And it's good that Hilzoy acknowledges that there are three components to the package, which the CBO divides into two categories: "Division A" (spending) and "Division B" (tax cuts and direct payments).
My main point has been that Division A of the stimulus is going to arrive too late to be the dramatic "jolt" promised by the Administration. Division A contains the big infrastructure projects and other government programs that are being touted as key to our economy recovery. It's worth repeating Hilzoy's chart (borrowed from Menzie Chin) to illustrate that any "jolt" primarily does not come from Division A (blue); it comes from Division B (green and red like Christmas, huzzah!).
As you'll see, I've made a small change to the chart. Regrettably, there still is some obfuscating going on regarding the true components of Division A and Division B.
Division A includes the big government projects.
Division B (green) are tax cuts.
Chin, however, introduces some confusion in Division B (red) by labeling it "mostly changes to spending." That's not accurate in any useful sense. The outlays in Division B (red) are actually direct payments to individuals and states. A refundable tax credit, for instance, fits into Division B (red). Unemployment insurance fits into Division B (red). Payments to states to cover health care fit into Division B (red). Etc.
That's quite different from the spending that's included in Division A. The Federal Government isn't "buying" anything through Division B (red). Rather, the government is directly injecting the money into the economy - the effective equivalent of a tax cut. Indeed, in the case of a refundable tax credit (Division B, red), it's virtually indistinguishable from a tax cut (Division B, green).
So, what can we say about all this? First, we've been told that we need an immediate jolt to the economy, and that if we don't spend right now the recession will be deeper and longer. That might be true. But the main components of any jolt are coming from Division B, not infrastructure spending or big CPA-style public work programs. If the "jolt" has any impact, it will be because tax cuts and direct payments have impact.
Second, most of Division A does not get spent until after the recession is projected to end by most accounts. These projections can of course be wrong. Hilzoy is right to point out that we do ourselves no favors by planning for the best case scenario. Hope, it has been said, is not a plan. But neither do we benefit ourselves by overemphasizing the importance of Division A spending; or claiming that it's part of the promised "jolt"; or trying to rush through a large, costly package of new government programs based on the notion that they are going to have an immediate impact. The Presidents Day deadline seems particularly silly when we're talking about programs that might not have effect until 2010, 2011 or thereafter: certainly, we can afford to debate the merits of those programs until at least March.
Third, if the recession lingers past 2011, the remaining Division A spending is not going to be enough. If there be a "Year of the Jolt," that year be 2010. The alleged stimulus in 2012, however, is a small fraction of alleged stimulus in 2010. If the recession is still sticking around through the end of 2011, as Hilzoy fears, we're going to see a new round of fiscal incentives - which will again primarily consist of tax cuts, tax refunds, and direct injections of cash.
I have some doubts about whether any particular package is going to have a significant effect on the economy, much less a more significant effect than the Fed's monetary policies. But if this stimulus package has an effect, it will have that effect primarily through tax cuts, tax refunds, and direct injections of cash. Keep that in mind when folks should the recession end in 2010, and folks start to claim that victory was had through public-works spending.
More importantly, don't lose your heads. "Make it bigger" is a principle that applies to beer and male enhancement, but not spending. Spending has to be repaid; deficits eventually exhibit crowding out effects; and there are a bunch of folks (let's call them "baby boomers") who are about to retire and start paying less in taxes. So let's spend wisely. There is no reason why we cannot pass parts of Division B right quick and spend an extra month considering the ramifications of Division A. It would be time well spent.
UPDATE: It's worth pointing out that my concern is shared by some Democrats:
In testimony before the House Budget Committee yesterday, Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.
"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."
Hat tip, Mikkel.
UPDATE 2: Clarified an unclear phrase.