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In the Rush to Rescue, Will Haste Make Waste?

December 22nd, 2008 . by economistmom

The Washington Post editorial board, tipped off by the wisdom of Alice Rivlin (see this story from Friday’s Post), is worried that in the rush and panic to throw massive amounts of money at our ailing economy, haste will make waste (emphasis  and notes added):

That Mr. Obama is reportedly prepared for his plan to rise from as little as $670 billion to as much as $850 billion [over two years] because of additions from Congress only reinforces that fear.

“We’re not intending to spend money lightly,” Mr. Obama said Friday while refusing to put a firm price tag on his stimulus package, the goal of which is to create or preserve at least 3 million jobs over the next two years. That may be, but we’ve seen this before. In fact, it was in late September, when the financial rescue plan, billed as desperately needed for the economy’s survival, was larded up with unrelated measures that couldn’t pass on their own. [Remember the Senate "sweeteners"?]  With every constituency that has gone begging for federal money for years now developing wish lists for Washington to consider, it could happen again. It mustn’t. We agree with Alice Rivlin, budget director under President Bill Clinton, that the best way to ensure [the stimulus is not "larded up"] is for Mr. Obama to pursue a smaller package that would inject cash into the economy almost immediately.

Much of what Ms. Rivlin proposes appears to be in the larger plan Mr. Obama’s economic advisers presented to Congress last week. It includes increased money for food stamps, bigger block grants to states (in addition to an increase in the Medicaid match they receive from the federal government) and funding for “shovel-ready” infrastructure projects. There would be a reduction in withholding for income or payroll taxes, and unemployment benefits would be extended…

In no way are we advocating that Mr. Obama abandon his larger plans for transportation and infrastructure, digitizing medical records, school construction and repairs, and energy efficiency. But as Ms. Rivlin told us, there shouldn’t be a “huge commitment to long-term building without a well-scrubbed long-term plan. What do we really need to spend the money on?” That kind of plan and the discussion it should entail should not be rushed through in the next two months. Mr. Obama has said that the economic crisis provides the nation with an opportunity to transform its economy. If it’s not done right, it will have been an opportunity wasted.

In the rush to “rescue” the economy, we still have to worry about how wisely we’re spending the money (even immediately) and what we might be committing to over the longer run.  Because that money isn’t free–even at a 0% interest rate.

2 Responses to “In the Rush to Rescue, Will Haste Make Waste?”

  1. comment number 1 by: Patrick R. Sullivan

    There’s an obvious way around this. Simply give the money directly to the American taxpayers and let them spend it as THEY see fit.

  2. comment number 2 by: Patrick R. Sullivan

    It’s always nice to find a Nobel laureate agreeing with me;

    “There are many ways to stimulate spending, and many of these methods are now under serious consideration. How could it be otherwise? But monetary policy as Mr. Bernanke implements it has been the most helpful counter-recession action taken to date, in my opinion, and it will continue to have many advantages in future months. It is fast and flexible. There is no other way that so much cash could have been put into the system as fast as this $600 billion was, and if necessary it can be taken out just as quickly. The cash comes in the form of loans. It entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls on the operation of individual businesses, and no government role in the allocation of capital across different activities. These seem to me important virtues.”