TPMCafé (Talking Points Memo), January 23, 2009
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The Congressional Budget Office (CBO) is supposed to be a non-partisan organization providing neutral analysis on budget and economic issues to members of Congress and the general public. CBO has generally adhered to the principle of careful neutrality regardless of the political affiliation of its director.
In a seeming departure from its history, CBO has apparently selectively made available a report that finds that much of the impact of the stimulus will not be felt until after the end of the 2010 fiscal year. While it is not clear that the contents of the report are very damning to the package being debated in Congress, the CBO report is being presented as a serious setback to President Obama's effort by some in the media and the Republican Congressional leadership.
The parts of the report discussed in the media should not actually raise much concern.
First, it is important to remember that fiscal year 2010 ends on October 1, 2010. The Congressional Budget Office projects a year-round average unemployment rate of 9.0 percent for 2010, with unemployment rising at the beginning of the year and falling at the end. This projection implies that CBO expects the baseline unemployment rate to be around 9.0 percent in October of 2010, at the end of the fiscal year, nearly two percentage points above the current level. If the CBO baseline projection is accurate, then we should be glad that the stimulus package will sustain spending into the 2011 fiscal year. The economy will still badly need it.
The second issue to keep in mind is that if these are projects that are otherwise valuable, then the portion that does take place when the economy is in a depressed state is in effect free. At the moment, the economy's problem is too little demand. If the government spends less money right now it doesn't mean that more resources go to investment, exports or some other use. It means that more people go unemployed.
So, when the leaks from CBO tell us that just 15 percent of the $18.5 billion in expenditures slated for "energy efficiency" and "renewable energy programs" will be spent within the next 18 months, it is telling us that we effectively get this 15 percent at zero cost. If these are projects that might have been worth undertaking even in the absence of a downturn, then surely they are worth taking when 15 percent of the expense carries almost zero opportunity cost. Of course, the effective discount is considerably larger if the downturn lasts beyond October of 2010 as CBO and almost all private forecasters now project. The same is true for the 25 percent of the clean drinking water projects that the CBO leaks tell us can be completed by October 2010. That's a 25 percent discount.
In short, these leaks are not seriously damning. If we can get a substantial portion of large projects completed by October of 2010 then this is great, but the economy will still need stimulus long after that date, so there is little serious consequence to the information leaked from CBO. (Of course, it would be useful to have the full document so we can know more context about this projection.)
There is one legitimate point that we should be asking with or without this leaked CBO report excerpt. Is the stimulus really as tilted as much toward early spending as possible? There are two areas where it seems we could do better.
First, there seems to be much more room for support for public transportation. We can give large subsidies to lower fares. This will both encourage the use of public transportation and directly put money into the pockets of a relatively lower income population of transit users. We can also buy more busses and train cars to support the additional demand.
The other area is health care. In addition to providing subsidies for employers to provide health care insurance we can also do more to directly extend public programs. One obvious example is the elimination of the two-year waiting period currently required of disability recipients before they can qualify for Medicare. This will help people who are badly in need and also inject more money into the economy.
We must think big and creatively in developing this stimulus. Using excerpts of leaked CBO documents to take potshots is not a constructive course for the Republicans or the media.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.