Between Bail Outs and Wall Street Woes, Congress Considers a Second Stimulus

It's been a rough week for the economy. That actually may be an understatement. Last week it was announced that the US unemployment rate passed the 6% mark, the highest its been since 2003. Lehman Brothers went down, creating the biggest bankruptcy filing in history with over $613 billion in debt, Bank of America helped to avoid another Wall Street catastrophe when it acquired Merrill Lynch over the weekend, and American International Group (AIG) just received permission to access $20 billion in capital from subsidiary companies to cover day-to-day operating needs.

Fortunately, between finding a way to make the biggest bailouts in US history work and watching the Wall Street woes, Congress is finally going to be considering a second stimulus package in the next couple of weeks.

I've written before about what should be in a second stimulus package, and according to Manu Raju of The Hill, Congress has gotten the message:

The package is expected to include billions of dollars for new infrastructure projects, provisions to help the auto industry and a package to renew expiring energy-tax incentives that the business community has lobbied for extensively.

Naturally, Republicans aren't quite sure if legislation that would help the average American is such a good idea:

Republicans say the economic collapse shows the need to keep taxes low, but they have been resistant to additional government measures after Congress approved a stimulus package with rebate checks in February and a housing bailout this summer.

One of the do-nothing members of Congress is Senator Orrin Hatch of Utah. According to the Salt Lake City Tribune:

Out of Utah's congressional delegation, Republican Sen. Orrin Hatch, expressed the strongest opposition to the Democratic plan.

Instead of a stimulus package, he said Congress should focus its remaining time on energy legislation, free-trade agreements and extending the Bush tax cuts.

The only problem? By "energy legislation" Senator Hatch means legislation to "drill baby drill." And extending the Bush tax cuts is only a great idea if you are making millions, because those are the only people who the Bush tax cuts helped in the first place.

And people like you and me are still getting burned from the economic crisis. A second economic stimulus package won't immediately solve the economic problems across the country, but it will help. The fact of the matter remains that if the US government is finding time to bail out Fannie Mae and Freddie Mac in the middle of the night then it should be able to find time to improve infrastructure, provide aid to the states, and help the people who are really hurting. There isn't time to wait anymore. A second economic stimulus package needs to pass.

The New York Times Gets It Right

The New York Times Gets It Right A week after the the Washington Post completely botched their assessment of a second stimulus package, the New York Times turns around and nails it.

Their editorial entitled "No End in Site" lays out perfectly what the next few steps should be to help the economy whether this current storm. They begin by stating the obvious:

Lawmakers need to start crafting the next stimulus bill — without repeating the mistakes of the last one. Composed mainly of tax rebates, as the White House wanted, the first stimulus was too broad to deliver a powerful punch.

Amen. It is clear that the first round of stimulus checks didn't work. The editorial then confirms what many experts have been saying is a real potentially relief-filled measure that Congress needs to take with the second stimulus package:

The next package has to focus on actions that are known to yield big economic benefits: bolstered food stamps, which rapidly boost consumption; and aid to states and cities so they can continue to provide essential services.

Lawmakers should also invest in infrastructure projects, like repairing bridges and roads. If not, projects that are already under way may have to be canceled, creating more unemployment.

Thank you. The fact that state and city governments are not asking for money to continue radical spending on pet projects, but instead to protect essential services like education and health care seems to be lost on the minds of those who are not in favor of including state aid in a second stimulus package. Every week there are stories upon storiesof states being forced to slash budgets, pay, and jobs. They are a linch pin of the economy and no one seems to notice. And investing in infrastructure will ensure that we don't add thousands of workers who make their living off of said infrastructure projects. The construction industry has been hit hard enough as is.

The editorial also touches on a response to the home foreclosure crisis:

Congress also needs to ensure that a $4 billion grant to states and cities to buy up vacant properties is quickly and efficiently distributed. The Department of Housing and Urban Development is developing the formula for allocating the money, and early indications suggest it is on top of the process. But the White House is contemptuous of the grant, calling it a gift to speculators when it is actually a lifeline for ailing communities.

If you aren't a Bush republican who just hates any sort of aid not aimed at the highest income bracket, then the main criticism of this effort is that is simply not enough to have an impact on the housing market. Whether or not this is true remains to be seen, but it is still $4 billion to help turn foreclosed properties that the states with said properties currently do not have. In that regard it is a stabilizing factor, even if it is not the stabilizing factor that ultimately turns the foreclosure crisis around. As the editorial says, it is a lifeline for ailing communities who simply do not have the money do to anything with these foreclosed homes.

The time for action is now, but because Congress is in recess the time for action will actually be September. The article suggests the difficulty with creating a second stimulus package in an election year, but brings up the most important point of them all:

Millions of Americans are already suffering. And we fear millions more will be hurt before this crisis ends. They cannot wait until after the election for help.

A very valid point. It's hard to care about battleground polls, attack ads, and town halls when you're losing your job and your home.

The Washington Post Gets It All Wrong

Last week the Washington Post Editorial Board came out with an editorial blasting a second stimulus package as an unnecessary election year ploy:

We understand the political logic of a second stimulus; the economic case is less convincing. Any fiscal stimulus must be targeted, timely and temporary. That is, it must put money in the hands of people who are likely to spend it quickly -- while not committing the federal government to new long-term spending.

Naturally to make their case the Ed Board selectively picks and chooses which parts of the stimulus package to highlight.

House Speaker Nancy Pelosi has called for a $50 billion package, possibly including increases in food stamps and home heating assistance as well as more Medicaid money for states and new infrastructure spending. Fleshing out Ms. Pelosi's concept, Senate Appropriations Committee Chairman Robert C. Byrd (D-W.Va.) has unveiled $24 billion in proposed energy, infrastructure and disaster relief money.

We'll move beyond the fact that many people think supplemental medicaid funding is a really good idea to the more pressing point; the Wapo Editorial Board failed to mention or mention only in passing two plans that many experts say should be the staples of any second stimulus package; aid to states and infrastructure spending. AWall Street Journal article from last month (subscription only) shows Congressional leaders getting on board with the idea so I am lost as to why it received no attention in the Op Ed:

The bill, which would likely include spending on road projects and aid to stated, isn't expected to come up in the House until September

We proved earlier this year that stimulus checks on their own are not the solution to the nation's economic woes. However not recognizing the obvious need for help that states have been screaming about over the last several months is just irresponsible. Not to mention their editorial reads just barely on the sane side of illogical.

Their suggestion that we don't know the effects of the first stimulus yet is asinine. The Post even admitted this on Thursday. On page 10 of the Washington Post Express they ran an article entitled "Stimulus Checks Run Out"

Analysts said retail sales would have been more feeble without the $92 billion in rebate payments the government sent out in May, June, and July. Those checks helped to counter plunging home prices, rising unemployment, and soaring gasoline prices. The bulk mailings are now over, though, leaving economists worried about what will happen next.

WaPo can't have it both ways. They can't report that the stimulus checks are running out but then opine that we shouldn't have a second stimulus because we don't know the effects of the first.

And sure gas prices have been falling over the last couple of weeks, but today's national average for a gallon of gasoline is still $3.77. Am I glad its down from the high of $4.11 that we saw in mid July? Yes. Am I convinced that this means I don't have to worry about gas destroying my wallet? Absolutely not.

According to the Fuel Gauge Report, gas is still $4.07 in California where their budget crisis has gotten so bad that over 200,000 state employees had their pay rolled back to minimum wage. It's $3.89 in Michigan, where unemployment is skyrocketing. Its $3.98 in New York where Governor Patterson has been forced to slash medicaid by $500 million this year and $1 billion next year. The relief at the pump will be short lived because state governments don't have the resources to ensure normal citizens won't feel the pain of floundering state economies.

The Washington Post should know better. After all, the situation is going from bad to worse in their own back yard. A Richmond Times Dispatch article has Governor Kaine says the budget shortfall could surpass $1 billion. This coming on the heals of cutting $2 billion out of the budget this year. He says he's going to apply the same formula:

Kaine said he probably would apply the same basic principles to the next round of economies that he did previously -- to not cut across the board but target more precisely areas that can be reduced. Some lawmakers and lobbyists aren't sure that's possible.

I'm not sure thats possible either. There are a limited number of areas that can be reduced before you start having to cut education, public safety, health, and other essential services. We may be months away from the endgame, but counties and cities are bracing for the worst.

"We expect, and are preparing for, very bad news," said Michael L. Edwards, a lobbyist for the Virginia Association of Counties.

What the Washington Post fails to understand is that dealing with the nations economic problems has to go beyond fixes for the individual. I would love to receive another check in the mail but it's not what's going to fix this thing. The real solutions lie in federal aid to the states and spending on infrastructure, two moves that will help states who are being forced to make dramatic cuts to essential services and potentially create jobs in states were there are far two few of them. These solutions received little to no attention in the Op Ed, which is really the biggest flaw of all in the piece.

What Are The Experts Saying About a Second Stimulus Package?

Matthew D. Shapiro and Joel Slemrod of the University of Michigan know what they're talking about. They wrote what many consider to be THE paper on the 2001 stimulus payment and now, according to the Wall Street Journal Real Time Economics Blog, have taken a look at the preliminary data on the 2008 stimulus payments. Where did the money go? It's not too surprising:

The change in the personal saving rate corresponds closely to the size of the rebate as a percentage of disposable income. The figure shows how most of the rebate payments appear to have gone straight into saving.

Which is clearly not what President Bush had in mind when he drew up the checks in the first place.

That most of the rebate checks were saved is, though, consistent with the results we find using the University of Michigan Survey of Consumers. When consumers were asked whether their stimulus check would lead them to "mostly spend, mostly save, or mostly pay down debt," only 18% answered that it would lead them to mostly spend more.

That statement is also pretty much in line with what has been reported in the past couple of months. Still, many have been hearing reports recently that feature consumers talking about how they are spending their rebate checks, making some question whether or not it had more of an effect than originally thought. Shapiro and Slemrod don't buy this argument all the way:

Does such consumer behavior correspond to spending that would stimulate the economy? That depends on what the consumers would have done if they had not received the rebate check. If they would have not made those purchases absent the rebate, then the rebate was spent. If the rebate let them avoid running up higher credit card bills for gas and groceries they would have purchased even without the rebate, then the rebate was saved.

Thus the rosy predictions of Americans flocking to stores to spend their rebate checks may not necessarily indicate that they are having the desired effect of stimulating the economy. And what is their overall analysis of how this first stimulus package worked out?

Nonetheless, the rebates are likely to be less effective in stimulating the economy than policymakers had hoped.

In reality Shapiro and Slemrod only add another reliable source to the masses who have highlighted the failure of the first stimulus package to boost the economy. They also join another group that has been picking up steam lately; those who think investing in the states should be a central tenant of any new stimulus package:

If a second round of stimulus is necessary, other options that should be on the table. These include payments to states that will need to cut spending because of balanced budget provisions as their tax revenue falls. Additionally, policymakers should consider increased infrastructure investment on items such as roads and bridges.

Both of these are great ideas. Though they ask the question, is a second round of stimulus necessary? All I can say is look around.

In California the state budget impasse is rounding the track on its 6th week (they were supposed to have something figured out by July 1st.) Governor Schwarzenegger has been favoring scare tactics over real negotiation with state Democrats. Ask the 200,000 state employees who had their salaries reduced to minimum wage if they think a second round of stimulus is necessary. Ask the 10,000 plus seasonal and student workers who lost their jobs if they think a second round of stimulus is necessary.

In New York, Governor Patterson is calling the state legislator back into session to address a projected $6 billion budget gap next year and a gap that could ballon to $26 billion in three years. They say everything is on the table for cuts. I'm sure they could use a little help.

These are just two of countless examples of states in need of some aid. Here's to hoping that when Congress comes back into session next month they do so with the recommendations of Mr. Shapiro and Mr. Slemrod in mind.

It's Official: Aid To States Will Be Part of Second Economic Stimulus Plan

I wrote earlier today about the need for the Federal Government to get a grip on state aid. Perhaps we are seeing a dim light at the end of a tunnel. The Wall Street Journal (subscription only) is reporting that aid to states will be included in a second economic stimulus bill of at least $50 billion:

The general consensus, among people including former Clinton administration officials Lawrence Summers and Alan S. Blinder, was that checks for individuals and additional government spending would help boost the economy, stem job loss and alleviate the pain of higher prices that people are paying for food and gas.

Thankfully Congress seems to finally be coming to terms with what we all have known for a long time now; that the health of the national economy is reliant on the health of the state economies. Speaker Pelosi brings home this point in getting into the finer points of what the bill will entail:

Along with rebates and spending on infrastructure projects, Ms. Pelosi said other possible proposals under consideration are help for states with their share of costs in the Medicaid health program for the poor. Some form of state aid is likely to be included, as Democrats said they are concerned that states, to balance their budgets, will cut programs or increase taxes in ways that would further slow the economy.

Newsflash, this has been happening for the last 5 months as states attempted to balance their budgets. The legislation isn't expected in the House until September, but I am thankful that Senator Reid and the Democratic leadership took the time to make sure the stimulus package would address the right needs. The question now is whether we should be saying "better late than never" or "too little too late."

Diaries

Advertise Blogads