Congressional Budget Office Slams Stimulus Plan

I referenced this yesterday in another post, but it bears repeating here: the Democratic stimulus package has already failed. That is the finding of Congress’ own budget office — the CBO — which has determined that the spending component of the bill will come far too late to help restore economic growth:

Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.

A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended…

But the CBO analysis appears to confirm the complaints of many Republicans and other critics, who have long argued that spending money on highway construction and other infrastructure projects is ineffective at quickly jolting a sluggish economy. The report was distributed to reporters yesterday by aides to Senate Minority Leader Mitch McConnell (R-Ky.)

The report also suggests that the House measure would violate Obama’s rules for the stimulus package; Obama aides have said they want the bulk of the spending to occur before 2011. Obama has pledged that the measure would save or create at least 3 million jobs over the next two years.

This article refers to critics who have argued that infrastructure spending is a poor way to stimulate economic growth. The most prominent such critic is Obama’s own budget director, Peter Orszag, who testified last year:

Practically speaking, however, public works involve long start-up lags. Large-scale construction projects of any type require years of planning and preparation. Even those that are “on the shelf” generally cannot be undertaken quickly enough to provide timely stimulus to the economy. For major infrastructure projects supported by the federal government, such as highway construction and activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent.

Some of the candidates for public works, such as grant-funded initiatives to develop alternative energy sources, are totally impractical for countercyclical policy, regardless of whatever other merits they may have. In general, many if not most of these projects could end up making the economic situation worse because they would stimulate the economy at the time that expansion was already well under way.

There is no policy justification for a stimulus package that centers on spending. The CBO is clear that it’s simply not possible to pay out the spending at a fast enough rate. If you read the rest of Orszag’s testimony from last year, he sees serious problems with the whole range of possible economic stimuli, for a variety of reasons. At that time, he seemed to lean toward lump-sum tax rebate checks (tried it), across the board rate cuts, and spending more on unemployment assistance and food stamps. He leaned against infrastructure spending and aid to states and localities — which comprise the bulk of the spending in the current bill. And which liberal Democrats are preparing to expand.

Republicans and others considered about throwing good money after bad should oppose this package.