Senator Coburn's List/"Paid Volunteers"

A couple of days ago Senator Coburn of Oklahoma, who has in the past co-sponsored legislation with then-Senator Obama to increase transparency in budgeting, published a list of what he calls "Wasteful and non-Stimulus provisions in the Stimulus Bill." It's quite a lengthy list ! I had to chuckle at the "$160 million for paid volunteers." Huh ? First, I am not sure what a "paid" volunteer is. Second, if reducing taxes on citizens (including volunteers) will not stimulate the economy, as President Obama claims, then why will sending volunteers a check do so ?? In either case, the recipients may simply save the new found money, thus not stimulating consumption. (Recall my earlier post that mentione the "paradox of thrift.")

Senator Coburn has introduced numerous amendments to the bill, including a provision that would prevent any allocations to universities with endowments over $15 Billion or which spent over $100 million annually on lobbying. Recall in this connection my earlier post reporting that Higher Education ranks 7th among America's various industries in expenditures on lobbying.

http://bishopmadison.blogspot.com/2009/01/corruption-in-higher-education.html

Senator Coburn would also transform aid to the states from grants to loans the states would actually have to pay back.

In any event, here is the Senator's list:

• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Dept. of Energy defunded last year because the project was inefficient • A $246 million tax break for Hollywood movie producers to buy motion picture film • $650 million for the digital television (DTV) converter box coupon program • $88 million for the Coast Guard to design a new polar icebreaker (arctic ship) • $448 million for constructing the Dept. of Homeland Security headquarters • $248 million for furniture at the new Dept. of Homeland Security headquarters • $600 million to buy hybrid vehicles for federal employees • $400 million for the CDC to screen and prevent STD’s • $1.4 billion for a rural waste disposal programs • $150 million for Smithsonian museum facilities • $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion • $75 million for “smoking cessation activities” • $200 million for public computer centers at community colleges • $75 million for salaries of employees at the FBI • $25 million for tribal alcohol and substance abuse reduction • $10 million to inspect canals in urban areas • $6 billion to turn federal buildings into “green” buildings • $500 million for state and local fire stations • $650 million for wildland fire management on Forest Service lands • $150 million for Smithsonian museum facilities • $1.2 billion for “youth activities,” including youth summer job programs • $88 million for renovating the headquarters of the Public Health Service • $412 million for CDC buildings and property • $500 million for building and repairing NIH facilities in Bethesda, MD • $160 million for “paid volunteers” at the Corporation for National and Community Service • $5.5 million for “energy efficiency initiatives” at the VA “National Cemetery Administration” • $850 million for Amtrak • $100 million for reducing the hazard of lead-based paint • $75M to construct a new “security training” facility for State Dept Security officers when they can be trained at existing facilities of other agencies. • $110 million to the Farm Service Agency to upgrade computer systems • $200 million in funding for the lease of alternative energy vehicles for use on military installations. • State Medicaid Bailout: $87.7 billion.

France Rejects Obama-Style Stimulus Package

The Prime Minister of France has rejected calls by the French left for an "Obama-style stimulus plan." According to the International Herald Tribune, Prime Minister François Fillon has stuck by the French Government's $ 33 Billion plan to focus its stimulus package on building infrastructure and stimulating corporate investment in productive capacity.

According to Fillon:

"It would be irresponsible to chose another policy [i.e., the Obama-type stimulus sought by the left], which would increase our country's indebtedness without having more infrastructure and increased competitiveness in the end."

According to the IHT article, the French plan includes money for investments in roadbuilding, new power plants, modernizing France's electrical grid, improving rail facilities, rennovating ports, and improving water and natural gas distribution.

http://www.iht.com/articles/2009/02/02/business/frecon.php

Meanwhile, here in the United States, some are calling President Obama's stimulus package "Socialism in disguise."

http://www.foxnews.com/story/0,2933,483345,00.html

Whether or not the Obama/House plan is in fact Socialism, it is somewhat jarring to see a French Prime Minister criticize the US for being fiscally irresponsible ! The French stimulus plan focuses on improving the nation's overall productivity and not simply counter-acting the current slump.

F-22 Stimulus ?

Economic Stimulus ?

This morning Martin Feldstein, who chaired President Reagan's Council of Economic Advisors, weighs in on the version of the stimulus package the House passed yesterday. Among other things, Feldstein argues that some of the debt-financed federal spending will simply displace debt-financed spending at the state level, an argument I made in my previous post. He also argues that spending on infrastructure projects, e.g., roads and bridges, won't take place until it is too late to counteract the current downturn. Moreover, he contends that temporary tax cuts will provide little stimulus, since consumers will simply save the cuts, knowing that they will have to pay higher taxes two years from now. While savings is generally a good thing, Keynesians at least believe in the "paradox of thrift," i.e., if everyone saves too much, aggregate demand will suffer, and the economy will spiral into recession, unless the government borrows the savings and spends it. By contrast, it is said, so-called Classical economists believed that "too much" savings would reduce interest rates and therefore increase investment and long term economic growth, pursuant to "Say's Law."

How, then, would Feldstein stimulate the economy ? He proposes rapid increases in military procurement and construction of military bases. The F-22 Raptor, pictured above, costs over $100 million apiece. Instead of spending billions on mass transit programs, perhaps we can buy another 50 Raptors? Feldstein does not mention Raptors; he may have in mind more mundane items such as ammunition and spare parts depleted during the wars in Iraq and Afghanistan.

Note that Feldstein's conclusion regarding the non-efficacy of temporary tax cuts follows naturally from Milton Friedman's "Permanent Income Theory of Consumption." See Milton Friedman, A Theory of the Consumption Function (Princeton 1957). According to Friedman, individuals make their consumption decision based upon their expectation of their long term "permanent income" and not simply the income they expect in a particular year. Hence, a temporary cut in tax rates, for instance, will have only a modest impact upon consumption, because the cut will have only a modest impact on the consumer's expected income over time. By contrast, a permanent reduction in tax rates will, other things being equal have a larger impact on consumption.

Here is Feldstein's op-ed, from the Washington Post, entitled: "The $800 Billion mistake."

Query whether Feldstein's implicit adoption of Friedman's hypothesis undermines part of his argument. For instance, while infrastructure projects might not literally create jobs within, say, the next six months, they may create the expectation of jobs (and profits for the firms that perform them) and thus increase the permanent income for thousands of individuals, thus increasing consumption expenditures sooner than one might otherwise think.