Arnold Kling  

Partisan, Pandering, Permanent

Should Freddie and Fannie Come... Minskynomics...

From The New York Times:

The economic stimulus plan that Congress has scheduled for a vote on Wednesday would shower the nation's school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year investment that would more than double the Department of Education's current budget. its sheer scope, the measure could profoundly change the federal government's role in education, which has traditionally been the responsibility of state and local government.

...One provision, which was sought by the student lending industry and went unmentioned in early Congressional summaries of the stimulus package, would temporarily increase subsidies to banks in the guaranteed student loan program...

"This just continues the well-established tradition of welfare for the student loan industry," said Barmak Nassirian, an expert in student lending.

Jonathan Tolman writes,

Chairman Henry Waxman (D-CA) inserted a provision that would "decouple" utility rates from the amount of electricity or natural gas that the utilities sell. According to the "decoupling" provision, states that accept federal energy efficiency grants from the economic stimulus package will have to ensure that utilities recover the revenue lost when consumers use less energy.

In other words, in states that accept the energy efficiency grants, utilities that use the grants to help consumers lower the energy consumption will be able to raise their rates to compensation for the loss in revenue.

Alan Reynolds writes,

The December unemployment rate was only 2.3% for government workers and 3.8% in education and health. Unemployment rates in manufacturing and construction, by contrast, were 8.3% and 15.2% respectively. Yet 39% of the $550 billion in [spending] would go to state and local governments. Another 17.3% would go to health and education

The Wall Street Journal editorializes,

the House declares on page 257 that "No recipient . . . shall use such funds to provide financial assistance to students to attend private elementary or secondary schools." Horrors: Some money might go to nonunion teachers.'s hard -- no, impossible -- to believe that Congress will cut spending next year on any of these programs from their new, higher levels.

They had better pass the stimulus bill quickly, before more people read it.

UPDATES below the fold:

The Washington Post reports,

Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.

In other words, the "permanent" part of the package ought to be separate from the "stimulus" part. Logically, it makes sense.

Jeff Sachs writes,

Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. [Actually, a lot of the spending will take place beyond that point--AK] Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package.

Read the whole thing. What is said is not so remarkable as the fact that Jeff Sachs is saying it.

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CATEGORIES: Fiscal Policy

COMMENTS (10 to date)
Gurnemanz writes:

Bear with me. Following the Civil War, my great-grandfather, a former Confederate officer, was disbarred from the practice of law by the Reconstruction government in South Carolina and was effectively disenfranchised by that government. Think of the analogy of the Federal victory in the Civil War and the Civil Rights movement of the 60's and 70's. After these victories, government was taken over by Reconstruction activists -- Freedmen as figureheads, carpetbaggers, and scalawags, who took over state governments for their own personal gain. The linear descendents of the founding fathers (see the film, Gettysburg), in the south, had to take back their government. They were vigorously opposed by the Union League organizations (see and local activists. My great-grandfather required an armed escort to and from work. In response to these abuses, in South Carolina, Hampton's Red Shirts were formed. In Mississipi, the Klan. Once self-governance was obtained, the leaders of the Klan and the Red Shirts immediately disbanded these organizations as they perceived the threat of escalating violence. Unfortunately, as a direct result of the abuses of the Reconstruction governments, decades of racial oppression and Jim Crow laws ensued. I am concerned about the generation of a similar backlash in response to the overaggressive and inappropriate spending by our current 'Reconstruction' government. Once taxes are up, and inflation sets in, there will be major unrest.

Tom of the Missouri writes:

Wonderful counter alliteration! May you go down in history as one of the great alliterators along with William Safire and Jessie Jackson. If only the congressional Republicans had any representatives with a backbone, they could take this and run with it to stop the disaster.


An econ fan in St. Louis, MO.

MattYoung writes:

Our Keynesian moment of unexpected shock and countershock is gone, it is back to standard slugging it out in the government supply of goods and services.

El Presidente writes:


In response to Tollman's piece, many utilities are operated as franchises, and many as public enterprises. Rates are set based upon cost recovery, but are also subject in many cases to voter or regulatory approval. Power generation and transmission have relatively high fixed costs. Their costs would not necessarily decline rapidly with reduced usage. This could very well be aimed at ensuring continuous service, not price gouging or indulging sloth and gluttony. One would need to dig deeper to know for certain.

If the volume used declines, the total cost of delivery does not also necessarily decline. So, the cost per unit SHOULD rise in order to cover the share of fixed costs currently covered by metering. It costs you, the consumer, more per oz for a pound of butter than for a case of butter. Why should it be different for utilities?

Maniel writes:

Having seen the splendor of Debt Mountain, I feel so thankful to have been on the winning side in the Cold War. Imagine having to live in country where the central government drives housing, eduction, finance, health care, energy, the auto industry, and infrastructure.

MattYoung writes:

Talking about our local education in my neighborhood.

We have two individual study programs for high school kids, and a traditional high school, all within walking distance.

The older individual study program was designed for working and married kids. The newer individual study, run out of a strip mall, is for bright kids and it uses networking to lower costs of individual study. Both the individual study programs are converging on the same use of technology.

Meanwhile, the parents of kids in the traditional high school have suddenly realized that two other groups of students obtain the superior education at reasonable cost. So, they ask themselves, why are my kids the ones being forced into the classroom?

They answer to themselves, "because my kids need babysitting", a very dark self realization that they do not like.

Obama is forcing us back to an equilibrium point last seen in 1995. This is the typical federal lag, about 10-16 years. This is not Keynes, this is simple bubble behavior.

Dan Weber writes:

Read the whole thing

Fortunately you aren't talking about the stimulus bill, which James Hamilton has pointed out is 647 pages.

Floccina writes:

Why are parents who send their children to private schools, for whatever reason, so seldom mentioned when school spending is increased?

RJ writes:

Why should the government help private schools? I don't see the problem there, honestly... As long as the bill doesn't prevent charter schools, which provide the education innovation we need, from receiving funding, I don't object.

Also, considering the Austrians here continually complain about that the biggest problem is that our current workforce is not well-suited to the demands of the general public, why is it bad that Obama is putting so much money into Healthcare, a sector of the economy that will continue to grow in importance and size for years to come? Sounds like astute government policy to me.

Also, considering the CBO put out their opinion that GDP growth will remain below normal-track until 2014, why is it so bad that we are investing in things that will continue in effect for years down the road? The point is not to bump up GDP over the next two years, it is to accelerate GDP growth over the long run and return us to the natural growth path as soon as possible.

Oh, and the point about 39% of the money going to state and local governments is absolutely stupid. The money is going there to prevent massive cuts and layoffs and decreases in social services. You know that, and the writer knew that, but it's always fun to see the right misrepresent to support their point.

Dr. T writes:

"Why should the government help private schools?"

This, supposedly, is a stimulus bill to revive the entire economy, not just the public sector that needs euthanasia, not revival. The stimulus bill is pumping money into the college student loan programs regardless of whether the college is private, state, or community. So, why should private K-12 schools be the only ones excluded from the government gravy train?

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