Repub­li­cans seek to trun­cate stim­u­lus and cut the deficit

The Washington Times Weekly - - Politics - BY DON­ALD LAM­BRO AND S.A. MILLER

With the econ­omy show­ing signs of re­cov­ery, fis­cally con­ser­va­tive economists and Repub­li­can law­mak­ers are sug­gest­ing that the large un­spent por­tion of the nearly $800 bil­lion stim­u­lus fund should be redi­rected to slash this year’s nearly $2 tril­lion an­nual deficit.

Demo­cratic law­mak­ers, Obama ad­min­is­tra­tion of­fi­cials and many economists doubt the wis­dom of trun­cat­ing the stim­u­lus pro­gram so soon af­ter it be­gan. But Repub­li­can con­gress­men and economists who were not thrilled with the stim­u­lus ef­fort are in­creas­ingly call­ing for it to be fore­short­ened as a re­turn to eco­nomic growth ap­pears closer at hand.

Ad­min­is­tra­tion ac­count­ing shows that rel­a­tively lit­tle of the stim­u­lus funds that would di­rectly cre­ate jobs has been spent. The White House says $112 bil­lion from the stim­u­lus ac­count has been spent or ob­li­gated. In ad­di­tion, much if not most of the eco­nomic re­cov­ery ex­pen­di­tures have been spent to pay for state as­sis­tance, un­em­ploy­ment and Med­i­caid ben­e­fits, and other safety net pro­grams that would cre­ate few if any new jobs.

Nev­er­the­less, there are in­creas­ing re­ports that key sec­tors of the econ­omy are beginning to show mod­est signs of re­cov­ery.

Construction spending is up slightly for the sec­ond straight month, fac­tory or­ders rose 0.7 per­cent in April, ex­ist­ing home sales were up three months in a row, and banks have be­gun rais­ing cap­i­tal again and show­ing signs of growth. Th­ese and other eco­nomic sig­nals have sparked a rally on Wall Street that has raised stock val­ues by more than 30 per­cent since March.

No one sug­gests the econ­omy is out of the woods. The un­em­ploy­ment rate, al­ways the last eco­nomic fig­ure to show im­prove­ment in the af­ter­math of re­ces­sions, con­tin­ues to climb, ris­ing from 8.9 per­cent in April to 9.4 per­cent in May — though the fig­ure of 345,000 jobs lost last month was sharply be­low eco­nomic fore­casts and marked the fourth straight month that the pace of lay­offs has slowed.

That is one of the rea­sons why top economists such as Ben S. Ber­nanke, chair­man of the Fed­eral Re­serve, see the pace of the na­tion’s eco­nomic con­trac­tion slow­ing and en­ter­ing a re­cov­ery stage later this year. A sur­vey of 45 economists by the Na­tional As­so­ci­a­tion for Busi­ness Eco­nomics (NABE) Out­look re­ported late last month that the end of the re­ces­sion is near.

“The good news is the NABE panel ex­pects eco­nomic growth to turn pos­i­tive in the sec­ond half of this year, with the pace of job losses nar­row­ing sharply over the re­main­der of this year and em­ploy­ment turn­ing up in early 2010,” NABE Pres­i­dent Chris Var­vares said. Nearly three out of four of the panel’s economists said they ex­pected the re­ces­sion would end by the third quar­ter.

But some economists think Pres­i­dent Obama’s stim­u­lus plan has had lit­tle if any­thing to do with the econ­omy’s new signs of life, that a lot of the heavy lift­ing in the re­cov­ery is a re­sult of ac­tions taken by the Fed­eral Re­serve, and that once the re­ces­sion ends, the re­main­ing funds, es­ti­mated to be in the hun­dreds of bil­lions of dol­lars next year, should be re­turned to the U.S. Trea­sury.

“The end of the re­ces­sion is still months away, but it is in­creas­ingly clear the stim­u­lus pack­age was a se­ri­ous mis­take. To date, it has had no iden­ti­fi­able ben­e­fi­cial im­pact on the econ­omy,” said Stan­ford Uni­ver­sity econ­o­mist John Co­gan.

“More im­por­tant, its im­pact later this year and next will be de­cid­edly neg­a­tive be­cause the funds re­quired to fi­nance the pack­age’s spending will be drawn from pri­vate-sec­tor re­sources that are needed to fuel the re­cov­ery. At this junc­ture, Congress would be wise to re­peal the re­main­der of the pro­gram,” Mr. Co­gan said.

On Capi­tol

Hill, Sen. Jim

“If there is any way we can claw some of it back, it makes a whole lot more sense to re­duce our debt than spending it as quickly as we can. We should stop spending it. There are [other] things we can do,” Sen. Jim DeMint, South Carolina Repub­li­can, told The Wash­ing­ton Times.

DeMint, South Carolina Repub­li­can, told The Wash­ing­ton Times that he too thinks the re­ces­sion will be com­ing to an end within months and he will push to bring the stim­u­lus fund’s spending to a halt.

“If there is any way we can claw some of it back, it makes a whole lot more sense to re­duce our debt than spending it as quickly as we can. We should stop spending it. There are [other] things we can do,” Mr. DeMint said. “It makes no sense to con­tinue try­ing to push this money out through gov­ern­ment sources and over­tax our busi­nesses, which are the ones cre­at­ing the jobs.”

Democrats, how­ever, ar­gue that even though much of the stim­u­lus is not aimed at boost­ing the econ­omy in the near term, the stim­u­lus pro­gram con­tains other funds im­por­tant to long-term eco­nomic growth. And some do not put much stock in fore­casts that the re­ces­sion will end soon.

“I am not that op­ti­mistic about the re­cov­ery, so I think it would be risky to pull back the stim­u­lus now,” said econ­o­mist Alice Rivlin, who was Pres­i­dent Clin­ton’s bud­get di­rec­tor and a for­mer mem­ber of the Fed­eral Re­serve.

“Even if [the gross do­mes­tic prod­uct] stops fall­ing, un­em­ploy­ment is likely to rise well into 2010. Re­cov­ery is likely to be long and slow,” Ms. Rivlin said.

“More­over, part of the $800 bil­lion wasn’t re­ally tem­po­rary stim­u­lus. That is why it is not spending out faster. It was in­vest­ments in in­fra­struc­ture, ed­u­ca­tion, health in­for­ma­tion tech­nol­ogy, etc., that we need to have a more pro­duc­tive econ­omy in the longer run. The case for th­ese in­vest­ments isn’t af­fected by quick re­cov­ery, even if it hap­pens,” she said.

Brian Riedl, chief bud­get an­a­lyst at the Her­itage Foun­da­tion, said that “if the pur­pose of the money is to end the re­ces­sion, then once the re­ces­sion ends, there will be no jus­ti­fi­ca­tion for not tak­ing the money back. The en­tire pur­pose of the ex­pen­di­tures would have ceased to ex­ist.”

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