A Stimulus With Merit, and Misses Too By DAVID LEONHARDT

January 28, 2009
Economic Scene
A Stimulus With Merit, and Misses Too By DAVID LEONHARDT

WASHINGTON

How much of a difference will the stimulus make?

Two weeks ago, a Congressional committee posted a table of numbers on its Web site that gave an early answer. The numbers came from the Congressional Budget Office and seemed to show that only 38 percent of the money in the bill would be spent by September 2010. That didn't sound very stimulating, and the numbers soon caused a minor media sensation.

But anyone who looked closely would have seen something strange about the table. It suggested that the bill would cost only $355 billion in all, rather than its actual cost of about $800 billion.

Why? It turns out that the table was analyzing only certain parts of the bill, like new spending on highways, education and energy. It ignored the tax cuts, jobless benefits and Medicaid payments — the very money that will be spent the fastest.

On Monday evening, the Congressional Budget Office put out its analysis of the full bill, and it gave a very different picture. It estimated that about 64 percent of the money, or $526 billion, would be spent by next September.

That timetable may still be slower than ideal, and short of the 75 percent benchmark President Obama has promised, but it isn't terrible. Spending hundreds of billions of dollars takes time. In fact, for all the criticism the stimulus package has been getting, it does pretty well by several important yardsticks.

First of all, the package really is stimulus. It will quickly give money to the people who have been hardest hit by the recession and who, not coincidentally, will be most likely to spend that money soon. The spending also has a chance to do some long-term good, by paying for the computerization of medical records, the weatherization of homes and other such investments.

By my count, the current package has just one major flaw. It could do a lot more to change how the government spends its money. It doesn't have nearly the amount of the fresh, reformist thinking as Mr. Obama's campaign speeches and proposals did. Instead, the bill is mostly a stew of spending on existing programs, whatever their warts may be.

I understand that this approach reflects the realities of political negotiations. It even has some economic merits: it may help speed the flow of money out the door. But it still is a missed opportunity in a few instances.

The biggest is infrastructure. Transportation experts had hoped the package would be the start of not only more spending on infrastructure but also smarter spending on highways, mass transit, sewer systems and other public works. So far, the experts are disappointed.

In the current system, the federal government sends money to states without any real effort to evaluate whether it will pay for worthy projects. States rarely do serious analyses of their own. They build new roads before fixing old ones. They don't consider whether those new roads will lead to faster traffic or simply more traffic. They spend millions of dollars on legislators' pet projects and hulking new sports stadiums. In the world of infrastructure, cost-benefit analysis is still a science of the future.

A couple of weeks ago, Ed Rendell, the Democratic governor of Pennsylvania, came to Washington to talk up infrastructure. He is a member of a tripartisan threesome — along with Michael Bloomberg, New York's independent mayor, and Arnold Schwarzenegger, California's Republican governor — trying to persuade the country to get serious about infrastructure.

In his talk, Mr. Rendell said he understood that the stimulus bill couldn't come close to solving all these problems. But it could make some progress, and Mr. Obama's sky-high approval ratings gave him a wonderful chance to do so. "This is the time to put down some markers — this is the time," Mr. Rendell said.

And the bill does include a couple of markers. It will list on the Web the projects that the federal government is financing — an idea that, amazingly enough, is considered radical — and will require that mayors and governors sign off on projects. That will make it harder for them to lobby for projects now and criticize those same projects later, as Gov. Sarah Palin did with the Bridge to Nowhere. At least one version of the bill also sets aside $5.5 billion to be awarded by the transportation secretary, supposedly on the merits of a project.

But it's not clear how that will work, and there is so much more that could be done. The bill could create a small-scale version of an "infrastructure bank," a free-standing entity that could make more merit-based decisions than Congress does (an idea that Mr. Obama supports). The bill could also finance the creation of new state offices to conduct cost-benefit analyses. It could also help cover the budget shortfalls of public transit systems, instead of simply allocating another $30 billion for the construction of new highways.

Fifty-one transit systems have recently proposed service cuts or fare increases, including those in Atlanta, Denver, New York, Phoenix, St. Louis, San Diego and Washington. If these cuts go through, they will make it harder for people to get to work (or look for work), and they will undermine one of the long-term goals of the stimulus package: laying the groundwork for a greener economy.

It's not just infrastructure, either. The bill includes big, admirable increases in college financial aid — but appears likely to do little to use those increases to improve higher education. The package will also sprinkle millions of dollars on some debatable projects, like the renovation of the National Mall.

The standard that I'm setting here may seem a bit high. Even with its current flaws, the bill has much to recommend it. It will indeed try to encourage significant changes in health care and K-12 education, for example.

The bill is certainly superior to a huge package of tax cuts, which might be politically popular but end up in people's bank accounts rather than stimulating the economy. By now, we should know that tax cuts are not a cure-all. The cuts of 2001 and 2003 couldn't keep the recent expansion from being one of the weakest on record or the current recession from being so deep.

This bill should help the economy in both the near term and the long term. But the government doesn't go out and spend about $800 billion every day. The details matter.

Email: leonhardt@nytimes.com

http://www.nytimes.com/2009/01/28/business/economy/28leonhardt.html?sq=Leonhardt%20&st=cse&%2334;A%20Stimulus%20With%20Merit=&%2334;=&scp=1&pagewanted=print

http://snipurl.com/by2nn

http://www.nytimes.com/interactive/2009/01/26/business/economy/20090126-recessions-graphic.html