So the Conference Committee of Senate and House honchos has reached a deal: U.S. Lawmakers Agree on $789 Billion Stimulus Plan (Update4). The $789 billion price tag means that the bill is indeed smaller than either the House or Senate bill – but at first blush the outcome doesn’t look bad (at least not to my distinctly layman ears).

It’s a little distasteful to see the centrists strut themselves on the bill in the most sanctimonious way: 

“It is a jobs bill,” said Democratic Senator Ben Nelson of Nebraska, an architect of the compromise. “And today you might call us the jobs squad.” Nelson and several other senators had insisted that the stimulus plan total less than $800 billion.

Think about this for a second – he prides himself on having cut stuff from the plan – stuff, obviously, that would have created jobs – and even as he touts this dubious achievement, he frames it as having created “a jobs bill,” actually praising himself as part of “the jobs squad”. Never mind that, if it hadn’t been for the vanity tour of his crew, it would have been more of a jobs bill. The chutzpah these people demonstrate, as Matt Yglesias already laid bare earlier, is truly a piece of work.

But all of that is transient. What’s important is the actual bill. And there seems to be a fair bit of good news about this latest revision, going on the Bloomberg update now. At least if you judge the bill by the criteria of liberal criticism this past month – which I am admittedly reduced to somewhat since I have little economic schooling of my own. (So do chime in!)

All in all, about 35% of the plan has ended up as tax cuts and the remainder as government spending. Just to take a step back from the fray: considering just how much tax cuts have been regarded as the holy grail by every administration since Reagan’s, and extra government spending has been widely framed as almost a bad thing in principle, that’s not bad.

Tax cuts

The tax cuts seem overall revised in the right direction. For example, the biggest tax cut that had been included for businesses, which would have let companies convert losses into tax refunds, has been “all but eliminated”. This was a measure that had been criticized as yielding little immediate stimulus and doing little to help the people most in need – Dean Baker of the Center for Economic Progress called it “simply a give-away to the financial industry and homebuilders,” which “has nothing to do with stimulus” and wouldn’t “even be considered if it were not for the political power of the financial industry.”

A proposed $15,000 tax credit for homebuyers was reduced to $8,000. Funding for the plan to let car buyers take a tax write-off on their interest payments has been slashed from $11 billion to $2 billion. These, too, were ideas I’ve seen criticized by liberal pundits. The auto measure would have had little immediate stimulus effect, because it would have primarily resulted in the auto industry emptying the current vast stocks of unsold cars and using the profit to plug debts – all things that would be good, but wouldn’t create new jobs. The tax credit for homebuyers, at this point in the housing market, would be like carrying water to the sea.

On the other hand, Obama’s proposed payroll tax credit has mostly survived, reduced from $500 for individuals and $1,000 for families to will be $400 and $800 respectively.

Can’t have it all though – the plan still includes an Alternative Minimum Tax patch, which, if I’m reading his chart right, ranks very poorly in terms of stimulus impact according to James Galbraith.

Spending

As for the actual spending, there’s these tidbits:

• Nancy Pelosi “said she was reassured by Reid that some of the money Democrats in her chamber sought for school construction were included as part of a stabilization fund for states”. That fund will apparently total $54 billion.
• There’s “$59 billion in aid for unemployed workers in families, including $27 billion to extend unemployment benefits for 20 additional weeks in most states and 33 additional weeks in states with high unemployment rates”. 
  Note that the Progressive Caucus in the House was already very proud of having gotten “at least $12.7 billion” in the stimulus bill the House passed to extend unemployment benefits – so that means that this end result is actually even better, right? 
• It “also increases weekly [unemployment] benefits by $25.”
• The bill “expands a federal subsidy to help jobless workers keep their health benefits by paying 60 percent of their premiums for nine months for married couples who earn under $250,000.”
  Judging on this side-by-side overview of the differences between the House and Senate bills, this seems to have been one of the House bill’s provisions that the Senate centrists had scrapped in theirs.
• It “authorizes a one-time $250 payment for senior citizens, disabled veterans and disabled people living on Social Security benefits.”
  Judging on the above-linked overview, that looks like a more generous scope than the House bill’s, in which only Social Security beneficiaries would have received it.
• It provides $90 billion for federal funds for Medicaid and $19 billion to facilitate the digitization of health records.

All sounds like good stuff that will immediately aid those hardest hit by the crisis, as well as nicely reverse the trend of the last decade or two to squeeze the benefits for the poorest ever further.

UPDATE, 14 February: Yesterday, the Senate voted anew on the stimulus bill; this time on the final, unified version of the bill that came out of the conference, where House and Senate leaders hammered out a compromise between the two bills their respective chambers had passed. The breakdown of the vote was almost identical: see The Republican Senators who voted for the stimulus bill, Round II: The final bill.

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Less than two weeks ago, I wrote a post on The Democrats who voted against the stimulus bill in the House. Against the House’s version of the stimulus bill, that is. As you might remember, all 177 Republicans in the House voted against it and 11 Democrats joined them, which means that the bill passed by 244 votes to 188.

That vote passed the baton on to the Senate, and thus a new round of wrangling started. Centrist champions Olympia Snowe (R-ME) and Ben Nelson (D-NE) fought to cut stuff out of any stimulus bill they’d be asked to pass. Their selection of exclusions made little coherent sense and struck some of the most effective elements of the stimulus package from the Senate bill – all in the name of bipartisanship.

Yesterday the Senate voted on the result, and the vote was, as Ezra describes it nicely, “about as constructively bipartisan as kick in the head”.

Since it’s a very rare news report that links to the roll call, you can find it here:

That’s a vote of 61 to 37. All of three Republicans voted in favour: Snowe, Susan Collins (ME) and Arlen Specter (PA). Judd Gregg, Obama’s new Republican Commerce Secretary, abstained from the vote as promised, but in the Senate an abstention de facto equals a “Nay” vote. Every single Republican from a state South or West from Pittsburgh voted against the bill.

Let’s recall the compromises that were made to make this bill palatable for Senate Republicans:

The biggest cut, roughly $40 billion in aid to states, was likely to spur a fierce fight in negotiations with the House over the final bill. Many states, hit hard by the recession, face wrenching cuts in services and layoffs of public employees as they struggle to comply with laws requiring them to balance their budgets. [..]

In addition to the large cut in state aid, the Senate agreement would cut nearly $20 billion proposed for school construction; $8 billion to refurbish federal buildings and make them more energy efficient; $1 billion for the early childhood program Head Start; and $2 billion from a plan to expand broadband data networks in rural and underserved areas.

I don’t need to go into what these cuts meant, because assorted bloggers already presented the score:

It’s bad, real bad: “Recession-battered employers eliminated 598,000 jobs in January, the most since the end of 1974, and catapulted the unemployment rate to 7.6 percent [..] the highest since September 1992”:

The grim figures were further proof that the nation’s job climate is deteriorating at an alarming clip with no end in sight. [..]

The latest net total of job losses was far worse than the 524,000 that economists expected. Job reductions in November and December also were deeper than previously reported. [..]

All told, the economy has lost a staggering 3.6 million jobs since the start of the recession in December 2007. About one-half of this decline occurred in the past three months.

UPDATED: The NYT has some ferocious-looking graphs on the numbers, with individual details for added depression: blacks have been especially hardest hit, enlarging the race gap in unemployment again; those with only high school are significantly harder hit than those with college degrees. So the vulnerable suffer most.

It also has some choice quotes to hit home the seriousness of the situation:

“Businesses are panicked and fighting for survival and slashing their payrolls,” said Mark Zandi, chief economist at Moody’s Economy.com. “I think we’re trapped in a very adverse, self-reinforcing cycle. The downturn is intensifying, and likely to intensify further unless policy makers respond aggressively.” [..]

As in previous months, employers [..] slashed their payrolls in almost every industry except health care. Manufacturers eliminated 207,000 jobs, more than in any year since 1982. The construction industry eliminated 111,000 jobs. [..]

“This is a horror show we’re watching,” said Lawrence Mishel, president of the Economic Policy Institute [..]. “By every measure available — loss of employment and hours, rise of unemployment, shrinkage of the employment to population rate — this recession is steeper than any recession of the last 40 years, including the harsh recession of the early 1980s.” [..]

[S]ome analysts contend that the current rate of 7.6 percent understates the labor market’s problems because the percentage of adults participating in the labor force has slumped, and those people are not listed as “unemployed.” Peter Morici, an economist at the University of Maryland, estimated that if the labor force participation rate today were as high as it was when President Bush took office, the unemployment rate would be 9.4 percent.

So I’m chilling and listening to Bob Marley, you know – and he sings:

The stone that the builder refused / will always be the head corner stone

Beautiful, isn’t it? Even the ugly duckling among stones doesn’t need to fear – eventually, after always having passed it by and using better, more beautiful stones, the builder will have almost finished the construction and darn it – he will need that rejected, subpar stone for that prize spot at the very top after all.

But that doesn’t make any sense! That is, it would make sense if there was a definite, finite supply of stones available. If you have limited resources, the only way to ensure everyone gets a shot is by judiciously sharing them. That’s communism. But this is capitalism! Doesn’t he understand? It’s not about sharing the pie, it’s about expanding the pie!

In a market economy, if the builder runs out of stones, he won’t use the subpar stone he refused in the first place, he’ll just get more stones. Import them if need be. Cheap stones from poorer countries perhaps. And, well – if that stone that didn’t make the cut the first time round still wants to have a place in the building, he’ll just have to shape up and improve himself! Be a better, bolder and more productive stone, and face the competition!

Bob Marley, meet Ayn Rand.

I read an article called “A Smarter Stimulus” in the New Yorker when it first came out — I keep thinking of it again when I see disparaging references to the tax cuts in Obama’s stimulus plan, such as Frank Rich’s recent column.

I find the whole economic mess daunting and appreciated the clear explanation of one aspect of the proposed stimulus package that is encouraging.

Evidently not all tax cuts are equal.  The Bush tax cuts did not accomplish much because they were treated as a windfall, and people tend to shunt those into their savings accounts.  The Obama tax cuts will be different — they will take the form of less withholding from paychecks.  The article explains the difference, in terms of the effect on the economy:

The size of the windfall matters a lot: the bigger the windfall the more likely it is to be saved. One fascinating study of Israelis who received reparations from Germany found that those who received the biggest payments spent very little of the money, while those who received small payments spent it all

The key factor in these kinds of distinctions, Thaler’s work suggests, is whether people think of a windfall as wealth or as income. If they think of it as wealth, they’re more likely to save it, and if they think of it as income they’re more likely to spend it. That’s because many people tend to base their spending not on their long-term earning potential or on their assets but on what they think of as their current income, an amount best defined by what’s in their regular paycheck. When that number goes up, so does people’s spending. In Thaler’s words, “People tend to consume from income and leave perceived ‘wealth’ alone.”

So what does this mean for making a rebate work? If you want people to spend the money, you don’t want to give them one big check, because that makes it more likely that they’ll think of it as an increase in their wealth and save it. Instead, you want to give them small amounts over time. And you want the rebate to show up as an increase in people’s take-home pay, because an increase in steady income is more likely to translate into an increase in spending. What can accomplish both of these goals? Reducing people’s withholding payments.

That’s a large excerpt but not the entire article — I encourage you to read the whole thing.  The conclusion:

On its own, Obama’s rebate plan isn’t going to resurrect the economy. But it’s a policy that works with people as they are, rather than as we imagine they should be. And that’s a stimulus in itself.

I just watched Barack Obama’s chat with Matt Lauer before the Super Bowl. It appeared to be live — there were technical difficulties for example that presumably wouldn’t have happened in a taped segment, and some awkward camera cuts. Obama was funny, warm, and serious as called for and didn’t miss a beat when Lauer asked some gotcha-ish questions.

Nothing too deep of course — for example, Lauer asked Obama to face the camera and justify his preference for a national college football playoff to Floridians (whose Gators won the BCS Championship game). “Twenty-seven electoral votes,” Lauer kept saying. Obama smilingly found the camera and delivered his defense; “Congrats Gators, on an outstanding season. … Wouldn’t you feel better if you had beaten every team through a playoff system?”

There was more substance too, especially in terms of talking about the economy and the stimulus package. Obama made it clear that things are going to continue to get worse for several months, and then it would take a while after that before things got back “on track.” But he was full of reassurance, full of confidence that things WILL get back on track.

Throughout he was comfortable and smooth. It’s not solving the health care crisis or creating peace in the middle east, but it was still nice to see. (Right! A brain! Excellent.)

I already noted that the significant dilution of the stimulus bill, when it was only going to be rejected unanimously by the House GOP anyway, drove some people up the wall. “Now that [Obama has] offered concrete concessions to the GOP only to have them publicly throw them back in his face, there simply isn’t any super-secret strategy that can [..] make it all make sense,” wrote Stephen Suh angrily at Cogitamus. Why bother even striving for compromise?

This question will get more acute by the day, as a recent post by Kevin Drum illustrates. He reports on the Obama administration’s push to extend the February 17 deadline for TV stations to switch from analog to digital transmissions. Not exactly a hotly partisan issue, right? The Senate promptly arrived at a bipartisan bill – which it passed unanimously. Every Republican agreed. But then the bill went to the House.

Only 22 House Republicans voted in favour. 155 voted against it. Drum: “100% of Senate Republicans voted in favor but 90% of House Republicans voted against. Shazam! Apparently the House GOP caucus really has decided to blindly stonewall everything Obama wants, no matter what.” He posits: “This is even more of a wakeup call than the vote on the stimulus bill.”

Right. The House GOP leadership is startlingly open about its intentions too, observes Dan at Bleakonomy. It will block and obstruct whatever comes its way, so Republicans can freely blame the Democrats for everything when the economy hasn’t recovered yet in six months. Yes, six months – if things haven’t improved in six months, the Republicans intend to say that it’s all the Dems’ fault and that the stimulus “didn’t work” because they “didn’t have the input in this”.

Of course, the current crisis is turning out to be the worst in almost three decades and is guaranteed to have an impact lasting (much) longer than six months, so … GOP profit!

Yet still there are valid reasons not to come down on Stephen’s side of the argument … yet. (I mean, apart from the stimulus bill not actually being all that bad.) The obvious one is the enormous contrast between House and Senate Republicans on the TV bill. If the Senate GOP shows any remotely similar divergence from the House Republicans’ obstruction course on the stimulus as well, Obama’s strategy may still come to “make sense”.

Then there’s the question of strategy. I already linked to Josh Marshall’s argument that offering the Republicans significant compromises, only for them to reject everything anyway, will help to brand them as the party of ‘no’. Which will marginalise them even further in 2010 so the Dems can go the long haul. Kevin Drum links to more evidence on that count too: a poll conducted by Democracy Corps on January 14-19.

UPDATE, 13 February: For an overview on today’s vote, see this new post: The Democrats who voted against the stimulus bill in the House, part II: Once more round the bend.

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Yesterday, as Americans will know, the House of Representatives passed the $825 billion stimulus package that was proposed by the Democratic leadership. It passed by 244 votes to 188, without a single Republican vote in favour. 11 Democrats voted against.

Who were those Democrats? The Clerk’s Office of the House has the roll call:

The Democrats who voted nay were:

• Allen Boyd – FL 02
• Bobby Bright – AL 02
• Jim Cooper – TN 05
• Brad Ellsworth – IN 08
• Parker Griffith – AL 05
• Paul Kanjorski – PA 11
• Frank Kratovil – MD 01
• Walt Minnick – ID 01
• Collin Peterson – MN 07
• Heath Shuler – NC 11
• Gene Taylor – MS 04

WSJ’s Washington Wire notes that “Bright, Parker, Kratovil and Minnick are freshman lawmakers, while Boyd, Cooper, Ellsworth, Peterson, Shuler and Taylor [and Minnick – nimh] are members of the fiscally conservative Blue Dog Coalition.”

Mind you, the Blue Dog Democratic Coalition has 47 members in all, so almost 6 out of 7 Blue Dogs actually voted in favour.

Democratic votes against the stimulus package in the House of Representatives vote of 28 January 2009

As the quickly improvised map above shows, most of the Democratic Nay votes come from rural and small-town districts, and six of the 11 Democratic Representatives who voted against were from the South. That’s still a small minority of Southern Dems in the House though.

The dilution of the stimulus bill during its preparation for the House vote has driven some liberal observers up the wall, and hyperbole aside not without reason. So many concessions, and still not a single Republican vote? Why bother in the first place?

But on the side of the defense, Josh Marshall argues that it might all turn out to be smart strategy; with Marc Ambinder chiming in that what may seem like Democratic gullibility is also done with an eye of unrelated upcoming votes. The Congressional Progressive Caucus, in its turn, has made a point (in a memo that’s not on their own website – what’s up with that?) of highlighting all the priorities it did manage to get into the bill. For example, a “20% temporary increase in maximum food stamp level above the FY2009 level for two years” (cost: $24 billion), “Medicaid payments to states (FMAP)” (cost: at least $15 billion) and “Unemployment benefits (UI) extension” (cost: at least $12.7 billion).

Now to wait how many of their proposals make it through by the time the Senate’s done with the bill as well.

Bernie Sanders, the self-described socialist from Vermont, was one of the members of the Democratic caucus who voted against the confirmation of Tim Geithner as Treasury Secretary. He has his statement about why he did so up now. It’s short, and has nothing to do with Geithner’s tax problems; Bernie’s criticism is more systemic:

Massive deregulation of the financial services industry has led to the worst financial crisis since the Great Depression.  We need a treasury secretary who will support strong and robust regulation of the financial services sector.  

“Mr. Geithner was at the Fed and the Treasury Department when the deregulatory fervor that got us into this mess ran rampant. He was part of the problem.  I hope he becomes part of the solution, but I could not support his nomination at this time.

Meanwhile, I dug up this link from 1998 that may provide a bit of backstory hinting at the larger ideological disagreements at play. Back then, Bernie was still in the House, and Geithner was Assistant Secretary for International Affairs at Clinton’s Treasury Department. Geithner came to the House to testify in a review of the operations of the International Monetary Fund (IMF). Later on, of course, Geithner would himself move to the IMF. 

Bernie Sanders (Image shared under CC license by the Udall Legacy Bus Tour)

Sanders was (and I assume still is) a harsh critic of the IMF, as his introduction in the review illustrates, and had a rather contentious exchange with Geithner, in which he accused him of disobeying the law. Why, for one – he asked citing the State Department’s human rights reports on Indonesia – did the US not vote against IMF loans to General Suharto’s Indonesia? Why did it not oppose IMF loans to authoritarian governments that violate human rights and jail labor leaders?

The Senate yesterday voted to confirm Tim Geithner as Obama’s new Treasury Secretary – but the vote was narrower than expected, at 60-34. Apparently, it was the slimmest margin of confirmation for a Treasury Secretary since WWII.

Among those who voted nay were the Democrats Russ Feingold, Tom Harkin and Robert Byrd, as well as Bernie Sanders, the self-described socialist from Vermont who was elected as independent but caucuses with the Democrats. I’m generally a fan of Feingold and especially Sanders, and lukewarm about Geithner (not so much about the tax issue as rather because he’s too cautious and too involved in the current failings of the financial system). So I’m curious why they went all out and voted against him.

I tried searching for any statements from them on the matter, but there’s nothing on any of their Senate homepages. For Byrd, all I found (in three zillion copies of a news agency report) is that he commented after the vote, “Had he not been nominated for treasury secretary, it’s doubtful that he would have ever paid these taxes.” But Firedoglake has the statement from Feingold. For him, too, it was the tax issue that did it:

“I voted against the nomination of Timothy Geithner to be the next Secretary of the Treasury with some reluctance. President Obama, like any other President, is entitled to have the Cabinet he wants, barring  serious disqualifying issue, and Mr. Geithner is a very able nominee in many ways. And while I am troubled by Mr. Geithner’s track record on some of the issues that have contributed to the credit market crisis, I do not base my vote on what is, to a certain extent, a matter of policy disagreement.

“Mr. Geithner’s tax liability is a different matter, however. I am deeply troubled by his failure to pay the payroll taxes he owed, despite repeated alerts from his employer at the time, the International Monetary Fund, that he was responsible for paying those taxes. Moreover, his earlier interactions with the Internal Revenue service over his failure to pay sufficient payroll taxes for his household employees make Mr. Geithner’s explanations of his failure to pay his own payroll taxes even less satisfactory. The failure to comply with our nation’s tax laws would be problematic for any Cabinet nominee, but it is especially disturbing when it involves the individual who will be charged with overseeing the enforcement of our tax laws.

“With the condition the economy is in, and the state of our country’s financial institutions, the stakes could not be greater for the next Treasury Secretary. While I could not support his nomination, I respect Mr. Geithner’s abilities and I look forward to working with him to address the serious problems facing our country.”

Meanwhile, the Radio Iowa blog has the statement from Tom Harkin. For him, the tax issue and Geithner’s co-responsibility for the current crisis as chief regulator of the financial institutions weighed equally in his decision:

“I strongly believe that, save in extraordinary circumstances, the President should have the right to select his own team.  President Obama believes that Mr. Geithner is the best person for this job, and it pains me to go against the President’s wishes on this matter.

“I believe that Mr. Geithner is a person of obvious talent and experience, and I bear no ill will toward him whatsoever.  However, after careful deliberation, I simply could not overcome my very serious reservations about this nominee for two reasons. Mr. Geithner made serious errors of judgment in failing to pay his taxes, and he made serious errors in his job as chief regulator of the financial institutions at the heart of the current financial crisis.

“Nothing would make me happier than for Mr. Geithner to prove me wrong by serving with distinction. I wish him every success as Treasury Secretary – we will all be rooting for his success.”

If anyone sees the statement by Bernie Sanders, do leave a link in the comments. UPDATE: Sanders’ statement is in the next blog post.

Noting that Kevin Hassett, of Dow 36000 fame, is now director of economic policy studies at the conservative American Enterprise Institute and confidently proclaiming his neo-Hooverite recipes for tackling the financial crisis, Neil Sinhababu of Donkeylicious sighs, “I guess it’s kind of like the Iraq War, where you can give really bad advice and still hold onto an awesome think tank job.”

Which leaves us, he adds, only with the power of satire. Crude satire, to fit crude stupidity. Here’s Neil’s reworking of Hassett’s now-notorious book – and here’s mine:

Yesterday, President Elect Obama pulled off what I think is one of the hardest political acts to perform; he admitted he was wrong.  From back in the campaign, Obama suggested that part of his stimulus package would be a tax credit to businesses who create jobs.  In 2007, Obama was one of the senators pushing the “Patriot Employer Act”.  That bill would try to designate businesses who hire more US workers and reward them with tax credits.  Last week, that policy started to take the form of a $3,000 tax credit for each job in Obama’s stimulus package.  But the cry against this came from all quarters.  Republicans, economists, business writers and members of his own party brought up their concerns that this plan won’t work.  It’s like eliminating the tax on gasoline when prices are high: lots of politics, no benefit.