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Stimulus: Economic Boon or Bloated Bust?

BU experts pick apart the plan

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Last week, in the face of solid Republican opposition, the House voted to approve the $819 billion economic recovery plan put forth by the Obama administration. This week the plan moves to the Senate, where Majority Leader Harry Reid (D-Nev.) has expressed hope that an amended and even more complex package of tax cuts and federal spending will be approved by Friday.

Advocates of the plan say it will create more than three million U.S. jobs, provide tax cuts for most Americans, and stimulate vital sectors of the economy, such as energy and health care. Critics say the proposed tax cuts do not go deep enough and argue that too much of the plan is intended to support Democratic policy goals rather than to jump-start the economy.

BU Today asked seven faculty members, all experts in the areas they address, what the plan has going for it and what still needs to be considered.

Wendy Mariner, School of Public Health professor of health law,bioethics, and human rights, School of Law professor of law, and Schoolof Medicine professor of sociomedical sciences and community medicine,on health care.
The stimulus package passed in the House allocates $20 billion to modernize the health-care system by computerizing the nation’s medical records in the next five years, and that could help physicians improve the quality of care, but won’t be likely to result in substantial cost savings.

They also create an extraordinarily rich database of personal medicalinformation that both government and commercial businesses will want to mine, while the public may fear the end of privacy in one’s medical records.

I welcome the $16 billion proposed for investments in science facilities and research. But as public citizens, we should also recognize that this can be a double-edged sword — research generates ways to save lives and improve the quality of life, but also produces technologies that increase the cost of health care.

I think the most valuable health-care provisions are those expanding access to care, even indirectly through insurance coverage. A healthy population is a resilient and productive population. More importantly,the measure of our civilization is how we treat those who are unable to care for themselves.

Adil Najam, Frederick S. Pardee Professor of Global Public Policyand College of Arts and Sciences professor of international relationsand of geography and environment, on green energy.
I think the green components of the stimulus package are very well thought out. There’s a clear focus on using the stimulus to set theright course for the long-term future. Green energy is not just investment in new, renewable energy sources; it’s also conservation steps within the larger infrastructure spending. Ultimately, reducing the waste of dirty energy is as important as creating new clean energy. So, for example, the school improvements program, which includes major energy-saving investments, not only creates immediate jobs in construction, but it invests in reducing energy waste — today as well as in the long term. These savings themselves add to the stimulus, because they are additional dollars available for better uses.

The impact on the economy of going green is two fold. First, in terms of immediate jobs created. Second, in making us competitive and leaders in the new global economy that is already emerging. In terms of immediate impact, I would include in that the jobs created to make buildings more efficient — for example, workers employed to better insulate school buildings and make them more energy-efficient. To me, those are green jobs as much as are jobs for scientists researching new carbonsequestration techniques.

On new energy sources, I hope that the actual spending will significantly focus on research and development of new technologies andremoving some of the hurdles to wind and solar. Of special importance is the development of a grid that can utilize the potential that exists— this would give us immediate infrastructure jobs and place us on a more sustainable energy trajectory for the future.

Enrique Silva, Metropolitan College assistant professor of city planning and urban affairs, on infrastructure.
As an urbanist, I think of infrastructure broadly, including housing, schools, water and sewer systems, and electric grids — the bones of any city. But this stimulus plan addresses infrastructure more narrowly. The bulk of it is for highways, with a much smaller fraction for railand other mass transit.

The state of America’s infrastructure is embarrassing. Recently, the American Society of Civil Engineers estimated that just to maintain our infrastructure would be a $2.2 trillion investment. So it’s glaring that out of this huge package only about 5 percent is dedicated directly to infrastructure when there’s clearly a massive need for it. Of course, if the goal is to do something quickly for the economy to stop the bleeding, infrastructure isn’t going to necessarily do that. The projects will provide some immediate construction jobs and help suppliers of raw materials. But these projects take months to develop, and the big bang of infrastructure happens when it actually starts functioning and moves people and commerce from one place to another.

I think the plan should invest more in mass transit. It’s not just about getting from one place to another, but it’s also about a way ofliving and urban form, and it addresses environmental and social segregation issues. But I’ll concede that for better or worse this is acountry built on highways. The bulk of our economy runs on trucks and depends on getting people who live out in the suburbs to their jobs inthe city. So, it’s not necessarily the time to rehash old debates about whether we should have the highways or not.

Thomas Whalen, College of General Studies associate professor of social science, on politics.
If the Republicans continue to oppose this stimulus package or any other Democratic recovery plan, they’re going to be seen by the general public as obstructionists, and that’s never a good thing. The Republicans need to project an image that they are at least willing to work in a bipartisan way. By taking the other tactic, they’re doing a great disservice to their party. When you’re addressing a national crisis, it’s always good to convey some sort of bipartisan support, because the general public is looking to politicians to solve the crisis. And the Republicans are giving the impression that they’re playing old-style politics during a time when people only want answers.

The economic stimulus plan is very nonideological. It’s a mulligan stew of economic solutions, and it includes tax cuts as well as priming-the-pump spending measures. The tax cuts are actually a conservative approach. President Obama is going at this plan from both sides of the fence, and that is very pragmatic of him. He’s doing whatever it takes to solve the problem. He’s not just a tax-and-spend liberal, and I think that may frustrate some members of his own party. It will be interesting to see if John McCain crosses the aisle to support Obama’s package. It would be a great symbol for bipartisanship. I think the country would like to see the two former foes supporting this measure.

Charles Glenn (GRS’87), School of Education professor of educational leadership and development, on education.
I’m quite worried that the stimulus package will reinforce wasteful spending. What’s needed is to really change the schools. There are tokens such as money for charter schools and merit pay, but there’s nothing that really pushes accountability, which is really what we need.

Massachusetts has been doing well in education outcomes compared with other states because of the high and explicit standards set in the MCAS. The fact is that having such standards means students perform well and schools teach well. The states are really on the rocks financially and will be tempted to use the federal funds simply to keep the present system going, unsatisfactory as it is.

Let’s hope that President Obama and Secretary of Education Arne Duncan use the funding to leverage accountability for educational results. Unfortunately, it doesn’t appear that that’s going to happen. The teachers unions have very strong leverage with the Democrats, and Obama will be pushed to let the funds be used to raise salaries without accountability for more effective instruction. The likelihood is that the states will use the funding to bail out school districts, but not make substantial changes.

Alan Feld, School of Law professor of law, on taxes.
The tax provisions of the stimulus bill passed by the House of Representatives take up 84 pages. The Senate doubtless will add more. Many of the provisions seem motivated by two criteria: get money quickly into people’s hands to stimulate the economy and tilt toward people with moderate incomes. The Joint Committee on Taxation estimates the cost of these provisions for 2009-2011 at $299 billion, or approximately $1,000 for every man, woman, and child in the United States.

The most expensive item consists of a new “making work pay credit,” at an estimated cost of $145 billion. It gives an individual 6.2 percent of earned income, up to a maximum of $500. Someone who makes a wage of $5,000 would get $310; at a wage of $10,000 or $50,000, the earner would get $500. The credit phases out and disappears for higher earning workers. It also provides nothing for poor people who do not have jobs.

The bill provides $44 billion to businesses that currently have losses by allowing them to claim refunds for taxes paid in prior years. Another $29 billion will go as added deductions for property acquired by businesses in 2009. The incentive and stimulus effects of these provisions are debatable, and it is not clear who will actually benefit.

The bill also expands existing credits for education aimed primarily at middle-income families at a cost of $14 billion and extends or creates tax subsidies costing $5 billion for energy efficiency. These are laudable goals, but their short-term stimulus effect for the economy may be questioned.

Fred Bayles, College of Communication associate professor of journalism and director of the Boston University Statehouse Program, on state aid.
The money designated for state aid will help, but it’s really a drop in the bucket in terms of what the problems are in Massachusetts. Next year’s budget includes an anticipated $711 million from the feds. That’s about 2.5 percent of the estimated budget for that year. This stimulus funding is a couple of days of rations, rather than a program that’s going to be really noticeable in the state.

Where there may be impact is on health care: the state’s health insurance plan is costing more than was originally intended. So, with any increase in Medicaid, they will probably look for a special rider to move some of that Medicaid money to what they’re spending on insurance. That would cut the bottom line on some things.

Also, if they’re going to parcel out a percentage to a public works plan, that would take tremendous pressure off the transportation budget, which is — I can’t think of a more economic term — sucking wind. It was estimated that the state would have to spend $1 billion a year on state infrastructure for the next 20 years just to stay even, and that was before things got bad. They can make adjustments in terms of what they plan to spend out of the state coffers for the transport infrastructure, and hopefully that would provide more jobs and help boost revenue from income taxes and sales taxes.

There’s another category that may get help, too, which is the money for education, including school construction and renovation. The state dedicates a small percentage of the sales tax to a fund to help cities and towns build or improve their school facilities; federal money would ease the pain, because the sales tax receipts are down so far that the money dedicated to that program has fallen down, too.

People in the state won’t really notice any improvements in their lives, at least in the day to day. The only thing that might improve is more construction jobs and fewer teachers and police laid off. We’re not going to start having monorails.

12 Comments

12 Comments on Stimulus: Economic Boon or Bloated Bust?

  • Mark Krone on 02.04.2009 at 9:33 am

    Money Available for War

    Prof. Glen need not worry that the stimulus package “will reinforce wasteful spending.” The Congress and the recently departed President Bush, did not need any reinforcement to waste money (and lives!) in Iraq.

    Why is it that when money is proposed for peaceful ends, it is meticulously scrutinized, but for war, it flows like blood?

  • Anonymous on 02.04.2009 at 11:29 am

    School of Hospitality Administration

    The service industry is an essential portion of the US economy, and as a business-focused school within BU, SHA should be included in these features. I have never, not once, seen a SHA professor quoted in your analyses. Please be inclusive.

  • Dan on 02.04.2009 at 12:15 pm

    We need to do everything in our power to reduce our dependence on foreign oil.We have so much available to use such as wind and solar as well as technologies to reduce our dependence on fossil fuels. There could be no better investment in than to invest in energy independence. Create clean cheap energy,create millions of BADLY needed new green jobs, and reduce our dependence on foreign oil.The high cost of fuel this past year did serious damage to our society and economy. Record numbers of jobs and homes have been lost due to the direct impact on our economy.Oil is finite.We are using it globally at the rate of 2 X faster than new oil is being discovered. Added to the strain on our supplies foreign countries are bursting in populations and becoming modern.China and India alone are expected to add another 3 million vehicles to their highways in the next 2 decades. I just read a fantastic book called The Manhattan Project of 2009 Energy Independence Now by Jeff Wilson.Great Book!

  • Anonymous on 02.04.2009 at 1:50 pm

    Politics as usual

    Actually Prof Glen and all Americans definitely need to worry about the wasteful spending that is in this alleged “stimulus” package. My suggestion is to read it and see what WE are paying for especially if you are blindly accepting that this bill in its current form is not the usual piece of bloated, pork barrel legislation that passes every year. I hope that the Senate has the best interests of the public at heart and removes from the bill as much of the wasteful spending as they can so the bill can be as effective as possible in actually stimulating the economy.

  • Nate on 02.04.2009 at 1:52 pm

    While I welcome the diversity of opinions, and do not with to belittle the very good observations the contributors have made, I do find it somewhat problematic that there is not a single ECONOMIST consulted above.

    This is a STIMULUS package, too many people (including SOME of the above contributors) seem to forget the purpose of this bill and are conceptualizing it just as they would any other spending bill.

  • J Hampton on 02.04.2009 at 3:13 pm

    Wow, this Thomas Whalen has his head on backwards. There are no substantive tax cuts in this plan, and opposing this package as much as possible can only HELP the Republican party, not hurt them, as they can claim truthfully that they stood against it when the plan fails to do everything but grow the government. You, sir, speak of the American people as if they reflect your far-left views, and might I just say, SIR, that you ought to take a good look at the America outside of the city of Boston, because the only thing I can say is “you ain’t it!” Don’t tell me the American people want to see bipartisanship, and will only applaud as one of the most partisan administrations ever to scam their way in makes a mockery of the very word! What the American people want is help in the way of freedom, not in the way of expanded government, and when it comes down to brass tacks, they don’t care about who was bipartisan and who was “obstructionist,” they care about who left them better than they were before.

  • Anonymous on 02.04.2009 at 3:26 pm

    no business professor? that sure puts a spin on it. This bill has so much pork on it that it helps the democrats much more than it helps the people of this country.

  • Anonymous on 02.04.2009 at 4:29 pm

    Yes, it’s a stimulus bill… And two things are included, useless contract construction work (also known as “infrastructure”, but it’s not really infrastructure if it’s not necessary and doesn’t further the community it’s in). As Professor Silva mentioned, this is mostly highways, great for bringing in goods made with foreign labor and “Free Trade”. However, not so great for the people who live near them. Really, it’s the opposite of an infrastructure.

    Plus, the actual construction only benefits the wealthy contractors, but not the dying middle class and the literally dying lower class.

    Besides that, stimulus packages are always aimed towards stimulating CONSUMER SPENDING, an area of commerce known for seldom if ever involving american labor.

    Whoo Yeah We Sure Are Screwed

    BAIL OUT THE PEOPLE! The stimulus should include money for mortgages, for HOMES, not for commerce that no one cares about! The stimulus should make schools work for the underclasses, not rescue the useless system we have!

    The stimulus should be stimulating for longer than the drug cocktail of a college student, but unfortunately, we’ll probably feel just as bad in the morning.

  • Anonymous on 02.04.2009 at 7:32 pm

    Isn’t it amusing that there was bi-partisan opposition to the stimulus plan? . . . and no bi-partisan support. Hmmm.

  • Anonymous on 02.06.2009 at 4:25 pm

    I’m not sure what world Thomas Whalen is living in…

  • Anonymous on 02.06.2009 at 9:45 pm

    Why not ask Economists?

    Why didn’t you actually ask economists about the stimulus? They should have the most expertise when it comes to this I believe.

  • Anonymous on 02.07.2009 at 12:44 am

    No on stimulus

    I just sent the following letter to my representatives and I suggest everyone get involved and write your representatives:

    Please – vote NO on this pork filled stimulus package. Why is everyone in such a hurry to put this enormous debt onto the backs of our children and grandchildren. As it is now, collectively my children are $120,000 in debt for their college loans…before graduate school. The banks and congress made a mess past economic decisions and my family and I have lost all faith in these systems. Give small businesses a tax break, cut taxes to those who pay taxes and you will see this economy turn around. Forget about giving loans to the banks. Let them pay the same price as any small business. They get nothing . . . no bail outs. The small business I work for is struggling without any bail out. We’re carefully watching our expenses, and working very hard to keep a float. But, we will do it because we are a team that works together for each other and our customers. Please, please, vote NO on this stimulus package. I will be watching very carefully.

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