paring programs. The entire government is going to need some massive trimming in the very near future, including of good programs. The sooner we do it, the less severe it will be.

Services wasteful spending: $171B.
Total Wasteful spending so far: $316.438B

***Other provisions***

I'm going to do a separate post on the Buy American provision for steel and iron used in construction projects. Let's just say I think it's the dumbest provision in the entire stimulus.



Total Wasteful Spending: $316.438B
Total Stimulus Size: $578.401B

Total Pork: 54.7% of the stimulus.

The first thing that becomes immediately obvious is that both liberal and conservative academics have this one wrong. There are so many nitty gritty details and so much pork that defy ideologies on both sides that blanket statements are naive. It's also impossible to tell the efficacy of some of these measures without more detail on the execution; these things usually tend to get worse as they get executed. Anyone who thinks they know what it all means has an agenda they're trying to sell you on.

That being said, the second thing that stands out is that the Democrats in the legislature have absolutely made this stimulus less about stimulus and more about big government and extending the Democratic social spending agenda. Even a lot of the things I like (science spending, nutrition assistance, healthcare provisions) are not true stimuli in that they don't help our economy in the short term much at all. Many Republican criticisms of the plan are true; it's basically turned into the Democratic wish list and isn't focused on the economic crisis. I like their aims (who doesn't like helping students, Medicaid recipients, the unemployed, etc?), but many of the programs come with substantial opportunity costs at a time when we are reliant on rapid Chinese growth fueling Chinese purchases of our debt. If we don't start making choices, we're in trouble.

The third thing that becomes apparent is that the government has not been doing a good job at trimming true pork. Too many amendments in the bill don't help enough people for the cost. Worse, the initial versions of the bill (there were a few editions before the one I analyzed) had a LOT more bad spending than this one.

The Democrats did a terrible job on this. For once, the Republican legislators have done a decent job getting rid of a bunch of crappy provisions.

Both the Republicans and the Democrats deserve a smack on the hand for letting political agendas and ideologies creep into this stimulus package. For the first time in a long time, the Democrats probably deserve the bigger smack. A Democratic president and legislature in an economic crisis is not usually a good thing, and they're too close to a supermajority.

In other news, I hate politicians.

edit: I was thinking about it, and state fiscal relief and Medicaid aid is functionally just a way of reducing government interest payments (either the state needs to borrow it at a higher interest rate or the government needs to borrow it at a lower one). So that one may not be so bad. There's 166B of that.

Naive version
316.438-166= 150.438B

150.438B / 578.401B = ~26%

26% wasteful spending. Still too high.

Then you realize that technically, that 166 Billion shouldn't be considered "stimulus" at all, it's more government arbitrage.

578.401-166 = 412.401

150.438/412.401 = 36.5%

so 36.5% "wasteful" spending. The conclusions stay the same.
That's a lower bound, because it assumes transferring that much money to the states doesn't increase state spending on wasteful projects. So we're probably actually looking at somewhere between 40 and 50% waste.

1 comment:

  1. eeesh... how do you find the time to write these long and detailed blog posts?!

    So yeah, I didn't get to read the whole thing, but I did see your last point... and agreed. They're so hateable they probably hate themselves.