Was Stuart Varney of Fox Business / Fox News the only one to report the President’s new stimulus proposal?

Here is the President speaking last Friday in the Rose Garden:

We will also build on the measure I signed today with further steps to grow our economy in the future. To that end my economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and businesses to make buildings more energy-efficient, additional tax cuts for businesses to create jobs, additional steps to increase the flow of credit to small businesses, and an aggressive agenda to promote exports and help American manufacturers sell their products around the world.

Leaked from an anonymous White House senior advisor, this would be a trial balloon. When the President reads it from prepared remarks in the Rose Garden on Jobs Day, this is a proposal, no matter what caveats are wrapped around it (e.g., “my economic team is looking at ideas such as …”). He said “We will … build.” That’s definitive. This is an intentional signal, and it’s stunning that almost no one has reported it.

If I have missed coverage, please alert me and I will give appropriate credit.

The President gave a specific list of five items against which he and the Congress will now be measured:

  1. more highway spending;
  2. more energy-efficiency incentives;-
  3. (probably) a new hires tax credit;
  4. some form of increase in small business loan availability;
  5. and something unspecified on trade.

Infrastructure spending is sl-o-o-w. I’m surprised there are any energy-efficiency incentives left to be subsidized. I thought they were all maxed out. Greg Mankiw has shown why it’s hard to design an effective and efficient new hires tax credit. I am most interested to see what “aggressive agenda to promote exports and help American manufacturers” they propose. This Administration has been almost silent on trade so far. I hope they don’t treat manufacturers and service firms differently. While it’s good politics, there’s rarely a good economic reason for it.

Why did the President do this? Choose one or more:

  • Bad economic news means he thinks he needs to pull hard (again) on the short-term fiscal policy lever.
  • Bad economic news means he thinks he needs to look like he’s doing something, even if the actual macro policy impact is trivial.
  • Congress has told him privately they’re going to do something more whether he wants it or not, and he’s trying to “get ahead of it.”

The above package looks like the result of a combination of the second and third explanations. It’s reminiscent of when gasoline spikes and everyone scrambles looking for short-term solutions. Don’t just stand there, do something, they argue.

The President’s proposal for stimulus #3, launched upon the signing of stimulus #2, gives Congress a green light. The Democratic majority will have to decide whether to offset the deficit increase of these policies. Someone will probably argue that fiscal stimulus precludes offsetting the deficit impact, but since fiscal stimulus is mostly a timing exercise, you can cut other spending (or raise taxes) in the out years and make the proposal stimulative in the near term and deficit-neutral over time. What, I wonder, will happen to the majority’s claimed adherence to PAYGO rules?

In the abstract, the above package is unlikely to have a noticeable short-run macroeconomic benefit. I think it’s likely to be even less effective and more inefficient than the first stimulus. Will Congressional R’s try to fix this package, or propose their own and unite in opposition to this one?

With the unemployment rate above 10%, near-zero interest rates, enormous budget deficits, and the low-hanging stimulus fruit already plucked, there are few good options. This could get a bit ugly.

(photo credit: karmablue)