Senate gives $787 billion stimulus bill final approval

[tchwojko]

Actually, it does--particularly with respect to paying off debt--but it is muted in terms of initial impact. If you take a family of four and give them $10K that they apply to a credit card charging 32% interest, it is true that the economy will not get the full $10K immediate bump, but they are likely to see a sustained $3K+/year bump to reflect what they are not paying to the bank.

Not exactly a speedy way to jolt the economy, if you're going with the assumption that the economy needs a jolt right now, or else!

[dcmdale]

My assumption based on the results from last summer's stimulus is that a certain percentage will spend it and a certain percentage will apply it to debt. (I would love to also assume that this will be done intelligently based on situation, but I know that will not happen.) If there is a good mixture, the result *might* be an initial positive shock with some long term benefit.

[dcmdale]

All fine and dandy, but the problem is that the goals are mutually impossible, or at least difficult to reconcile.

Challenging yes. Maybe even impossible. But I think at least a basis for evaluating a proposal.

Size: if no one knows for sure what is just right, why not quickly slap out a good-sized lump of money in the system, and hope for the best? If it is too little, rinse&repeat. If too much, increase base interest rates.

I actually expect that this will be happening. The pols got their pork this time, but I don't think that the populace will be patient if things don't change.

Besides, wasn't there something about how things were supposed to change and pork wasn't supposed to the name of the game anymore?

[tchwojko]

My assumption based on the results from last summer's stimulus is that a certain percentage will spend it and a certain percentage will apply it to debt. (I would love to also assume that this will be done intelligently based on situation, but I know that will not happen.) If there is a good mixture, the result *might* be an initial positive shock with some long term benefit.

But if the money is put directly towards work to be done*, then I would think there'd be a bigger bang for the buck. Each dollar spent now is immediately** a dollar in someone's paycheck.

I wonder if "pork" projects (short term, location specific) are actually better than non-pork projects. The "pork" is would have to go through the approval process again in a future budget. The more specific a project is, the less likely it is to go in again every year. Once the bridge is built, then at least that item has a chance of being pulled off the list next time around. More likely, that's just wishful thinking.

*I know there are lots of arguments about how efficiently chosen that work is, but it is in the end someone employed doing/making something.

**Similarly, there's some question about how immediate it really is. I'm making a questionable assumption that money allocated is very quickly spent on work.

[dcmdale]

There have been several suggestions here that pumping so much money into the economy will have inflationary results, but there is just one problem with that idea. The amount of money in this stimulus package is a drop in the bucket compared to the amount of money that has disappeared from the economy both in equity and available credit.

I was a little rushed in my last response. If you buy that this is just a credit crisis and that the fundamentals of the economy are sound as many economists are saying, the delayed effect of this plan is likely going to cause its biggest impact to be felt in mid-to-late 2010 about the time that those economists are predicting that we will be coming out of the recession. If that is accurate, it will tend to hypercharge the recovery and, therefore, be inflationary. If, OTOH, you believe that the economy has some very fundamental weaknesses, inflation may be something that we need to embrace in preference to depression. (This, of course, was long a Democratic position).

[dcmdale]

But if the money is put directly towards work to be done*, then I would think there'd be a bigger bang for the buck. Each dollar spent now is immediately** a dollar in someone's paycheck.

...

**Similarly, there's some question about how immediate it really is. I'm making a questionable assumption that money allocated is very quickly spent on work.

I think your last statement is critical. If the bulk of the money could start flowing quickly, I would be more supportive, but project money doesn't usually do that.

[tchwojko]

I was a little rushed in my last response. If you buy that this is just a credit crisis and that the fundamentals of the economy are sound as many economists are saying, the delayed effect of this plan is likely going to cause its biggest impact to be felt in mid-to-late 2010 about the time that those economists are predicting that we will be coming out of the recession. If that is accurate, it will tend to hypercharge the recovery and, therefore, be inflationary. If, OTOH, you believe that the economy has some very fundamental weaknesses, inflation may be something that we need to embrace in preference to depression. (This, of course, was long a Democratic position).

There's another stance one could take: I don't know which premise to start from, but it's easier to correct out of inflation than deflation, so take the risk of too much inflation over the risk of doing too little.

[tchwojko]

I think your last statement is critical. If the bulk of the money could start flowing quickly, I would be more supportive, but project money doesn't usually do that.

I think that's why there are tax breaks and credits in the bill as well. I have no idea how long it takes to go from signing the law to a paycheck. (I'll have to see if I can find that information...)

[telkanuru]

My assumption based on the results from last summer's stimulus is that a certain percentage will spend it and a certain percentage will apply it to debt. (I would love to also assume that this will be done intelligently based on situation, but I know that will not happen.) If there is a good mixture, the result *might* be an initial positive shock with some long term benefit.

Denial. Not just a river in Egypt.

[I_luv_saber]

Let's be realistic, this package is less about stimulus and more about mitigating damages. We need to get plenty of money to the states, who are dealing with massive revenue shortfalls, to keep them from having massive layoffs. And we need to extend unemployment benefits to keep people afloat as well; that means less defaults and foreclosures (not that unemployment benefits are worth much).

I think this is the issue though. That the bill, as well as extending unemployment benefits, simply attempts the fix the symptoms of the problem, not the problem itself. And, while it may be necessary, I think what many are worried about is that this is encouraging a never-ending cycle of fixing the symptoms. To be honest, this is sort of what I am thinking as well. I'm not fond of the government spending money on fixing a situation without effort in keeping the problem from happening again, leaving everything in a SNAFU state.

I like the suggestion one media type made: If the state's governor and/or its representatives don't want it/voted against it, then just don't take the money and let time prove who was right.

While the idea is nice and sort of witty, I can't see this actually doing any good (even under the assumption that they are right in rejecting it).

I hope it works and that my own state will abandon it's "rails to trails" plans and make those "trails to rails" [They're spending millions converting former railroad tracks into jogging, biking, and walking trails. One location is planned to be 150 miles of asphalt for walking, biking, and skateboarding.]

Same here. Actually, once upon a time in the early 1900's Fresno had a bustling trolley system. But, we tore it up. We didn't replace it with trails. No. We just... tore it up. Yeeeah. Welcome to Fresno!

I suggest putting the trails overhead so traffic is not impacted and the jogging and biking can continue.

I'm with this suggestion but rather with monorail rather than el trains. Generally, the area around el trains tend to drop in property value. In addition to being quieter, monorails are much safer and offer a smaller footprint. Most people can't get around the theme-park gimmicky feel of it to see the real-world perks though. We had one proposed in Fresno awhile back. Never came together.

I'd love to have public transportation in my area and if it was available, I'd use it.

Same here... hell, at this point I'd be happy with a decent BUS system!

[lindajdunn]

I'm not fond of the government spending money on fixing a situation without effort in keeping the problem from happening again, leaving everything in a SNAFU state.

First, we would need to agree upon what CAUSED the problem. I reject the premise that making home ownership more affordable for low income workers caused the crisis and esp. so since analysis shows their default rate was no higher than that of middle class workers until jobs disappeared. I am more inclined to blame speculators who flipped houses but the true villain in this incident appears to be lack of oversight.

Reagan said that government was the problem. Clinton's era reduced oversight and regulation. Bush's administration cut oversight even further and/or handed off oversight to private companies. [The equivalent of hiring the fox to guard the hen house.] In other times, the press would have been all over what was happening on Wall Street but the traditional press was dying and there was little investigative reporting taking place in the business world.

check out http://www.motherjones.com/politics/...orters-blow-it

The cure for the problem, imho, is adequate regulation and government oversight of our financial sector.

I've been complaining for more than a few years about diminished oversight and the problems that I've seen as a result of this. [Peanuts, anyone?]

When I have the flu, I take something for the symptoms because (1) I see no benefit in being miserable and (2) puking my guts out may lead to complications and the need for hospitalization. The same common sense approach says we need to address the symptoms with our economy rather than hope it's just a 24-hour flu virus.

[I_luv_saber]

When I have the flu, I take something for the symptoms because (1) I see no benefit in being miserable and (2) puking my guts out may lead to complications and the need for hospitalization. The same common sense approach says we need to address the symptoms with our economy rather than hope it's just a 24-hour flu virus.

This is very true, and I didn't mean to imply I was saying "we should just ride it out and fix it so it doesn't happen again". I'm simply saying that many people, myself included, are wary of letting go of so much money without any stipulations that guarantee (or however much of a guarantee you can get in politics anyways) effort will go into fixing the problem in the future. I'm not necessarily opposed to treating symptoms, as long as we are treating the disease as well.

(And, to add, I'm still fairly undecided how I feel about the whole matter. But these are my concerns knowing as much as I do know of it.)

[Lemonaide]

I like it. Something had to be done and someone had to take the lead. The point will be: how well the package will be managed by the people who will have a responsibility for administering it. What I think we should try to bear in mind is that the money will be streamed over a period of time to varous agencies around the nation, rather than in one big blob. It will stand a better chance of doing what it is supposed to be doing. Good luck to all on this, I do realize that we can afford to lose something but not too much, for example the DOW was up to 10,000 in 1993 which was a gigantic boom, no-one expected that it would stay that high for so long. So the new DOW figures, while looking frightening are not unheard of. Since we're in a Bear market, maybe we should install a sculptured Bear, near the Bull that we installed in the 90's.

[Inquartata]

You keep railing against fiscal policy, but the monetary policy used by Greenspan and now Bernacke has been a complete failure as well.

Eh...no...no, it has not...

It has merely been overwhelmed by the near-simultaneous bursting of not one but two speculative bubbles.

There was plenty of inflation over the past 20 years, but no one noticed because they've been looking in the wrong place. The inflation wasn't in consumer markets, it was in the investor markets.

Er---what?

Hang on, wasn't the massive deficit spending of the 80's 'neoKeynsian'?

No.

Keynesian fiscal policy involves spending and tax policies specifically intended either to stimulate or retard economic activity.

If we spend on the conduct of a war, or on projects in a Congressman's home district so that he has a boasting point for his re-election fundraising, or on, say, Medicare drug benefits, or on new highway construction because existing highways are too congested...that is not spending aimed at creating more jobs or boosting economic growth. If we cut taxes because we think, as a point of philosophy, that wage-earners should be able to keep more of the fruits of their own labor, that is not tax policy aimed at boosting economic growth.

But if instead we spend for the main purpose of offsetting the business cycle, or for increasing employment, or of reducing inflation...THAT is Keynesian fiscal policy.

$787 billion is a lot less than the $4 trillion debt from the previous administration tax cuts and Iraq war - under 25% - so let's call the numbers as they are.

So it's OK that I bloody your nose, so long as it's not as bad as the beating the previous mugger gave you?

There have been several suggestions here that pumping so much money into the economy will have inflationary results, but there is just one problem with that idea. The amount of money in this stimulus package is a drop in the bucket compared to the amount of money that has disappeared from the economy both in equity and available credit.

Well, hey, it's a drop in the bucket compared to the amount that's ever been spent on everything everywhere, too. But what exactly do either have to do with the question of whether spending of this magnitude, arriving at the wrong time in the business cycle, will prove inflationary or not?

Let's be realistic, this package is less about stimulus and more about mitigating damages.

Tsk! Are you calling our President a liar?

In times of recession or economic uncertainty, people tend to save money given in the form of a tax break, or use it to pay off debt. This does not help the economy.

You'd think that some people had never seen a circular flow chart for an economy...

Unless people stash cash under their mattresses, saving too results in spending. There is the reserve requirement to take into account, true, but nevertheless if you think that paying off debt doesn't result in money flowing into the economy I despair of modern American economic education...

The time premium makes it quite difficult to weed out unexpected and unwanted consequences of any particular subpolicy.

Time lags also make it highly unlikely that fiscal policy changes will hit the economy at the right time, rather than the wrong one...

Actually, it does--particularly with respect to paying off debt--but it is muted in terms of initial impact.

A-ha! The American educational system is redeemed!

Unless you're British or something...heh.

But if the money is put directly towards work to be done*, then I would think there'd be a bigger bang for the buck. Each dollar spent now is immediately** a dollar in someone's paycheck.

Alas, most of it won't BE spent now. It will be awarded to companies for, say, infrastructure projects, after due bidding processes, and will then be grudgingly doled out by various bureaucracies which would rather retain it so as to increase their own budgets and hence their own importance ( not to mention the interest earned on the funds until it's doled out ). And then it may or may not actually be spent on productive uses. Remember what the banks did ( or rather didn't do ) with their bailout disbursements?

I'm making a questionable assumption that money allocated is very quickly spent on work.

Yes, that's probably the most important question about any economic model: How well do the assumptions reflect reality?

I was a little rushed in my last response. If you buy that this is just a credit crisis and that the fundamentals of the economy are sound as many economists are saying, the delayed effect of this plan is likely going to cause its biggest impact to be felt in mid-to-late 2010 about the time that those economists are predicting that we will be coming out of the recession. If that is accurate, it will tend to hypercharge the recovery and, therefore, be inflationary.

Precisely, sir! Precisely!

The deflationary thesis seems to me to reek of the "It's another Great Depression!" hyperbole. ( I am half expecting a book from Harry Browne, entitled something like "How You Can Profit from the Coming Deflation!" to hit bookstore shelves sometime soon. )

I reject the premise that making home ownership more affordable for low income workers caused the crisis and esp. so since analysis shows their default rate was no higher than that of middle class workers until jobs disappeared. I am more inclined to blame speculators who flipped houses but the true villain in this incident appears to be lack of oversight.

Just so. Speculative bubbles are the bane of modern economies, and especially of financial markets...

The cure for the problem, imho, is adequate regulation and government oversight of our financial sector.

I am not so sure, myself. There have been bubbles even in times of much heavier regulation. The problem is the same as that facing people who would like to keep themselves and their belongings safe from thieves: Every security measure invented creates an incentive to defeat or circumvent it. This is also why the tax law and accountancy professions thrive...

[jeff]

I think Hauptmann's remark about inflation in investor markets was a statement that investor asset values were inflated above rational levels ("the bubble"). Consider the share price of Merrill Lynch (formerly NYSE "MER") that were extremely high a little while ago based on an inflated notion of the value of assets it held, and signed off on by its accountants and the rating agencies.

The comment with keith seems to be about intent rather than effect, which to me is somewhat besides the point.

My point about $787B vs. $4T wasn't to state that getting a bloody nose from a mugger is a good thing, but that it is hypocritical and dishonest for the previous mugger who put a knife in the victim to wail about a far smaller assault (as is being done now for political advantage). I'm especially enjoying the irony of individuals who voted against the incentive program now prominently in the news crowing about the benefits it will bring to their districts.

To the part about "will money be spent right away", that's why there's a lot of noise about "shovel ready projects", with every municipality saying they are ready to cut projects and start disbursing funds immediately. We'll see.

Besides, bureaucrats are taught while babes at their mothers knees that they MUST spend their budgets as soon as possible, or they will be deemed to have been excessively funded and will lose budget on the next cycle. Of course, the tykes have to fill out the appropriate forms in triplicate in order to get the lesson authorization!

To whether or not regulation helps: clearly it does. Before there was government oversight - think back to the pre-Great Depression markets - there was no effective or efficient market. Basically the stock markets were a crony game to fleece the rubes as much as the means for capital formation. Regulation made the modern market possible - it is a key part of the "engine for growth". You can 't count on a James Pierpont Morgan saving everyone's keister all by himself. The problem is regulation that fails to keep pace with events as new ways are invented to game the system.

[keith]

No.

Keynesian fiscal policy involves spending and tax policies specifically intended either to stimulate or retard economic activity.

Ah. So it wasn't Keynsian, it was just stupid?

If we spend on the conduct of a war, or on projects in a Congressman's home district so that he has a boasting point for his re-election fundraising, or on, say, Medicare drug benefits, or on new highway construction because existing highways are too congested...that is not spending aimed at creating more jobs or boosting economic growth. If we cut taxes because we think, as a point of philosophy, that wage-earners should be able to keep more of the fruits of their own labor, that is not tax policy aimed at boosting economic growth.

Okay now I'm getting confused again.

But if instead we spend for the main purpose of offsetting the business cycle, or for increasing employment, or of reducing inflation...THAT is Keynesian fiscal policy.

So, excuse me I do find economics difficult, the essential difference between Keynesian economics and any other ecomomic policy is not what you do but how you explain it?

[Inquartata]

I think Hauptmann's remark about inflation in investor markets was a statement that investor asset values were inflated above rational levels ("the bubble").

Aha. Thanks.

Then yes, I'd agree with that, albeit it's not "inflation" in the usually-understood economic sense of the word...

It also shouldn't affect whether or not actual inflation wreaks havoc on the economy.

The comment with keith seems to be about intent rather than effect, which to me is somewhat besides the point.

*Well, ok...but really intent IS the point when we're talking about policy. Policy is about trying to obtain a certain effect, or goal. The success or failure of the policy depends on whether or not it achieves its end, or how well it does so. If the goal of spending is to achieve a new highway or a military weapons system for use, it really isn't the same as spending to counter the business cycle...and in fact usually occurs independently of the business cycle. For instance, even under rampant inflation government still has expenses needs goods and services, and it will spend money on them even if said spending exacerbates the inflation.

Besides, bureaucrats are taught while babes at their mothers knees that they MUST spend their budgets as soon as possible, or they will be deemed to have been excessively funded and will lose budget on the next cycle. Of course, the tykes have to fill out the appropriate forms in triplicate in order to get the lesson authorization!

That may be the case with some bureaucracies. But the ones with which I've had experience as a payee seem to take S.P.A.R. to a who'....nuvvuh...lebbel.

To whether or not regulation helps: clearly it does. Before there was government oversight - think back to the pre-Great Depression markets - there was no effective or efficient market. Basically the stock markets were a crony game to fleece the rubes as much as the means for capital formation.

Ah. So it wasn't Keynsian, it was just stupid?

Not to put too fine a point on it, yes.

So, excuse me I do find economics difficult, the essential difference between Keynesian economics and any other ecomomic policy is not what you do but how you explain it?

No, it's what it is intended to do. ( See * above. )

If the IRS buys new software or hires new auditors because the economy is booming and it has more returns to handle, that's spending---but it's not aimed at making the overall economy do anything. But spending on public works projects like the old WPA were really intended to do little else than make the economy do something by creating work for the unemployed...

[jeff]

S.P.A.R ? Heeey - what's zat?

Not sure what to do with the "huh?" icon next to my riff on regulation as an enabler of financial systems - point I was making was that regulation was a necessary prerequisite to making banking, capital markets, and the financial system overall effective. Ho boy, was it the Wild West before regulations emerged.

[Lemonaide]

And, it appears, that the Govenor of Louisiana has decided to reject the bail out, in spite of the dire need of the entire state. What does this mean? Does it mean he doesn't trust his underlings? I would have taken the money and dole it out to Grammar, Middle and High Schools; then to the Levee Board - hiring about 100 engineers on contract to work up how to make the levee look like the state of the art contribution to the 21st century, something to rival the sphinx or something; then I would buy up thousands of acres, scrape out the junk, and plant rice. I just don't get what's going on! There's a thousand ways to spend money on in the Gulf coast.

[Inquartata]

S.P.A.R ? Heeey - what's zat?

A shady albeit ubiquitous accounting practice, the acronym stands for Slow Payables, Accelerate Receivables. Eg, do everything in your power to get paid swiftly, but drag your feet paying others...