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How (and How Not) to Jumpstart an Economy

The author of a new book about the stimulus, Money Well Spent?, draws lessons for what the government can do now to create jobs.

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The $1.5 billion TIGER program has forced local leaders to think regionally about strategies that combined multiple modes of transportation. (Flickr: Steve Rhodes)

This story is not subject to our Creative Commons license.

This story is co-published by The New York Times Sunday Review. The author, ProPublica reporter Michael Grabell, has written a new book, Money Well Spent? The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History.

The polarized rhetoric of the 2012 election cycle presents voters with a false choice of whether the government can create jobs or should just get out of the way. The real debate should be about which policies work and which don’t.

I spent three years reporting on the $840 billion stimulus plan that the Obama administration pushed through Congress in 2009. My conclusion: government can create jobs — it just doesn’t often do it well.

The stimulus — a historic package of tax cuts, safety-net spending, infrastructure projects and green-energy investments — certainly did a lot of good. As the economists Alan S. Blinder and Mark Zandi have noted, it’s one of the key reasons the unemployment rate isn’t in double digits now.

But the stimulus ultimately failed to bring about a strong, sustainable recovery. Money was spread far and wide rather than dedicated to programs with the most bang for the buck. “Shovel-ready” projects, those that would put people to work right away, took too long to break ground. Investments in worthwhile long-term projects, on the other hand, were often rushed to meet arbitrary deadlines, and the resulting shoddy outcomes tarnished the projects’ image.

After trumpeting shovel-ready projects as the bedrock of his stimulus plan, President Obama admitted famously that “there’s no such thing.” But there were, and are, shovel-ready projects. The administration just needed to find them. Case in point: the nuclear cleanup at the Savannah River Site in Aiken, S.C., which received $1.6 billion in stimulus money. As soon as the money arrived in the summer of 2009, the retired cold war nuclear plant hired thousands of workers to decommission reactors, install pumps in the liquid waste tanks and ship barrels of solid waste to a salt formation in the Chihuahuan Desert. Workers from out of town filled up nearly all of the area’s apartments, hotels and restaurants. The county’s unemployment dropped to 8.5 percent from 10.2 percent in a matter of months.

Why did it work? Because the government could immediately send billions of dollars to contractors who were already in place for a project that had well-established plans.

The problem with most of the projects was that the Obama administration and Congress had defined “shovel ready” too broadly. The original plan called for putting “shovels in the ground” within 90 days. But when the rules were written, states ended up with 120 days to have their road projects “approved.” It often took six more months to a year before most of the projects were under construction.

Weatherization, for example, was billed as the low-hanging fruit of the clean-energy movement. But states are still sitting on roughly a billion dollars in unused grant money because of a tortured bureaucracy, in which the federal government paid the states, which paid local nonprofits, which then hired the contractors.

Neither states nor nonprofit groups were prepared to handle 20 to 30 times more money than usual. And federal officials brought ready projects to a standstill in the first year by applying new rules regarding prevailing wages.

As a result, the stimulus didn’t provide enough oomph in the first year to overcome the effects of the European debt crisis and rising gas prices in 2010.

The stimulus effort should have contained more programs like Cash for Clunkers, which pulled car sales forward, emptied dealership lots and prompted auto plants to bring back thousands of employees.

“We’re trying to figure out, ‘Man, how did that thing just blow up the way it did?’” President Obama later said. “Essentially, all the auto companies did the marketing. They did the advertising in a way the government just can’t do it and, frankly, even if we did it, people wouldn’t listen.”

The stimulus also could have been more powerful if the administration had pursued a temporary jobs program similar to the Works Progress Administration, which directly employed eight million people during the Depression.

As it was, states could create temporary jobs programs through a $5 billion emergency welfare fund. Not enough states took advantage of it, but those that did saw real results. Fresno County, Calif., where unemployment was 18 percent, found jobs for 2,000 people who were out of work or underemployed.

It also helps to avoid losing jobs in the first place. The promise of $50 billion in state fiscal relief prompted school districts to forgo layoffs. By early 2010, the stimulus money had saved the equivalent of nearly 300,000 full-time teachers and support staff.

Even $50 billion, though, wasn’t enough to plug the budget gaps. The administration should have shifted more money there, and it could have tried to prime a similar effort in the private sector.

Germany’s “work-sharing” program — in which companies reduce hours rather than lay people off, with the government providing partial unemployment benefits to make up for lost wages — has helped keep its unemployment rate below 8 percent since 2008. It also will let companies ramp up quickly when the economy recovers.

Looking ahead

No matter who wins in November, the appetite for a big fiscal stimulus package won’t be there. So what can be done about the 5.5 million Americans who’ve been unemployed for six months or more — a group that includes older workers whom Rutgers labor experts have called “the involuntarily retired”?

A temporary jobs program similar to the one tried in the stimulus, but aimed at the long-term unemployed, could help these people get the skills they need to return to work.

Shovel-ready isn’t as important as it was in early 2009 because we’re not scrambling to stanch economic bleeding. But the lingering malaise gives us an opportunity to make smart decisions about our infrastructure.

The American Society of Civil Engineers has given the nation’s infrastructure an overall grade of D. Fixing deficient bridges, tunnels, dams and sewage-treatment plants, not to mention expanding high-speed Internet and modernizing the electricity grid, should be clear priorities.

Typically, the government spreads money like peanut butter, so that no one can do anything significant and every program is starved. Separate agencies oversee highways, aviation, transit and railroads. The 2009 stimulus introduced a better model: a competitive, $1.5 billion grant program for transportation, called Tiger, that forced local leaders to think regionally about strategies that combined multiple modes of transportation. The money untangled freight rail lines in Chicago, financed streetcars in Dallas and rapid buses in the Washington area, and helped Philadelphia build a 128-mile network of bike and walking trails. It should be a model for future transportation grant programs.

Investments in solar and wind energy, electric cars and high-speed rail make sense, but to have an impact there must be certainty around them. The fluctuations in America’s energy policy, the absence of a trust fund for high-speed rail as there is for highways and aviation, and the clear lack of a plan to tackle the deficit hinder the recovery instead of helping it.

In short, there are areas where the government should get out of the away, by clearing bureaucratic hurdles. But it’s equally important for politics to get out of the way of smart government policies that can help the private sector create jobs.

The biggest problem with the stimulus is it should not have contained tax cuts.  Consumers are not going to make any extra big purchases because they got an extra couple hundred bucks, and all the small extra purchases they might have made mostly go to cheap chinese imports.  Infrastructure projects and education are much more effective ways to create jobs for the money.

In the summer of 2009, I spent two weeks driving across the U.S. from Cape May, NJ, across Appalachia to NOLA and then to CA on the I-10.  I stayed in cheap motels that were full of construction workers doing projects that were visible from the highway.  What struck me was that almost all of this activity was in “Red” states, whose representatives had ridiculed and opposed the stimulus package. Admittedly, those poorer states always have facilities in need of repair, but the hypocrisy of their congressmen was appalling.

I would add public schools to the list of infrastructure improvements. Two-thirds of America’s schools are more than 50 years old. One fourth were built before 1950. School districts are struggling to maintain programs and keep teachers. Renovating and upgrading school buildings would relieve districts of a financial burden and provide a generation of students with a safe and healthy learning environment.

fausto chavez

Feb. 13, 2012, 9:05 a.m.

This is all fine and dandy but try selling that to the people who think government is the problem and that taxes are too high or that we need to rely on our neighbors and local churches.

The fact is some people are reasonable. I can agree with the bulk of what you wrote above but try selling that to someone who watches Fox News, listens to right wing talk radio or just doesn’t understand much about why their life sucks and blames it on some “free loading” minority who are not righteous.

I think the administration might have proposed more direct project spending as Tim Barlow suggests if the opposition in Congress had not retained its ideologically rigid stance against it. The tax cuts were known to not be as effective but nothing else would have gotten through Congress.

No thanks to the ideologues in Congress some progress was made, however, and more is needed.  Putting people back to work will be the best stimulus ever.

Great article Michael Grabell!

Warren Mosler

Feb. 13, 2012, 3:02 p.m.

Deficit spending always works to add that much income and ‘savings’ of dollar denominated net financial assets to the economy, to the penny, as anyone at CBO will tell you.

Nor does the govt ‘use up’ anything, as taxation functions to regulate aggregate demand, and not to bring in revenue per se, as anyone in Fed Monetary Affairs will tell you.

When the govt. doesn’t spend enough for the economy to pay its taxes and net save as desired, the evidence is unemployment. 

In other words, for the size govt we have we continue to be grossly over taxed.

Warren Mosler
http://www.moslereconomics.com

Jerry Lee Mayeux

Feb. 13, 2012, 3:09 p.m.

The Economic Pyramid
______CONSUMER
_____RECREATION
____COMMUNICATIONS
___TRANSPORTATION
__BUSINESS
_INDUSTRY
AGRICULTURE
|SOIL|MINERALS|FORESTS|WATER|
|WIND|SOLAR|GEOTHERMAL|ETC_|
Our economy rest on a base of natural resources.
Conservation is the wise-use, management & development of the Earths natural resources, including the wise-use ot CONSUMER(taxpayer) money!!!

If you take money out of the economy, people have less to buy things with and businesses and people working for businesses suffer. If you put that money back into the economy after the government takes its share,
you still have less money in the economy for people to buy things with and the economy gets worse instead of better. The lesson is that you can’t make the economy better with a stimulus. It can’t be done.

If you reduce taxes, people have more money to buy things with and businesses and the people who work for them benefit and the economy gets better. More people go to work and tax revenue increases.

You don’t have to take an English class from a University professor to understand this. Just pray to God for the mental strength to practice it.

Robert Bostick

Feb. 13, 2012, 6:14 p.m.

Professor Mosler has it exactly right. Because the government is the sole issuer of the currency it cannot go broke. Since it is the monopoly supplier of currency it has no need to raise revenue via taxation or borrowing per se.

The gross misunderstanding clouding policy statements on deficits and debt arise from ignorance of what it means to manage a sovereign fiat currency.

Elected officials, their advisers, media mavens, academics, and TV pundits need to understand that we are no longer under a gold standard with fixed exchange rates.

Maybe they need to sit down with Bernanke, Prof Mosler recounts an interview Bernanke had with Scott Pelley from 60 Minutes, Pelley asked,

  “Is that tax money that the Fed is spending?” 

Bernanke responded:

    “It’s not tax money. The banks have accounts with the the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.” 

Prof. Mosler continues, “There is no such thing as having to “get” taxes or (borrow) to make a spreadsheet entry that we call “government spending.”

http://www.moslereconomics.com  “The Seven Deadly Innocent Frauds of Economic Policy”

The federal gov does virtually nothing efficiently or effectively.  It is too far removed from any problem to address it.  Studies have shown the most effective solutions are “bottom up” rather than “top down”.  This is mostly because the gov will make decisions based on politics, rather than economics.  A plant is built in MI, where votes and gov support is needed, rather than expanding an existing plant in TN.
The model of cutting taxes and keeping the central gov to a minimum is effective and worked for many years, prior to the machinations of FDR and the subsequent presidents and congresses.  Keynsian theory has been totally discredited by the continued failures of every economy it has been tried.
Bottom line is why would anybody entrust even MORE power and resources to an entity like the federal gov when it has shown to be a complete failure?  Please, name ONE program the fed gov funds and runs that does what it is supposed to do on budget and on time?

Robert Bostick

Feb. 13, 2012, 10:45 p.m.

Tom Cook

I get my SS check on time, my Medicare is not mishandled and I’ve been on both for over ten years. I’d like to see the military be a bit more cost effective but its certainly done a hell of job over the years. Farm subsidy programs operate without a hitch although they distart markets.  If it wasn’t for such a strong private sector lobby most ag and non- ag subsidies would be gone by now. NIH and NOAA do really great work that no one in the private sector wants to do because they can’t get anyone to pay them to do it.

There’s lot’s more but you get the drift. Moreover, the Constitution defines our government and successive generations have supported it. The problem is rthat we don’t have collective courage to throw the bums out when they need to be thrown out. Only then will we get the government we want rather than the one we deserve for our inaction.

This sentence is just plain wrong:
“The lesson is that you can’t make the economy better with a stimulus. It can’t be done.” 
The rest of the comment may or may not be wrong, but it’s hard to tell because it’s unintelligible.
The writer *does* need to take an English class from an university
professor and an Economics class as well.
As for the old cliche’ about the government not doing anything right, I recommend that the writer, Mr. Cook, travel across the country on only county and state roads next summer - no Interstates, no free rest areas etc etc.  Then make him wade across the Colorado River somewhere near the Hoover Dam. 
That said, I applaud Pro Publica for allowing anybody to comment, including me.

My take is that there’s too much corporate thinking in modern government.  Take the money, give it to an agency, which gives it the states, which passes it to counties and downs, down to local NGOs, and finally to actual people.  I don’t know why she swallowed the fly, but each layer (just like a management layer) takes resources (money and time) without contributing to the result.

In a company, that’s a good thing, because that “friction” keeps people focused and keep the company afloat at the expense of putting an upper bound on the long-term growth.  But in a country that exists to help people, it’s a waste.

A better kickstart would have been a bounty-based system.  Pay people for filling their own potholes, fixing sidewalk cracks, and cleaning grafitti, rather than “employing” people, and you’ve got the ultimate low-hanging fruit.  And at the same time, put a small tariff on foreign-made goods so the money STAYS in the country.

This also builds the infrastructure for building infrastructure—priming the pump to find the people willing to work in their communities, so they can be contacted when the “shovel-ready” projects come up.

After that, in the medium term, we need investment in two things.

First, we need to acknowledge that we’re never getting those manufacturing jobs back from China in any meaningful way and build those automated factories we were promised decades ago before China convinced our CEOs they were cheaper than robots.  This provides us with a source for cheap goods (with American product standards), gives us the potential for exports again, and potentially lowers the bar for creating a product—think “manufacture on demand” similar to “print on demand,” with small runs easily changed.

Second, we need to “free” necessary Intellectual Property, and I’d recommend that Washington buy any new patents that would improve electric cars, safe food production, microprocessor design, and a few other fields that’ll be key in the next few years.  Buy them and release them into the public domain to spur innovation.

(I think there’s also a need for Intellectual Property reform in general.  We need to go back to marking things to claim copyright so people know what they can reuse.  We need to reduce terms because ownership after death can’t possibly incentivize more people to create works of art.  Patents need a more thorough review.  Software can’t be covered by both patent and copyright.  I could go on for another hour or so, but the point is that, while I like copyright in concept, we waste a lot of money in maintaining laws that restrict innovation to nobody’s benefit.  For example, there are great movies you’ll never see because it’s not commercially beneficial to release them and the film will decay before the copyright expires; in that case, the copyright holder and potential customers all lose out.)

We might also subsidize projects that give their processes away, like Open Source projects.  Beyond software, there are project to design “free” microprocessors, houses, cars, and almost anything you can imagine.  The goal is usually to have full designs that anybody can use as long as they contribute their changes back to the community.

I suggest the latter because these “open” development approaches are blowing the doors off of the corporate world in a lot of ways.  If we’re going to thrive as a country, we might want to encourage the Wikipedias of the world, where thousands of people contribute their free time for the rest of us to consume for free.

In the long haul, we need to change schools.  They were created at a time when knowledge was hard to come by and we needed more than anything to have people who could work an assembly line.  The world has changed a lot in a hundred years, and schools need to “loosen up” so that kids can learn on their own (with guidance, rather than lectures, from the teacher) and find what they’re good at, rather than being forced into an “average.”

To repeat, this could have been done by the Federal government (and only by them—I completely agree with Warren Mosler and have tried to explain that idea to many people over the years), but it’s stopped by this corporatized idea that a big project needs lots of managers, secret planning, and a balanced budget.

(Note that this ignores that we spent about a hundred thousand dollars per minute in Iraq.  For a minute of not shooting at Iraqis and failing to secure even the Green Zone, you could have hired seven full-time minimum wage employees or someone like an experienced engineer for a full year!  So this could have been resolved by Obama with a snap of his fingers, basically.)

John’s comment reminds me of my years in pharmaceutical sales.  There were so many levels of management in the Sales Division that did nothing except get in the way; district manager, regional manager, area manager, etc etc.  I always thought that the only reason for their existence (other than a local manager, perhaps) was to give people the illusion that they could move up the ladder.  In fact the best job in sales is salesman and the worst is sales manager.  Anyone who has tried to get other people to do something they don’t feel like doing knows what I mean.

urownexperience

Feb. 14, 2012, 7:50 p.m.

Boy are you correct about government jobs. Just look at the military, what a waste of money - and their entitlements will break us for decades.

Once more into the breach!  As for John’s suggestion about a “bounty system” (unfortunate choice of words.)  I understood that back in the day, people in Vermont could do road work and other public service work in lieu of paying taxes every year.  Every incorporated town and village had a town hall where true democracy took place and each of them had its own representative in the state legislature. It meant that something that the people in Rutland or Burlington wanted or needed could be snuffed out by a handful of farmers from towns that had only a couple of hundred people, but had been incorporated since the 17th Century.
We know how well that worked because Vermont became such a cutting edge leader in finance, manufacturing, research and personal growth during the first 150 years of its existence.  NOT!

von bargen, you’re not entirely wrong, but it depends on your goal and where you stop the program.  My understanding has been that the “shovel-ready” part of the program was meant to (a) get small amounts of money into the hands of laborers, (b) fix long-standing infrastructure problems, and (c) find the people willing and able to work on government projects for peanuts.

I wouldn’t run a plan like that for more than a year (probably six months), but as a jumpstart for the next stages, it works better than central planning through six layers of governance that each needs a cut.

And hey, did Vermont collapse when I wasn’t looking?  They may not be economic powerhouses, but that only happens to port cities.

Until the emigrants from NYC & Boston started moving up to Vermont in the 1960’s and ‘70’s (viz. Ben & Jerry, Bernie Sanders) it was just another backward, rural state that bragged about having more cows than people.  It was probably the most impoverished and ignorant state outside the South.  Even now it’s pretty inconsequential on the national stage, Bernie Sanders to the contrary notwithstanding.  Incidentally, it was always a conservative republican state until the demographics started changing. Studies now show that conservatives are among the least educated and least well informed group in the nation, so that seems consistent, doesn’t it.  Vermont = Mississippi North!

It seems to me that the real problem with the stimulus was that it was not nearly large enough, a point that Mt. Grabell misses completely.  And those who commented that government stimulus does not and cannot work seem to ignore clear historical evidence to the contrary.

Those economists who argued that government stimulus is needed proposed a much bigger stimulus, on the order of $1.5-2 trillion to truly be effective.  Conservatives - mainly Republicans and a handful of Conserv. Dems - forced the amount down to only $850 million.  And, now that the stimulus did not work as well as it could have had it been much larger, Republicans criticize Obama’s and Dems’ handling of the economy, pointing to the stimulus as a failure.  Coincidence?  I doubt it.  And Mr. Grabell’s comments, to some extent, help perpetuate this notion, it seems to me.

The Great Depression and the government spending that pulled us out of it are instructive, and the economists who argued for stimulus pointed to it time and again.  And what was the biggest mistake made in Washington at the time, after government stimulus was working effectively?  Roosevelt caved to deficit hawks, and the stimulus was reduced too soon, reversing some of the gains it had generated.  Sound familiar?

So, while we certainly can debate how best to utilize stimulus money, it is rather irrelevant as long as we allow Republicans to control the story, define the issue, ignore their tactic of making the stimulus ineffective from the outset, and don’t hold them accountable for the results.  I, for one, am tired of all the focus on what Obama did or did not do well with a stimulus that was doomed to minimal success not matter what he did.

To me, the real problem is not how Obama managed the stimulus.  It is how Republicans forced and continue to push policies that fly in the face the facts and important historical lessons, and then evade any responsibility for doing so because we allow it.  Unless we push back at the Republicans’ mantra and the misguided efforts of the deficit hawks, many and perhaps most Americans will make political choices based mainly on ignorance and 30-sec sound bites, and our economy will continue to limp slowly toward recovery rather than be revitalized by truly effective and wise intervention.

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