Word has it that the Senate has a compromise stimulus plan ready, but the details are being held up while negotiations are still in progress.  We might not know what is in the package, but we’ve seen plenty of trial balloons over the last couple of weeks.  Here are my thoughts on those ideas, both as stimulus and as good policy.  I’ve provided a grade for both and these grades represent only my thoughts.

Critical infrastructure project spending (Stimulus: A+, Policy A+)

This one is a no-brainer for Congress and you could easily spend a trillion dollars on just this alone if Congress has sufficient desire.  Infrastructure spending results in the direct creation of jobs and the purchase of mostly local materials.  Infrastructure improvements directly benefit the economy by laying the groundwork for more efficient use of resources as in roads, electrical grid or data grid improvements or by minimizing loss with levy improvements and wildfire control.

Non-critical infrastructure project spending (Stimulus A, Policy C)

Non-critical infrastructure is my friendly term for a certain type of pork.  But pork is bad, right??  For most people, pork is only bad if it is not in their district.  Still, pork is stimulus for the same reasons that critical infrastructure spending is.  Almost by definition, the spending is very localized, it stays in the US economy and generates local jobs.  What makes it bad policy is that the future benefits of pork spending are secondary to the local, short term impact.  That new VA hospital might be useful, but not in a district with no veterans.  The center to study frisbee dynamics at the local university?  Those research dollars might allow the college to keep a couple of professors on the payroll and maybe avoid a tuition increase next year.  Will it generate the type of sustaining, well paying industries that might have been spawned from putting that money in stem cell research?  Probably not.  Still, that bridge to no where is valuable to the folks living in no where and some projects are too big for local governments even if they have great local value.  Pork doesn’t always have to be bad.

Incentive payments for purchases (Stimulus: C, Policy D)

There’s talk of a $15,000 credit to new home buyers and possibly a credit for car purchases as well.  On the home owner front, this will certainly allow some renters who are close to moving into home ownership to make the leap.  It will also prop up home prices since sellers will know that buyers have this incentive and price their homes accordingly.  Buyers and sellers with a little more cash might go out and buy a little more, but peope are afraid to spend and this type of credit is a very indirect way to stimulate the economy.  It also doesn’t increase sales, just moves them up.  Car and home buyers taking advantage of the credit are probably already in the market and would make a purchase in the next year or two.  By incenting them to buy now, you get a short term boost, but drain the pool of buyers for the next couple of years.

Increased “safety net” payments (Stimulus D, Policy A)

With more people out of work, there is a lot of talk about extending unemployment benefits are making shifts in the tax code to help those at the bottom of the spectrum.  The children’s health insurance program, SCHIP, has already been extended.  In terms of stimulus, this is not going to do much.  Many people in this situation have reduced their spending as far as they can and they are getting by on credit.  More government support will allow them to limit the debt spiral, but it won’t make them spend any more money.  But in terms of policy, this is a home run.  The rapid increase in the unemployed is the first pebble in an avalanche that could overwhelm our social systems.  The demands of high unemployment suck up all the available oxygen at the state level, killing other necessary programs and forcing cutbacks in other areas where we need more spending, not less.  Increasing government support in this area limits this disruption and provides enough time for the shocks to be absorbed by the states.

General tax breaks or credits (Stimulus F, Policy F)

I love low taxes as much as the next guy, but in the situation we’re in now, they have no stimulus effect.  I’m sure my Republican friends would disagree, but the whole idea of the stimulus is for the government to make up for the lack of private sector spending.  The private sector is not spending because of fear.  Some of that fear is very reasonable (“will I have a job tomorrow?”) and some is irrational (“things are bad!”).  In a mild recessionary situation, tax breaks add a little more to the banking account and provide a little “wealth effect” spending, but all the tax breaks in the world are not going to alleviate the fear running through the economy.  People are hoarding their dollars and if you give them a small tax break, they will just hoard it also.  Without spending, there is not stimulus.  From a policy point of view, tax breaks are also terrible.  Over the last couple of decades and especially under the Bush administration, Americans have come to believe that the federal government has tons of money and can do everything without any contribution from them.  You really don’t see this on a local level.  Communities that lay out reasonable, transparent bond referendums for education or recreation generally are successful in getting the votes they need to move forward.  People understand that services must be paid for.  We’ve lost that sense at the federal level.  Tax breaks at this point would further undermine the idea that we pay for what we receive.

Increased Higher Education Spending (Stimulus: B, Policy A)

OK, no one is really talking about this… but they should.  Our economy is changing and our population has to change to meet the need.  The GI Bill after WWII was one of the most successful long term spending efforts ever implemented by the US government.  What was a huge spending program at the time reaped an entire generation of well educated, productive employees who went out and grew the US economy into the juggernut that it is today, even in recession.  If you consider human capital as part of our country’s infrasturcture, this is a way to invest in that direction with proven long term results.  Create an opportunity for all of those unemployed workers to go back to school and get the training they need to really succeed.  It takes them off the unemployment lines immediately and pours money into their communities.  If you combine it with a living stipend, you can make it possible for displaced workers with families to pursue new opportunites.  When the economy needs them in a couple of years, they’ll be ready.