February 6, 2009

Getting into the weeds: when did $25 billion become the weeds??

Charles Barone has been writing about the stimulus debate with the type of detail that no one else has, at least publicly. That's the importance of having people with legislative experience who really can get deeply into the weeds. What's jaw-dropping is that the stimulus package is so large that the Senate cut of $24.8 billion from the package is in the weeds. Not much in the weeds, but your boots are going to get muck on them to look at the details. 

I think anyone who understands Keynesian macroeconomics should be shocked at what the Senate is doing with the stimulus, both the patently nutty stuff like Barbara Mikulski's suggestion for car-purchasing incentives and the proposed deletion of aid to states so that local agencies don't fire thousands of teachers, public-health workers, and the like. I'll let Brad DeLong and Paul Krugman explain the basic theory here, but spending money on people who pay taxes and spend most of what they receive is a higher stimulus bang for the buck than almost any other conceivable way of stimulating the moribund economy. As long as we are stuck in a world where the Fed's interest rate is effectively zero, monetarist approaches will be insufficient. As long as businesses and people are reluctant to spend money, tax incentives will be far less powerful than direct spending. To borrow from Jeffrey Frankel, there are no libertarians in liquidity traps and deflationary spirals. There also should be none when either is an imminent threat.

Because the House and Senate will have a conference to hash out various differences, it would be tempting to say, "Just get the Senate to approve something, and then work it out in committee." I'll let others in the blogosphere point out the political flaws in this argument, but the gist is that Senate Republicans are far more powerful than House Republicans. With both Franken and Kennedy out of the picture for now, the Democrats have a harder time getting 60 votes to stop debate. So there will be some compromise with the Republicans, and there will have to be some triage in what can be accomplished with the stimulus. The better the bill that comes out of the Senate, the easier will be the negotiating in conference.

Having said that, it's the crisis-oriented big-money issues that are or should be the priority here. If the battle in the conference committee has to be about the $25 billion cut in aid to states, the stakes are too high to focus on conditions attached to the money. That's the unfortunate truth, and I'd bet that Joel Packer and Charles Barone will find agreement here: they'd rather debate how to attach conditions to $25 billion that will save teachers' jobs and help the economy than to have to fight for the $25 billion in the first place.

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Tags: Barack Obama, Charles Barone, stimulus
Posted in Education policy on February 6, 2009 12:20 PM |