Obama takes a pass on the hard stuff

Robert Samuelson:

Among the many claims made for the "economic stimulus" package now before Congress is that it will "jump-start" a "bigger, better, smarter" electric grid, enabling Americans to use energy more efficiently. The package commits $4.5 billion to this, which (says the White House) will help finance 3,000 miles of transmission lines and 40 million "smart meters." Sounds great.

But it may be mostly hype. For starters, $4.5 billion is a pittance. An industry study in 2004 -- surely outdated -- put the price tag of modernizing the grid at $165 billion. More important, says a report from J.P. Morgan, the "smart grid" isn't mainly a matter of building new transmission lines or installing new meters. It's more "communications and information processing technology" that allows for more efficient transportation and use of power.

"The smart grid, while a great idea, is basically a software project," says economist Marc Levinson of J.P. Morgan. "The reason utilities aren't pushing it faster is not lack of money or will, but because there are lots of technical issues and also important compatibility problems so that the various companies' grids can communicate freely with one another."

As it turns out, President Obama didn't make the tough choices on the stimulus package. He could have either used the program mainly (a) to bolster the economy or (b) to advance a larger political agenda, from energy efficiency to school renovation. But Obama wanted both, and, superficially, the two can be portrayed as an enlightened partnership.

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Unfortunately, investing in tomorrow won't automatically stimulate the economy today. The $819 billion program passed by the House would only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent of the new spending and tax cuts would flow to the economy. For 2010, the estimate is an additional 44 percent. The total of 65 percent means that, by the CBO's estimate, about a third of the $819 billion package would be spent after fiscal 2010. That falls far short of Obama's stated goal of 75 percent in the first 18 months.

One reason is that some of Obama's "investments" won't occur quickly. The "smart grid" would be one. Or take the $39 billion in the House bill for added highway and transit construction. That's nearly double existing funding levels. When queried, state officials worried about how fast they could "adjust their contracting procedures" for such a big increase, reports the CBO. As stimulus, the better course would simply be to give more money to states and localities -- and order them to spend it. Most would plug deficits, avoiding program cuts and layoffs.

What's also sacrificed are measures that, though lacking in long-term benefits, might help the economy now. A $7,500 tax credit for any home buyer in the next year (and not just first-time buyers, as is now in the bill) might reduce bloated housing inventories. Similarly, a temporary $1,500 credit for car or truck purchases might revive sales, down a third from 2007 levels. Normally, these targeted incentives would be unjustified; today, they may be necessary expedients.

The decision by Obama and Democratic congressional leaders to load the stimulus with so many partisan projects is politically shrewd and economically suspect. The president's claims of bipartisanship were mostly a sham, as he skillfully maneuvered Republicans into a no-win position: Either support a Democratic program, or oppose it -- and seem passive and uncaring.

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I disagree on the political shrewdness issue. Polls show only 42 percent of voters back the stimulus plan. That gives the Republicans a majority of voters to appeal to. That is a long way from a no-win situation. Samuelson does hit on many of the problems with the current proposal. I suspect the Republicans will incorporate them into their arguments against the bill.