Senate Compromise Guts "Stimulus"

John Nichols, The Nation: Senate Dems Compromise Away Best Parts of Stimulus Plan
Senate Dems/Republicans slash $billions in needed stimulus: cuts in eduction and school funding, cuts in unemloyment aid, cuts in aid to financially struggle states, etc..

In order to get the votes of two Republican (Maine's Susan Collins and Pennsylvania's Arlen Specter) and perhaps another (Mainer Olympia Snowe) that were needed to undermine the threat of a GOP filibuster, Reid surrendered $86 billion is proposed stimulus spending. In doing so, the Democrats agreed to cut not just fat but bone, and to warp the focus and intent of the legislation.

The Senate plan is dramatically more weighted than the House bill toward tax cuts (which account for more than 40 percent of the overall cost of the package). This is despite the fact that there is a growing consensus -- among even conservative economists and policy makers -- that tax cuts will do little or nothing to stimulate job creation in a country that lost almost 600,000 positions in January alone.

The bottom line is that, under the Senate plan:
* States will get less aid.
* Schools will get less help.
* Job creation programs will be less well funded.
* Preparations to combat potential public health disasters -- which could put the final nail in the economy's coffin -- will not be made.

In every sense, the Senate plan moves in the wrong direction.

Paul Krugman: What Centrists Have Wrought
The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates , we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.

Frank Rich: Slumbdogs Unite!