Stimulus: Economic Boon or Bloated Bust?

Last week, in the face of solid Republican opposition, the House voted to approve the $819 billion economic recovery plan put forth by the Obama administration. This week the plan moves to the Senate, where Majority Leader Harry Reid (D-Nev.) has expressed hope that an amended and even more complex package of tax cuts and federal spending will be approved by Friday.

Advocates of the plan say it will create more than three million U.S. jobs, provide tax cuts for most Americans, and stimulate vital sectors of the economy, such as energy and health care. Critics say the proposed tax cuts do not go deep enough and argue that too much of the plan is intended to support Democratic policy goals rather than to jump-start the economy.

BU Today asked seven faculty members, all experts in the areas they address, what the plan has going for it and what still needs to be considered.

Wendy Mariner, School of Public Health professor of health law,bioethics, and human rights, School of Law professor of law, and Schoolof Medicine professor of sociomedical sciences and community medicine,on health care.
The stimulus package passed in the House allocates $20 billion to modernize the health-care system by computerizing the nation’s medical records in the next five years, and that could help physicians improve the quality of care, but won’t be likely to result in substantial cost savings.

They also create an extraordinarily rich database of personal medicalinformation that both government and commercial businesses will want to mine, while the public may fear the end of privacy in one’s medical records.

I welcome the $16 billion proposed for investments in science facilities and research. But as public citizens, we should also recognize that this can be a double-edged sword — research generates ways to save lives and improve the quality of life, but also produces technologies that increase the cost of health care.

I think the most valuable health-care provisions are those expanding access to care, even indirectly through insurance coverage. A healthy population is a resilient and productive population. More importantly,the measure of our civilization is how we treat those who are unable to care for themselves.

Adil Najam, Frederick S. Pardee Professor of Global Public Policyand College of Arts and Sciences professor of international relationsand of geography and environment, on green energy.
I think the green components of the stimulus package are very well thought out. There’s a clear focus on using the stimulus to set theright course for the long-term future. Green energy is not just investment in new, renewable energy sources; it’s also conservation steps within the larger infrastructure spending. Ultimately, reducing the waste of dirty energy is as important as creating new clean energy. So, for example, the school improvements program, which includes major energy-saving investments, not only creates immediate jobs in construction, but it invests in reducing energy waste — today as well as in the long term. These savings themselves add to the stimulus, because they are additional dollars available for better uses.

The impact on the economy of going green is two fold. First, in terms of immediate jobs created. Second, in making us competitive and leaders in the new global economy that is already emerging. In terms of immediate impact, I would include in that the jobs created to make buildings more efficient — for example, workers employed to better insulate school buildings and make them more energy-efficient. To me, those are green jobs as much as are jobs for scientists researching new carbonsequestration techniques.

On new energy sources, I hope that the actual spending will significantly focus on research and development of new technologies andremoving some of the hurdles to wind and solar. Of special importance is the development of a grid that can utilize the potential that exists— this would give us immediate infrastructure jobs and place us on a more sustainable energy trajectory for the future.

Enrique Silva, Metropolitan College assistant professor of city planning and urban affairs, on infrastructure.
As an urbanist, I think of infrastructure broadly, including housing, schools, water and sewer systems, and electric grids — the bones of any city. But this stimulus plan addresses infrastructure more narrowly. The bulk of it is for highways, with a much smaller fraction for railand other mass transit.

The state of America’s infrastructure is embarrassing. Recently, the American Society of Civil Engineers estimated that just to maintain our infrastructure would be a $2.2 trillion investment. So it’s glaring that out of this huge package only about 5 percent is dedicated directly to infrastructure when there’s clearly a massive need for it. Of course, if the goal is to do something quickly for the economy to stop the bleeding, infrastructure isn’t going to necessarily do that. The projects will provide some immediate construction jobs and help suppliers of raw materials. But these projects take months to develop, and the big bang of infrastructure happens when it actually starts functioning and moves people and commerce from one place to another.

I think the plan should invest more in mass transit. It’s not just about getting from one place to another, but it’s also about a way ofliving and urban form, and it addresses environmental and social segregation issues. But I’ll concede that for better or worse this is acountry built on highways. The bulk of our economy runs on trucks and depends on getting people who live out in the suburbs to their jobs inthe city. So, it’s not necessarily the time to rehash old debates about whether we should have the highways or not.

Thomas Whalen, College of General Studies associate professor of social science, on politics.
If the Republicans continue to oppose this stimulus package or any other Democratic recovery plan, they’re going to be seen by the general public as obstructionists, and that’s never a good thing. The Republicans need to project an image that they are at least willing to work in a bipartisan way. By taking the other tactic, they’re doing a great disservice to their party. When you’re addressing a national crisis, it’s always good to convey some sort of bipartisan support, because the general public is looking to politicians to solve the crisis. And the Republicans are giving the impression that they’re playing old-style politics during a time when people only want answers.

The economic stimulus plan is very nonideological. It’s a mulligan stew of economic solutions, and it includes tax cuts as well as priming-the-pump spending measures. The tax cuts are actually a conservative approach. President Obama is going at this plan from both sides of the fence, and that is very pragmatic of him. He’s doing whatever it takes to solve the problem. He’s not just a tax-and-spend liberal, and I think that may frustrate some members of his own party. It will be interesting to see if John McCain crosses the aisle to support Obama’s package. It would be a great symbol for bipartisanship. I think the country would like to see the two former foes supporting this measure.

Charles Glenn (GRS’87), School of Education professor of educational leadership and development, on education.
I’m quite worried that the stimulus package will reinforce wasteful spending. What’s needed is to really change the schools. There are tokens such as money for charter schools and merit pay, but there’s nothing that really pushes accountability, which is really what we need.

Massachusetts has been doing well in education outcomes compared with other states because of the high and explicit standards set in the MCAS. The fact is that having such standards means students perform well and schools teach well. The states are really on the rocks financially and will be tempted to use the federal funds simply to keep the present system going, unsatisfactory as it is.

Let’s hope that President Obama and Secretary of Education Arne Duncan use the funding to leverage accountability for educational results. Unfortunately, it doesn’t appear that that’s going to happen. The teachers unions have very strong leverage with the Democrats, and Obama will be pushed to let the funds be used to raise salaries without accountability for more effective instruction. The likelihood is that the states will use the funding to bail out school districts, but not make substantial changes.

Alan Feld, School of Law professor of law, on taxes.
The tax provisions of the stimulus bill passed by the House of Representatives take up 84 pages. The Senate doubtless will add more. Many of the provisions seem motivated by two criteria: get money quickly into people’s hands to stimulate the economy and tilt toward people with moderate incomes. The Joint Committee on Taxation estimates the cost of these provisions for 2009-2011 at $299 billion, or approximately $1,000 for every man, woman, and child in the United States.

The most expensive item consists of a new “making work pay credit,” at an estimated cost of $145 billion. It gives an individual 6.2 percent of earned income, up to a maximum of $500. Someone who makes a wage of $5,000 would get $310; at a wage of $10,000 or $50,000, the earner would get $500. The credit phases out and disappears for higher earning workers. It also provides nothing for poor people who do not have jobs.

The bill provides $44 billion to businesses that currently have losses by allowing them to claim refunds for taxes paid in prior years. Another $29 billion will go as added deductions for property acquired by businesses in 2009. The incentive and stimulus effects of these provisions are debatable, and it is not clear who will actually benefit.

The bill also expands existing credits for education aimed primarily at middle-income families at a cost of $14 billion and extends or creates tax subsidies costing $5 billion for energy efficiency. These are laudable goals, but their short-term stimulus effect for the economy may be questioned.

Fred Bayles, College of Communication associate professor of journalism and director of the Boston University Statehouse Program, on state aid.
The money designated for state aid will help, but it’s really a drop in the bucket in terms of what the problems are in Massachusetts. Next year’s budget includes an anticipated $711 million from the feds. That’s about 2.5 percent of the estimated budget for that year. This stimulus funding is a couple of days of rations, rather than a program that’s going to be really noticeable in the state.

Where there may be impact is on health care: the state’s health insurance plan is costing more than was originally intended. So, with any increase in Medicaid, they will probably look for a special rider to move some of that Medicaid money to what they’re spending on insurance. That would cut the bottom line on some things.

Also, if they’re going to parcel out a percentage to a public works plan, that would take tremendous pressure off the transportation budget, which is — I can’t think of a more economic term — sucking wind. It was estimated that the state would have to spend $1 billion a year on state infrastructure for the next 20 years just to stay even, and that was before things got bad. They can make adjustments in terms of what they plan to spend out of the state coffers for the transport infrastructure, and hopefully that would provide more jobs and help boost revenue from income taxes and sales taxes.

There’s another category that may get help, too, which is the money for education, including school construction and renovation. The state dedicates a small percentage of the sales tax to a fund to help cities and towns build or improve their school facilities; federal money would ease the pain, because the sales tax receipts are down so far that the money dedicated to that program has fallen down, too.

People in the state won’t really notice any improvements in their lives, at least in the day to day. The only thing that might improve is more construction jobs and fewer teachers and police laid off. We’re not going to start having monorails.