Tag Archives: stimulus

CBO Calls Stimulus Resounding Success… I Mean Failure (I Don’t Understand Things)

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As a mushy moderate, I’m in the unfortunate position of actually trying to seek out facts when it comes to economic policy — so contrived sound bites from people who are paid to BS me for a living don’t really do it for me (my apologies to Fox News and MSNBC). So, if you will, please take this brief journey with me as I try to sift through analysis on the impact of the federal stimulus package — all based on from what I can glean is the exact same report from the Congressional Budget Office, mind you.

Jay Bookman of The Atlanta Journal-Constitution contends… the CBO says it was a "major success":

The Congressional Budget Office has released its latest assessment of the 2009 stimulus package and the economic impact of its various components.

According to the CBO analysis of stimulus provisions:

They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.3 percent and 1.9 percent,

  • They lowered the unemployment rate by between 0.2 percentage points and 1.3 percentage points,
  • They increased the number of people employed by between 0.4 million and 2.4 million, and
  • They increased the number of full-time-equivalent jobs by 0.5 million to 3.3 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)

 Two other points:

  •  The CBO estimates that the impact of the stimulus will continue to be felt over the next year, increasing GDP by up to 0.8 percent next year and creating up to 1.1 million jobs over what it would have been.
  • The longterm economic impacts of increased borrowing to fund the stimulus will be minimal or nonexistent. “In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates—by between zero and 0.2 percent after 2016,” its economists predict.

The Washington Times relays… Nay, the CBO says it was but a short-term fix, but will cause negative long-term consequences, sucka!:

The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy.

CBO said that while the Recovery Act boosted the economy in the short run, the extra debt that the stimulus piled up “crowds out” private investment and “will reduce output slightly in the long run — by between 0 and 0.2 percent after 2016.”

The analysis confirms what CBO predicted before the stimulus passed in February 2009, though the top-end decline of two-tenths of a percent is actually deeper than the agency predicted back then.

All told, the stimulus did boost jobs and the economy in the short run, according to CBO’s models. At the peak of spending from July through September 2010, it sustained anywhere from 700,000 to 3.6 million, which lowered the unemployment rate by between four-tenths of a percent to 2 percent.

The Obama administration had promised 3.5 million jobs would be produced at the peak of spending.

For this current quarter CBO said the stimulus is sustaining between 600,000 and 1.8 million jobs, which has improved the unemployment rate by as much as 1 percent versus what it otherwise would have been.

The White House did not return a message seeking comment Tuesday afternoon, but officials there previously have said the Recovery Act stopped the economy from falling into another Great Depression…

CBO has re-evaluated the stimulus every three months, and its estimates for the total cost have varied. Initially the package was pegged at $787 billion, rose as high as $862 billion at one point, and is now projected to be $825 billion once all the money is paid out.

The nonpartisan agency also has changed its model for the spending’s impact on the economy, and the new calculations show the Recovery Act did less than originally projected.

CBO said it has concluded there is less of an indirect multiplier effect of federal spending.

Those changes caused it to drop its estimates for total employment sustained by the spending in 2011 from between 1.2 million and 3.7 million down to between 600,000 and 3.6 million.

As for the long-term situation, CBO said its basic assumption is that each dollar of additional federal debt crowds out about a third of a dollar’s worth of private domestic capital.

CBO said there is no crowding out in the short term, which is why the Recovery Act boosts the economy in the near term.

So, in closing, the federal stimulus package was clearly a wonderful/dreadful initiative.

Parties Badger Each Other in Wisconsin Over High Speed Rail

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Discussion about the possibilities of high-speed rail has been plentiful over the years. The federal government is putting dollars behind the talk, with Wisconsin the big winner in a network that could extend throughout the Midwest. But there is controversy in the Badger State.

A brick-and-glass state office building on the banks of Lake Monona, just a few blocks from the Wisconsin Capitol and the rest of downtown Madison, shows no outward sign that it has become the focal point of one of the most heated — and unexpected — debates to divide this state’s Democrats and Republicans in a crucial election year.

The controversy is over what the building could become: one of the first new station stops on a high-speed rail network paid for primarily with federal dollars. Wisconsin won big in a national competition to get the high-speed rail stimulus money, and the issue historically has attracted bipartisan support here. Proponents say the new rail service will spur development and link Midwestern cities more tightly together.

But many Wisconsin Republicans this year are denouncing the new trains, using the project as a symbol to show how Democratic leaders in both state and federal government are spending money that neither can afford. “More than anything,” says Scott Walker, the Milwaukee County executive and Republican candidate for governor, “it symbolizes what people think of here when they think of runaway government spending.”

Both Walker and Mark Neumann, a former congressman who faces Walker in Tuesday’s (Sept. 14) Republican primary, want the state to stop work on the project. Walker launched his own website called NoTrain.com, calling for using the money to fill other transportation needs. Neumann doesn’t want it used for transportation at all; he wants the money for tax breaks, although it’s not clear how viable either option is.

Rail proponents are not backing down. President Obama visited Milwaukee to preview his plans to improve the nation’s transportation infrastructure, specifically mentioning high-speed rail. His transportation secretary, Ray LaHood, said in a recent visit that “nobody can stop this train.” And Milwaukee Mayor Tom Barrett, who is running to keep the governor’s mansion in Democratic hands, is firmly behind extending high-speed rail to Madison.

Hijacking the $timulus Dollars

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Whether one agrees with the philosophy behind federal stimulus money, it is difficult to argue with the practice of accepting the dollars once they are offered. If you (as a state) turn away the cash, it will go somewhere else.

Another story is how to use the funds, particularly in the case of the soon-to-be-arriving education stimulus. One can make a strong argument for a cautious approach; in other words, why go out and spend now when you’re likely going to need it even more later?

State Superintendent of Public Instruction Tony Bennett put it this way when informing school districts how much they should receive come November. (The federal law says the money does not have to be spent until September 2012).

"With your staffs and budgets set for the 2010-2011 school year, I urge you to be careful with how and when you spend these funds. Please consider reserving this one-time funding until the level of resources budgeted by the General Assembly in the upcoming budget cycle become clearer."

That won’t be clear until late April in 2011, if then.

While timing may be a consideration, I suspect that taking the education dollars and using them to fill a Medicaid budget gap was not what those doing the allocating had in mind. But that appears to be the case in Rhode Island. The Providence Journal reports:

Instead, Governor Carcieri intends to use the $32.9 million Rhode Island is eligible to receive to plug an estimated $38-million deficit in this year’s budget.

His plan drew a strong protest from Education Commissioner Deborah A. Gist, Congressman James R. Langevin and representatives of teachers unions and the state’s school committees.

School districts across the state were hoping that more than 400 teaching jobs would be restored or protected after Congress passed the bill in August. Nationwide, the law allocates $10 billion for schools and $16.1 billion to prevent Medicaid cuts.

Rhode Island is eligible to receive more than $100 million, $32.9 million intended for education jobs and about $70 million for Medicaid reimbursements.

But that’s about $38 million less for Medicaid than the state was counting on when it passed the 2010-11 budget, said Carcieri’s spokeswoman, Amy Kempe.

“While I’m sure it may be technically allowable and that the governor’s office is doing the appropriate thing, I don’t think we are acknowledging the intention of President Obama, [U.S. Education Secretary Arne] Duncan or Congress had for these funds,” Gist said.

Gist said she is especially concerned because the state is facing an even worse budget gap in fiscal year 2012 and the education jobs money could be spent during that year as well. According to the state Budget Office, the overall deficit could be as large as $320 million next year.

The executive director of the National Education Association of Rhode Island also criticized the governor’s plan, particularly after Carcieri and the General Assembly reduced state education aid to schools by 3.6 percent this year, a $29-million cut.

“I voted for this bill to help keep Rhode Island teachers on the job,” Langevin said in a statement. “Properly supporting our state’s education system is the best way to reverse our current economic situation over the long term.”

Officials at the U.S. Department of Education said Tuesday that using the federal money to supplant state funding is not expressly prohibited, although they cautioned they will carefully review each state’s application to ensure it follows the guidelines.

Congress Gives States More Money; Indiana’s Share Estimated at $434 Million

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Just before heading home for its August recess, the U.S. Senate passed a $26 billion mini-stimulus that it struggled with for months. And House leadership decided to call its members back from recess to act on the legislation, which has two main components: (1) $16.1 billion to extend increased Medicaid funding for states (what is referred to as FMAP or Federal Medical Assistance Percentages); and (2) another $10 billion said to be needed to prevent teacher layoffs.

The debate involved both fiscal prudence and the perceived benefit of these state subsidies, as well as the specifics of how to pay for them. Proponents say $9 billion is to be generated from a "provision that closes corporate tax breaks on income earned overseas." Proponents think this ends an incentive to "export jobs overseas." A different – and more accurate – description would be that this is nothing more than a tax increase for businesses that happen to employ workers both in the U.S. and overseas.

The debate took its own politically charged form in Indiana this week, as efforts were made to characterize Gov. Daniels as inconsistent on the FMAP funding issue. He and 42 other governors sought the funding in a joint letter from the National Governors Association, with some qualifying statements, back in February, but Gov. Daniels has consistently pointed out the detrimental effects of the federal government continuing to spend money it doesn’t have while putting this particular legislation in that category.

The federal package would provide an estimated total of $434 million to Indiana: $227 million for six months of additional FMAP funding (an extension of provisions in the American Recovery and Reinvestment Act, aka the stimulus bill) and another $207 million under the teacher funding element. A $227 million subsidy to our state finances would be helpful as the General Assembly prepares for what all agree will be a brutal budget session in 2011. And school districts no doubt would welcome the money as they grapple with their budgets. But, the situation seems to pit practicality against principle. Regardless of your philosophy or political affiliation, the question remains: Why shouldn’t Indiana citizens and businesses who pay federal taxes receive the benefit of money that the federal government insists on distributing?

Stimulus Money Went Where? for What?

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When federal government spending is involved, there is almost certain to be some questionable uses. According to a report from senators John McCain and Tom Coburn, there are more than a few such examples in the $862 billion stimulus plan.

The following and more are included in their report:

  • Nearly $2 million to photograph ants
  • More than $550,000 to replace windows in a closed visitors center
  • Replacing a 5-year-old sidewalk with a new sidewalk that leads to a ditch

You get the idea. Sure, there is some politics involved here. But the examples of misappropriated or mismanaged funds do speak loudly. Remember, it’s all about jobs — or at least it is supposed to be.

Here’s the report, Summertime Blues (for taxpayers).

Washington Wants Your Help on Clean Energy Development

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Whether you agree or disagree with Washington’s approach to trying to rejuvenate the economy (referring to Recovery Act, stimulus and the like), one thing is clear. When the government is making money available, businesses would be foolish to at least not take a look to see if they could benefit.

The latest entry in that category comes from the Department of Energy (DOE), which last week announced $30 million in funding to help commercialize clean energy technologies. These are really first-time Phase III grants under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. If you’ve worked with the government funds before on clean energy projects, here’s the chance to do more — up to $3 million over three years.

The deadline for submission of applications is August 4. Learn more at the DOE’s Energy Efficiency and Renewable Energy site. Here are the specific areas where the agency wants to invest:

Biomass Technologies

  • Harvesting/Dewatering Technology for Algal Biofuels Production.

Buildings Technologies

  • Transitional Technology for Organic Light Emitting Diodes (OLEDs)
  • SSL Products made from Organic Light Emitting Diodes (OLEDs)
  • "Core" Technology for Organic Light Emitting Diodes (OLEDs) 

Fuel Cell Technologies

  • Advanced Materials for Fuel Cell Technologies
  • Bio-Fueled Solid Oxide Fuel Cells
     

Geothermal Technologies –  High Temperature Tools and Sensors 

  • High Temperature Downhole Tools 
  • High-Temperature-High-Volume Lifting  
  • High Temperature Downhole MWD Tools for Directional Drilling
     

Industrial Technologies

  • Sensors and Controls  
  • Industrial Membrane Process Systems   
  • Advanced Materials 
  • Integrated Reaction-Separation using non-thermal processes
  • Mitigation of Heat Losses, Fouling, and Scaling in key Manufacturing Unit Operations. 
     

Solar Technologies – Lowering the Cost of Photovoltaics through Innovative Augmentation

  • Lightweight, Flexible and Low Cost Multi-junction Solar Cells
  • Static Module PV Concentrators
  • New Methods of Crystallizing Silicon

Vehicle Technologies

  • Technologies to Address Internal Heating in DC Bus Capacitors
  • Improved Magnetic Materials for Motors
  • Advanced Materials for Lightweight Vehicles
     

Wind Technologies

  • Advanced Wind Power Technologies and Systems  
     

Fossil Energy

  • Pollution control
  • Advanced power systems
  • Stationary power fuel cells
  • Clean fuels
  • Carbon sequestration
  • Recovery of oil, natural gas, and methane hydrates
  • Advances in materials, sensors, monitors, controls, biotechnology, and computational processes
     

Electricity Delivery and Energy Reliability

  • Smart Grid Technologies and Systems
  • Electric Transmission Technologies
  • Superconducting Technology for Power Equipment 
  • Advanced Materials for Power Electronics and Energy Storage
     

Nuclear Energy

  • Advanced Instrumentation and Control, Radiation Resistant Sensors, and Wireless On-Line Monitoring Systems for Nuclear Power Plant Applications 

TARP Funds to be Directed Toward CDFIs

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(Here’s a sequel to the morning blog.) From BusinessWeek:

Earlier (this week) Treasury officials announced a new initiative that will use up to $1 billion from the Troubled Asset Relief Program to provide lower-cost capital to banks, credit unions, and thrifts that have been certified as Community Development Financial Institutions. The intention, officials say, is to boost the small business lending ability of CDFIs serving low- and moderate-income communities around the country that are struggling because of the recession.

Officials say term sheets will be available by the end of the week and certified institutions will be able to apply by the end of the month.

The CDFI program is separate from the legislative proposal Obama made yesterday to create a $30 billion fund to help community banks provide loans that will spur hiring by small businesses.

Fortune’s Dumbest Moments in Business in 2009

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Fortune magazine recently compiled a list of the 21 dumbest moments in the business world for 2009. Obviously, there are some automotive and stimulus-related entries, but it’s worth a look. For example, here’s one from the "workin’ hard or hardly workin’" category:

Anthony Armatys is facing up to six years in prison for his dumb move. But he’s not the only dummy in this story.

Armatys accepted a job in 2002 with telecom equipment maker Avaya but then changed his mind before he started. He was already in the payroll system however, and the company started depositing his six-figure salary into his checking account.

For five years, Armatys did not notify Avaya of its error, but his attempt to make an early withdrawal from his 401(k) prompted an investigation that led to his arrest.

In October Armatys pleaded guilty to theft and was ordered to repay the $470,995.53 in compensation he received. He faces full sentencing in January.

See the whole list here.

Economist/Presidential Advisor Bearish on Recovery at Economic Club Lunch

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Martin Feldstein – one of the most respected economists of our time – spoke a cautionary message at the Economic Club of Indiana luncheon in Indianapolis Tuesday.

“Reports of the economic recovery have been greatly exaggerated,” Feldstein said.

As a long-time Harvard professor of economics, Feldstein has educated many of today’s economic leaders. He has also served in top advisory roles for three of the past five U.S. Presidents. While acknowledging the consensus among professional forecasters that we are in an economic recovery, Feldstein remains skeptical about the sustainability of current growth.

“Many of the recent positive (economic) numbers are from temporary policy changes such as the stimulus package and first time home buyer tax credit,” Feldstein explains.

Feldstein supports the idea of using fiscal policy to end the recession but feels the Obama administration’s programs were poorly designed and ultimately failed. His long range concerns are based on the housing market – in which one-third of homebuyers owe more money on their loan than the home is currently worth – and the growth in national debt. 

In total, Feldstein feels that the economic outlook is a mixed picture – with the decrease in value of the dollar versus other world currencies making American goods more affordable and reducing trade deficits. He believes the prospects for a recovery are based largely on the household savings rate in 2010. An increased savings rate – while typically seen as beneficial for individual families – would delay the overall economic recovery by slowing consumption. The current national savings rate of 4-5% is double what it was immediately prior to the recession.

Budget Blues in the Bluegrass State

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The Louisville Courier-Journal examines the monumental task the Kentucky legislature has before it as it attempts to cultivate a workable budget in next year’s session. When the word "bloodbath" pokes its head into an article about your economic situation, you know things aren’t good. Let’s hope our neighbors to the South can find a workable solution.

In recent years — as revenue failed to meet projections — Kentucky has used its Rainy Day fund and the stimulus money to avoid mass layoffs of state workers and deep funding cuts for its highest priorities, including the public schools.

But now the Rainy Day Fund is empty. And federal stimulus dollars are scheduled to run dry in the middle of the next fiscal year.

“It’s most definitely the worst budgetary outlook I’ve ever seen,” said State Budget Director Mary Lassiter, who has worked in the budget office for 27 years. “The outlook is a lot worse than it was two years ago.”

Lassiter’s boss, Gov. Steve Beshear, said the budget picture is “going to get more difficult because we’ve already cut out a lot of things that perhaps aren’t as essential as other things. You get down to bone at some point and cuts hurt.”

Budget process could be ‘bloodbath’

The stimulus funds, while welcome, merely delayed the day of reckoning for Kentucky.

Revenues to the state General Fund are projected to fall more than $1 billion short (about 12 percent) of the roughly $9 billion required in the 2009-10 budget as enacted by the 2008 General Assembly.

Beshear and lawmakers are using $787 million in stimulus dollars to help fill that hole.

But only about $485 million in stimulus funds will be available to Kentucky in 2010-11 — and none at all in 2011-12.

State tax revenues — which have shrunk the last two years — are expected to begin growing again next year, but not nearly fast enough to plug the gap when stimulus funds end.