Let's Talk About Stimulus

David Herszenhorn had a pretty good piece over the weekend on the evolution of the stimulus from the House and Senate bills to the finished product. It is basically is line with Obama's initial proposal, but gets to the public faster.

Smaller in that it was cut to $787 billion from more than $800 billion in early versions in the House and Senate. And faster in that the Congressional Budget Office now projects that 74 percent of the money will be spent by Sept. 30, 2010, compared with 64 percent in the original House bill.

Now the test is whether the mix of tax cuts and government spending, including public works projects, will create jobs and spur a recovery.

No one knows how it will turn out. Even Mr. Obama, who had predicted four million new or saved jobs, has pulled back to “more than 3.5 million.”

Reading the more detailed subheads in the piece, I'm a little more gratified by it. While I still find it fairly small, this is a bold plan to build and repair infrastructure, provide aid to the poor, fund public education, and modernize the electric and broadband grids, preparing us for the 21st century. There's enough to like that Republicans are taking credit for it even though they voted against it. So there must be a couple good nuggets in there. In addition, the curbs on executive pay embedded in the bill seem real and enforceable:

The bill, which President Obama is expected to sign into law next week, limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. With the measure, lawmakers seek to address public outrage over extravagant Wall Street paydays even as taxpayers bail out the industry.

Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.

"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."

Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.

I just don't think that's likely. Hedge funds and foreign banks are taking a beating; this is a global crisis and nobody's really looking to hire major new talent. I'm surprised Congress managed to act this boldly.

One potential problem is the work-around to make sure there are no earmarks in the bill. The spending has been farmed out to federal agencies to distribute based on formulas, but many of those agencies have no experience distributing this kind of money, which could slow the aid as the agencies get up to speed. The Department of Energy has to parcel out amounts equal to almost twice their annual budget, for example. If this is a spur to modernize federal agencies, and possibly streamline them, all the better. Maybe we save a bit in the process. But I do expect a lag.

The biggest problem, of course, is going to be Republican cherry-picking. I heard Cokie Roberts this morning saying that the stimulus is so big that it's bound to create some waste or possibly corruption, despite the safeguards and trnsparency. The problem is that people like Cokie will let Republicans use these single instances to define the entire $800 billion dollar stimulus, instead of putting it in the proper context. Once again, Democrats will have a political problem and not a policy problem.