Friday, February 13, 2009

The Costs of Bipartisanship and Centrism

Trim to Stimulus Carves Into Goals For Job Creation -
". . . congressional negotiators have since trimmed billions of dollars from the package to satisfy Senate Republicans, diminishing its potential for job creation along with its overall cost. With the House poised to vote as early as today on the measure, analysts are slashing their estimates of its ability to counteract a deepening recession, with several prominent economists now saying the package will save or create fewer than 2.5 million jobs by the end of next year.

At $789 billion, the final package "is just not going to pack the same jobs punch" as some earlier versions, which cost as much as $100 billion more, said Mark Zandi, chief economist of Moody's, whose analyses have been cited by White House officials as well as congressional Democrats. Zandi estimates the measure will create only about 2.2 million jobs by the end of 2010, leaving unemployment hovering around 10 percent and probably forcing lawmakers to undertake another stimulus plan.

The White House has officially pared its own projection to 3.5 million jobs in recognition of the bill's smaller size. But Christina Romer, who leads Obama's Council of Economic Advisers, said the administration remains convinced that the package of tax cuts and spending initiatives has sufficient power to boost the sagging economy toward recovery by year's end. . . . Many analysts had been more optimistic about the House version of the stimulus bill. At $820 billion, it was not much bigger than the final package agreed to Wednesday by a House-Senate conference committee. But the House version contained about $50 billion more in direct government spending -- such as payments to state governments and cash for school construction -- which economists say is spent quickly and ripples broadly through the economy. The final package, by contrast, is weighted more heavily toward tax cuts, which have a less powerful effect, according to many economists, because taxpayers tend to save a portion of the money.

Most of those changes originated in the Senate, where Democrats needed the votes of three moderate Republicans to clear a procedural hurdle. Among the biggest changes: the addition of a $70 billion provision to protect millions of taxpayers from the alternative minimum tax, a measure Congress was universally expected to approve anyway.

Because the AMT fix was built into many economic models, its presence in the package amounts to "phantom stimulus," said Nigel Gault, chief U.S. economist at Global Insight, a private forecasting firm. In part because of the AMT provision, Gault said his models show the $838 billion Senate bill would only have created about 2.5 million jobs. Because the final package is even smaller, he said, "our number would come down a little bit."

Another prominent forecasting firm, St. Louis-based Macroeconomic Advisers, this week cut its estimate for the House bill to 2.3 million from 3.3 million jobs after the CBO reported that only about two-thirds of the money could be spent by the end of next year.

Jonathan Chait comments on the above Washington Post report: "What frustrates me is that the Post didn't write this when it could have made a difference. It's possible that none of the economists the Post consulted were able to make models before today. But I suspect that the story fell victim to the conventions of objectivity. Writing a story that says, 'Centrist Changes Hurt Job Growth, Economists Agree' would be partisan.Writing it after the bill is done, and in a context that downplays the specific actors responsible for the changes, is the kind of thing newspapers can do without feeling like they're being 'biased.'"

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