…apparently not passing a giant stimulus bill. Hope and change have turned into fear-mongering and distortions about the economy. I’ll start with Joe Biden. In the same day, he said the following two things. I am unclear on the timing about which came first.

“This is about all of us, we’re in this together,”  and “when it works, as I’m absolutely convinced it will, I’m absolutely convinced, that our best days are ahead of us. I’m not just saying that, I really believe that with every fiber in my being that this is an opportunity.”

“If we do everything right, if we do it with absolute certainty, there’s still a 30 percent chance we’ll get it wrong.”

It is, as SNL said describing Gore’s position during his 2000 campaign, “Cautious optimism with hesitant guarded hope.” Biden is saying that this is the right bill and we have to pass it and if we do, it will save the economy. Unless it doesn’t, and if that happens, remember that we never promised it would work anyway. But at least there’s some hope in Biden’s words. Obama has abandoned his campaign slogan and is now trying to scare people into passing this bill. He said there would be a “catastrophe” and we “may never recover” from this if we don’t pass this immediately. Spare me. If only 13% of this bill (which in its entirety currently represents only 5.6% of one year’s GDP and is spread out mostly over 5 years) would affect the economy in the first year, why is it so important that we pass everything so soon? Even if 20% of it actually hit the economy this year, that would be $160 billion, about 1% of annual GDP. Is not having 1% of GDP spent going to throw our economy off a cliff forever? If you believe Obama, yes it will. If he really believes that, he’s stupid. If he doesn’t, he’s lying to the public in an effort to get his way. I don’t like either of those options.

We got suckered into this very same thing before the TARP bill and Congress passed something broad that contained language that allowed the Treasury Secretary to basically do anything with the money (regardless of what he said he would do), and now many regret not being more specific about the language. Senator Dick Durbin said that in the entire stimulus bill, the amount of wasteful spending amounted to 1 page, less than 1 percent of the bill. If that’s true, then why not get rid of all of it, Dick? It won’t have any impact, so why is it so important that those spending projects be in the bill? Is it really so bad to stop and debate for a few weeks about this? (Oh, and that 1% of the bill that’s admittedly spent on bad projects, is valued at $8 billion — that’s as much as we spend on cancer research in a year.)

Let’s get some facts straight on the bill. When it was proposed, it was ostensibly designed to do two things: provide some immediate stimulus to the economy to pull us out of a recession, and increase spending on infrastructure and investment-type projects that we need to do anyway. I have no problem with either of them. But here’s what the bill actually looks like. By my calculation, only about $183 billion, or 22% of the package, can even come close to being called investment. Is this a bill whose provisions have an immediate effect on the economy? If 2 years is immediate, then maybe, but even then it’s less than 2/3 of the bill. But that doesn’t matter to Obama. At the Democrats’ retreat in Virginia, Obama said this:

“So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No, seriously. (Laughter.) That’s the point.”

As my department chair King Banaian points out, all stimulus is not spending and all spending is not spending. King says, “Under this ‘logic,’ any bill that contains spending should be enacted because, by definition, it provides ‘stimulus.’” As I read in the comment of a web page somewhere yesterday, it’s as if the people say “Something must be done” and Obama says “This is something, therefore it must be done.” (A lesser-known Kennedy was on Hannity’s program last night making this same argument: “something” must be done; he admittedly didn’t really know much about the bill and apparently didn’t care — at least it was “something.”)

Economists have refuted the implied notion behind Obama’s comment (and his audience’s reaction to it) for decades. The government can pay people to do things (like dig ditches) and then pay other people to do things (like fill them) and it will be spending and it will have an impact on jobs – those ditch-diggers and ditch-fillers will have income and they will spend it at their grocery stores and that will help the local economy. But is it good? Is it smart? Is it the best option available? After a natural disaster, GDP tends to rise as people rebuild their homes; but does that mean natural disasters are good for an economy? Should we be encouraging tornadoes and hurricanes because it will destroy buildings and create more shovel-ready projects for Congress to spend money on? In the 1990s, the Japanese government started paying people to catch snails, as a way of putting money into the economy. Anybody could do it — the government paid a certain amount of yen per snail. But then people stopped looking for work and doing other things, just so they could catch more snails. (I couldn’t find a webpage but I remember telling my Intermediate Macro class about it in 2001 after reading a story in the paper — I’m not making this up.) It didn’t get Japan out of their recession and it won’t work for us. I thought Obama was going to be smarter about things – and I welcomed that! But it doesn’t seem like that’s the case here. With a cost of over $200,000 per job saved, we’d be better off just giving $75,000 to 3.5 million people and letting them spend it. (And this week’s Congressional Budget Office report actually has a lower bound on jobs of less than half that 3.5 million, making the cost per job double.) It would cost us a third of this plan and the immediate impact would be greater. Under Obama’s brilliant economic reasoning, it would be stimulus, therefore it would be good and we should do it. That would also be “something.”

I know things are bad right now, but we’ve always had business cycles and we always will. We managed them well for a while, but some reasonably argue that Greenspan’s management of them through printing money in the 1990’s and after 9/11 is in part what caused the tech bubble (and its consequent burst) and the recent housing bubble/burst. We’ve been spoiled into thinking that nothing bad should ever happen to anyone ever, and we’re just not good enough at controlling things to ever come close to that standard. Especially not when politics is involved. This economy will recover whether we pass this bill or not. We went through much worse before we had stabilization policy by the federal government, and we got out of it just fine. It’s just a question of a) how long it will take, and b) what our economic position will be in after we recover. As the CBO reported this week, if we go through with the stimulus bill, it will have a negative impact on long-run growth in the economy. So we’re sacrificing long-run growth for short-run jobs, something that many short-run-thinking politicians have no problem with, as they want to get re-elected. But at some point the adults in the room have to stand up and say that we must think about the long-run. We can’t just keep spending and spending forever – that’s how we got into this problem in the first place.

How about another option? As Jonathan Alter (who bashed Bush in pretty much every column for the last eight years and would probably slap you in the face if you even implied he was anything but a loyal Democrat) writes in Newsweek this week, “Most people don’t know, for instance, that a sharp reduction in payroll taxes (with Social Security and Medicare financed by carbon taxes) would reduce the cost of labor enough to generate tens of millions of jobs.” Even some Democrats are sensible enough to understand there might be a better way to kickstart this economy if we just stop for a second and consider the other options.

Is it really too much to ask that we have our politicians debate a gigantic spending bill? Is it too much to ask that we think about things and not scare people into acting too quickly?

(Update Sunday 2/08: Democrat Kent Conrad defended the entire bill, saying “stimulus is stimulus.” I guess some people never learn. Although some others are learning. Lawrence Summers, a member of the Obama administration, eased up on the some of the absolutist rhetoric coming out of the White House in the last few weeks. Instead of saying that every economist supports this, he said that a wide range of economists support some type of stimulus package. To which I say, “no duh.” The question isn’t whether we should do something; the question is what we should do specifically.)