Is Obama's stimulus package a colossal waste of money? Some think so.

With the ink hardly dry from President Obama's pen signing into a law a $790 billion spending and tax bill designed to stimulate our economy, observers are already asking whether it's a "colossal waste" of money.

Robert Samuelson, economics columnist with the increasingly left leaning Newsweek magazine wonders whether that's not so in a recent column.

Judged by his own standards, President Obama's $787 billion economic stimulus program is deeply disappointing. For weeks, Obama has described the economy in grim terms. "This is not your ordinary run-of-the-mill recession," he said at his Feb. 9 news conference. It's "the worst economic crisis since the Great Depression." Given these dire warnings, you'd expect the stimulus package to focus almost exclusively on reviving the economy. It doesn't, and for that, Obama bears much of the blame.

Samuelson then goes on to point out that the bill won't provide much stimulus for the economy but rather is full of pork and spending programs that won't go into effect for years.

The case for a huge stimulus -- which I support -- is to prevent a devastating downward economic spiral. Spending is tumbling worldwide. In the fourth quarter of 2008, the U.S. economy contracted at a nearly 4 percent annual rate. In Japan, the economy fell at a nearly 13 percent rate; in Europe, the rate was about 6 percent. These are gruesome declines. If the economic outlook is as bleak as Obama says, there's no reason to dilute the upfront power of the stimulus. But that's what he's done.

His politics compromise the program's economics. Look at the numbers. The Congressional Budget Office (CBO) estimates that about $200 billion will be spent in 2011 or later -- after it would do the most good. For starters, there's $8 billion for high-speed rail. "Everyone is saying this is (for) high-speed rail between Los Angeles and Las Vegas -- I don't know," says Ray Scheppach, executive director of the National Governors Association. Whatever's done, the design and construction will occupy many years. It's not a quick stimulus.

Then there's $20.8 billion for improved health information technology -- more electronic records and the like. Probably most people regard this as desirable, but here, too, changes occur slowly. The CBO expects only 3 percent of the money ($595 million) to be spent in fiscal 2009 and 2010. The peak year of projected spending is 2014 at $14.2 billion.

Big projects take time. They're included in the stimulus because Obama and Democratic congressional leaders are using the legislation to advance many political priorities instead of just spurring the economy. At his news conference, Obama argued (inaccurately) that the two goals don't conflict. Consider, he said, the retrofitting of federal buildings to make them more energy efficient. "We're creating jobs immediately," he said.

Yes -- but not many. The stimulus package includes $5.5 billion for overhauling federal buildings. The CBO estimates that only 23 percent of that would be spent in 2009 and 2010.

Worse, the economic impact of the stimulus is already smaller than advertised. The package includes an obscure tax provision: a "patch" for the alternative minimum tax (AMT). This protects many middle-class Americans against higher taxes and, on paper, adds $85 billion of "stimulus" in 2009 and 2010. One problem: "It's not stimulus," says Len Burman of the nonpartisan Tax Policy Center. "(Congress was) going to do it anyway. They do it every year." Strip out the AMT patch, and the stimulus drops to about $700 billion, with almost 30 percent spent after 2010.

The purpose of the stimulus is to minimize declines in one part of the economy from dragging other sectors down. The next big vulnerable sector seems to be state and local governments. Weakening tax payments create massive budget shortfalls. From now until the end of fiscal 2011, these may total $350 billion, says the Center on Budget and Policy Priorities (CBPP), a liberal advocacy group. Required to balance their budgets, states face huge pressures to cut spending and jobs or to raise taxes. All would worsen the recession and deepen pessimism.

Yet, the stimulus package offers only modest relief. Using funds from the stimulus, states might offset 40 percent of their looming deficits, says the CBPP's Nicholas Johnson. The effect on localities would probably be less. Congress might have done more by providing large, temporary block grants to states and localities and letting them decide how to spend the money. Instead, the stimulus provides most funds through specific programs. There's $90 billion more for Medicaid, $12 billion for special education, $2.8 billion for various policing programs. More power is being centralized in Washington.

No one knows the economic effects of all this; estimates vary. But Obama's political strategy stunts the impact from what it might have been. By using the stimulus for unrelated policy goals, spending will be delayed and diluted. There's another downside: "Temporary" spending increases for specific programs, as opposed to block grants, will be harder to undo, worsening the long-term budget outlook.

Politics cannot be removed from the political process. But here, partisan politics ran roughshod over pragmatic economic policy. Token concessions (including the AMT provision) to some Republicans weakened the package. Obama is gambling that his flawed stimulus will seem to work well enough that he'll receive credit for restarting the economy -- and not blamed for engineering a colossal waste.

If the economy continues to go south and the stimulus bill is understood by the voters as a "colossal waste", those who voted for it had better be concerned.

Delaying the day of reckoning means it will only be much worse.

Many years ago there was a car commercial which ended with the line, "You can pay now or you can pay later." Applied to our nation's economy we are choosing the latter.

Minnesota's state government is facing a projected $4.8 billion budget deficit which could easily grow to $6 to 7 billion when the March forecast comes out. The $780 billion federal economic stimulus bill could send up to $2 to 3 billion to the state to plug the gap. Along with it will be strings attached on how the money should be spent.

All of this is an exercise in economic foolishness. The federal government is merely allowing state governments to put off the day of reckoning. They are enabling, tempting state's to not make the tough decisions now. In addition policymakers assume that the national debt will not impact us here in Minnesota. It's as though the federal government and economy are free from the laws of economics. The trillions of dollars in new debt won't come back to haunt us some day.

Earlier this week Obama's Treasury Secretary Timothy Geithner suggested the Treasury Department and the Fed will spend another $2 trillion to keep things afloat.

Together, the stimulus plan in Congress and the financial rescue plan being overseen by Treasury and the Fed could end up marshaling nearly $3 trillion toward revitalizing the economy, and the enormity of the task is contributing to anxiety among policymakers, corporate America and individual investors and consumers.

"We're really operating in uncharted waters. The stimulus package and the financial-institutions rescue package are really crap shoots. We really don't have any sense of how they're going to work out," said Ross Baker, a Rutgers University politics professor. "We're really talking about remaking the American economy and the banking system."

At the heart of the problem is the unwillingness of us as a society to live within our means. It's a radical "live for the moment", me-centered mentality. There's no thought of the long range implications of what we're doing.

All indications are the wake up call of our economic problems from the last several months hasn't woken up a lot of people.

Economic stimulus bill is "anti-religious"!

That's the analysis of the economic stimulus bill from former presidential candidate Mike Huckabee who came in second to McCain in the race for the Republican nomination. I mentioned this in an earlier blog but the prominence given to it by Huckabee and others will make this a much bigger issue.

In an article on Politico newsblog:

Former Arkansas Gov. Mike Huckabee warned supporters Tuesday that the $828 billion stimulus package is “anti-religious.”

In an e-mail that was also posted on his blog ahead of the Senate’s passage, Huckabee wrote: “The dust is settling on the ‘bipartisan’ stimulus bill and one thing is clear: It is anti-religious.”

The former Republican presidential candidate pointed to a provision in both the House and Senate versions banning higher education funds in the bill from being used on a “school or department of divinity.”

“You would think the ACLU drafted this bill,” Huckabee said. “For all of the talk about bipartisanship, this Congress is blatantly liberal.”

“Emily’s List, radical environmental groups, etc. all have a seat at the decision making table in Washington these days,” he continued. “Nancy Pelosi and Harry Reid are in charge and they are working with an equally ‘progressive’ President Obama (remember his voting record is more liberal than Ted Kennedy!).”

In the e-mail, Huckabee concedes that there is little that conservatives can do in the near term, but advocated mobilization to defeat those “masquerading as ‘conservative Democrats.’”

“This is the opening round of the Democrats’ campaign for big government,” he wrote. “We cannot afford to sit round one out, because if we do, they will only become more emboldened and their grab for power more audacious and damaging to our country and our freedoms.”

The last thing Obama and Democrats in Congress want to do is charge up religious conservatives in the first few months of the new session. The economic stimulus bill has something to upset everybody.

Who's responsible for our financial crisis? The government says Stanford economist.

I've been listening to "The Forgotten Man" by Amity Shlaes, a history of the Great Depression 1930s era. What's happening today sadly sounds like a rerun of what happened in the 1930s.

I'm up to the 1934s and FDR's New Deal which was really just an amalgam of unrelated and uncoordinated government activities instituted in response to the economic crisis and based on the "progressive" ideology which guided FDR and his advisers. They really didn't know what they were doing. FDR's policies were really just an extension and massive expansion of Hoover's after the crash of 1929.

At a point, when things weren't turning around, the Roosevelt Administration went looking for scapegoats, particularly business leaders.

Here's a link to an interesting analysis of our financial crisis by a Stanford professor John B. Taylor who outlines missteps made by the Bush Administration and the Fed over the past several years.

My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis.

The classic explanation of financial crises is that they are caused by excesses -- frequently monetary excesses -- which lead to a boom and an inevitable bust. This crisis was no different: A housing boom followed by a bust led to defaults, the implosion of mortgages and mortgage-related securities at financial institutions, and resulting financial turmoil.

Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking. There is also evidence the excessive risk taking was encouraged by the excessively low interest rates. Delinquency rates and foreclosure rates are inversely related to housing price inflation. These rates declined rapidly during the years housing prices rose rapidly, likely throwing mortgage underwriting programs off track and misleading many people.

Adjustable-rate, subprime and other mortgages were packed into mortgage-backed securities of great complexity. Rating agencies underestimated the risk of these securities, either because of a lack of competition, poor accountability, or most likely the inherent difficulty in assessing risk due to the complexity.

Other government actions were at play: The government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky subprime mortgages.

Government action also helped prolong the crisis. Consider that the financial crisis became acute on Aug. 9 and 10, 2007, when money-market interest rates rose dramatically. Interest rate spreads, such as the difference between three-month and overnight interbank loans, jumped to unprecedented levels.

Diagnosing the reason for this sudden increase was essential for determining what type of policy response was appropriate. If liquidity was the problem, then providing more liquidity by making borrowing easier at the Federal Reserve discount window, or opening new windows or facilities, would be appropriate. But if counterparty risk was behind the sudden rise in money-market interest rates, then a direct focus on the quality and transparency of the bank's balance sheets would be appropriate.

Early on, policy makers misdiagnosed the crisis as one of liquidity, and prescribed the wrong treatment.

The government distorted sound money practices in an effort to keep the economy chugging along. Those actions and then ones in response to the financial crisis have only deepened the crisis we're facing.

Seeing what's happening with the Obama mega-billion economic stimulus bill looks like something the "progressives" would have done during the Roosevelt Administration. Lots of pork, social spending and efforts to further regulate and control society and the economy.

Then as today, the Keynesian economists were in the driving seat in terms of influencing government policy. The whole rationale behind the stimulus bill is that government spending is necessary to jump start the economy. Lot's of observers say that won't happen and will only add to the debt burden facing our government and society.

Getting it right doesn't like look like it's in the cards for the foreseeable future.

First step towards nationalized, government directed health included in national economic stimulus bill

The financial and political leviathan called the economic stimulus bill is being criticized for the amount of money it's spending, $800 to 900 billion, what it's being spent on, and how much it will actually stimulate the economy. But there are other provisions discovered in the bill which should also give lawmakers pause.

Earlier, I mentioned the provision which prohibits funding to public facilities which are used for worship services. Now there's a provision which is a key building block for moving towards a national health care system.

According to a Bloomberg news story:

Tragically, no one from either party is objecting to the health provisions slipped in without discussion. These provisions reflect the handiwork of Tom Daschle, until recently the nominee to head the Health and Human Services Department.

Senators should read these provisions and vote against them because they are dangerous to your health. (Page numbers refer to H.R. 1 EH, pdf version).

The bill’s health rules will affect “every individual in the United States” (445, 454, 479). Your medical treatments will be tracked electronically by a federal system. Having electronic medical records at your fingertips, easily transferred to a hospital, is beneficial. It will help avoid duplicate tests and errors.

But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

New Penalties

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.

For a government run or directed health care system to work, it's essential they gain access to all patients' medical records and in turn start to decide who can receive what treatments. Universal, government run health care means bureaucrats will start injecting themselves into what were formerly patient-doctor decisions.

This has been fought in Minnesota for a number of years where certain legislators have attempted to exert more state control and regulation of health care. With the Obama Administration, the same effort is now being made in Congress. The ultimate consequence of more government involvement in health care is rationing and reduced health care quality.

Maybe the economic stimulus bill isn't such a good idea after all.

With all the haggling in Washington DC over the $800 to 900 billion stimulus bill, there isn't much discussion if any about whether it should be done at all. The debate is only over size and contents.

The Congressional Budget Office has now come out with a report suggesting the long run benefits may well not be there. A Washington Times news story notes:

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary.

The House last week passed a bill totaling about $820 billion while the Senate is working on a proposal reaching about $900 billion in spending increases and tax cuts.

But Republicans and some moderate Democrats have balked at the size of the bill and at some of the spending items included in it, arguing they won't produce immediate jobs, which is the stated goal of the bill.

The budget office had previously estimated service the debt due to the new spending could add hundreds of millions of dollars to the cost of the bill -- forcing the crowd-out.

CBOs basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollars worth of private domestic capital, CBO said in its letter.

CBO said there is no crowding out in the short term, so the plan would succeed in boosting growth in 2009 and 2010.

The agency projected the Senate bill would produce between 1.4 percent and 4.1 percent higher growth in 2009 than if there was no action. For 2010, the plan would boost growth by 1.2 percent to 3.6 percent.

CBO did project the bill would create jobs, though by 2011 the effects would be minuscule.

I've wondered whether in the long run the bill is a good idea because of the debt burden we'll adding and it's government generating the activity rather than the wealth creating private sector.

The stimulus bill debate seems to me to point out the current mentality of living for the now. Rather than planning for the future we're driven by quick fixes. That's what got us into this mess, e.g. enormous debt, making a quick buck and so forth. Trying to avoid the inevitable correction by pouring billions of new money generated by more debt seems to me to be going exactly the wrong direction. Eventually, somebody will have to pay the bill whether now or later. Ultimately, there's no such thing as a free lunch even when the government is involved.

Stimulus bill and muzzling religion -- The "God crushers" are at it again.

Even I was surprised to see an effort by US House democrats to use the economic stimulus bill to stifle religious expression at institutions receiving public dollars.

According to a Fox news story referring to a provision in the House economic stimulus bill:

The provision bans money designated for school renovation from being spent on facilities that allow "religious worship." It has ignited a fury among critics who say it violates the First Amendment and is an attempt to prevent religious practice in schools.

According to the bill, which the Democratic-controlled House passed despite unanimous Republican opposition, funds are prohibited from being used for the "modernization, renovation, or repair" of facilities that allow "sectarian instruction, religious worship or a school or department of divinity."

Critics say that could include public schools that permit religious groups to meet on campus. The House provided $20 billion for the infrastructure improvements, of which $6 billion would go to higher education facilities where the limitations would be applied.

The term "God crushers" was a term relayed to me many years ago by a civil libertarian associated with the Minnesota Civil Liberties Organization used to describe a stream of civil libertarians moved by an extreme animus to all things religious.

In the final analysis, I have no concerns about who will win the battle between God and His protagonists but in the meanwhile his opponents are under the delusion they can be successful. A fly eating an elephant is analogous albeit in a very superficial way.

Business as usual and worse. STD funding in stimulus bill.

The $800 billion plus stimulus bill flying through Congress contains hundreds of millions of dollars for sexually transmitted disease prevention. What that actually means is more money for Planned Parenthood and its friends and lots of condoms.

Many rightfully ask how this is supposed to stimulus the economy as opposed to just being pork spending on a grand scale. It's hard to defend it's relevance to stimulating the economy with a straight face or a reasonable argument though Speaker Pelosi unsuccessfully tries to. Frankly, efforts to reduce birth rates via increased condom usage is not the way to expand an economy; having more workers in the economy does.

Sexually transmitted disease prevention programs have been an abysmal failure even for reducing STDs. An epidemic of STDs continues across our nation, because the problem isn't lack of condom use but people having sex when they shouldn't -- outside of a faithful, lifelong marriage relationship. A quaint notion in our "enlightened, postmodern" society but one affirmed throughout history and no doubt will be again long after we are gone.