I have been arguing with several people here about Obama's stimulus package for a few days and wanted to clarify my points into a diary.
I not believe that the stimulus package as currently designed is going to do anything other than add a ton of money to our national debt, which we will then struggle to pay off when interest rates increase during an eventual recovery (yes, the economy will recover without a stimulus, it just may take longer). I am not saying that a stimulus package could not be successful, just that the proposed one will not be.
I guess the best way to start this is to go into detail on how each part of the stimulus would or wouldn't help the economy in the near future (say 12-18 months) or whether it is even a stimulus at all (some components are needed, but will really provide no "stimulus" other than to preserve the status quo).
link to stimulus package details
I am going to follow the order from this cnnfn slideshow on the stimulus plan.
Tax Cuts
These are nice (we all like getting extra cash), but are really pretty worthless as a stimulus. In order for a tax cut/rebate to be a successful stimulus it needs to have 3 components 1) be big enough to have a major impact (these aren't even close), 2) be timed so that the money gets to people essentially as the economy is turning back up (unlikely), and 3) you have to know that the money will actually be spent instead of saved (a potential problem here).
AS to the unemployment benefits/food stamps/health insurance measures, these are definitely needed, but cannot really be called a stimulus, as they are more designed to tread water.
Schools
These are almost all worthless as stimulus. The improvements to schools will take way too long to get into the system (I doubt any of these are ready to go), the Pell Grant improvement is long overdue, but hardly a short-term benefit to the economy, and the tax credit is nice, but is likely to be spent right back on college costs and the cap should be much higher than $80,000.
Again, the payments to states for education funding is long overdue, but not going to stimulate the economy.
Health
No stimulus here. Many worthwhile programs, but nothing that is going to pump "new" money into the economy and get it moving again.
Home
Again, there are some great ideas here, but the stimulus is going to be incredibly small (this is a drop in the bucket in the plan). Making some homes more energy efficient will help in the long term (and will put some people to work), but the dollar tag is way too low. The tax credit for energy efficient improvements is great (I used the old credit), but is not going to get people to make those improvements during a recession. Simply too small of a dollar tag here to help much.
Travel (Infrastructure)
This is what I think we all thought the big blast would be and it didn't hold up (maybe there weren't enough projects ready to go). $30 billion for highways/bridges? That is almost an embarrassing number and is not going to get this economy rolling. The rest of this section is equally insignificant as a stimulus.
Other Infrastructure
A couple of good things here, but again way too small. $30 billion to modernize public buildings is a good investment, but not enough to turn the economy (even when combined with the other programs). And the $32 billion for a new grid is long overdue, but again unlikely to provide any stimulus, as I imagine the design of this alone (and it is not ready to go) may take 2 years.
All in all, I would say this is less of a stimulus plan than a haphazard attempt to throw money at a bunch of good ideas, but in doing so the money is spread way too thin and highly unlikely to restart our economy.
My Alternative
My alternative would be the minimalist approach, which would attempt to get at the root cause of this economic disaster, housing. In an effort to restart the housing market (in reality the problem is that the market is simply frozen with fear), I would propose a $15,000 tax credit on the purchase price of a home for primary residence (both first time and long time home buyers). This credit would be paid over three years with the first $5000 payable immediately (through an separate IRS form). I would also enable this credit to be put up as a down payment in an effort help first time buyers. This should both spur the housing market and provide some cash back into the economy, as this credit is very likely to be spent (new homeowners always need stuff). Besides this credit, I would continue to use TARP to shore up the banking system (but only those banks that will lend) and provide assistance to state governments where needed (but only after close examination of their finances to limit waste). This would be my favored approach (and least costly) to the current mess.
The reason I think less stimulus is needed is due to the nature of the problem we are facing. It appears that at the heart of this recession (besides the housing situation) is a shift in Americans attitudes towards spending/saving that is going to have long-term repercussions. If Americans continue to make a shift back towards savings (like they did last quarter) and get to even half of the historic 10% norm of 20 years ago then no amount of stimulus is going to have any noticeable effect on the economy as the vast removal of consumer spending will dwarf any stimulus. In the short-term, this means a lot of pain across the board. In the long-term it means a much more sound economy.