Coyote Blog

Via Valley Fever:

Republican senators submitted a report to Congress yesterday outlining billions of dollars of useless or stupid spending in the Obama stimulus plan.

What do we mean by useless or stupid? How about $100,000 for a puppet show in Minnesota or a $2 million replica railroad in Nevada….

The wasteful spending isn’t isolated to Minnesota and Nevada, some of it is right here in Arizona.

According to the report, Arizona State University and the University of Arizona were given nearly a million dollars to study the work habits of ants.

“I had no idea that so much expertise concerning ants resided in the major universities of my state,” McCain says. “I say that with an element of pride, but I’m not sure its deserving of these taxpayers’ dollars.”

Here are some I wish I had won grants for, at least in my youth:

Some of the other gems outlined in McCain’s catalog of stupid spending are a $400,000 grant awarded to the University of Buffalo for a study on kids who smoke weed and drink malt liquor, a dinner cruise boat in Chicago that got $1 million to fight terrorism, and a $219,000 grant to the National Institute of Health to determine whether college chicks are more likely to “hook up” after drinking.

In other words, the federal government spent $219,000 to study beer goggles.

Because when they defend this practice, they put themselves on record that they have absolutely no integrity in the process:

About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren’t saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren’t saved….

But officials defended the practice of counting raises as saved jobs.

“If I give you a raise, it is going to save a portion of your job,” HHS spokesman Luis Rosero said….

More than 250 other community agencies in the U.S. similarly reported saving jobs when using the money to give pay raises, to pay for training and continuing education, to extend employee work hours or to buy equipment, according to their spending reports.

Uh, right.  So does this mean that the Administration’s pay Czar is destroying jobs by reducing salaries?  Seems like one would have to take this position to be consistent.  And wasn’t, by the same logic, AIG actually creating jobs with the now-infamous bonuses earlier this year?

And by the way, it seems like those ACORN-like community organizers are returning the favors Obama has extended them by applying to the jobs reporting system their famously rigorous accounting standards they bring to their own finances as well as to voter registration .

Other tidbits from the article are also priceless:

President Barack Obama’s economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.

There is also another impression one gets from the article, other than seeing all the fraud, they is not highlighted by the reporter — all of the jobs created seem to be government bureaucrat jobs or community group jobs.  Not one example of jobs actually producing something someone is willing to buy.  Except maybe for this example:

How did Kentucky shoe store owner Buddy Moore save nine jobs with just $889.60 in federal stimulus money? He didn’t, and that’s turning into a big headache for him.

Moore’s store in Campbellsville, Ky., filed one of 156,614 reports from recipients of stimulus dollars designed to show how money from the $787 billion program is being spent, and how many jobs the funds have created or saved.

Moore’s slice of the stimulus came in an $889.60 order from the Army Corps of Engineers for nine pairs of work boots for a stimulus project….

Paula Moore-Kirby…couldn’t work out how to answer the question about how many jobs her father had created or saved. She couldn’t leave it blank, either, she said. After several calls to a helpline for recipients she came away with the impression that she would hear back if there was a problem with her response, and have a chance to correct it. So with 15 minutes to go before the reporting deadline, she sent in her answer: nine jobs, because her father helped nine members of the Corps to work.

In general, legislative responses to the recent financial crisis just amaze me, and I am a fairly jaded observer of Congress with very low expectations.

First, Congress responds to a crisis caused by too much debt and overleverage by …borrowing a trillion or so dollars and deficit spending.

Second, Congress responds to a crisis caused by too much subsidiazation of  home ownership by … subsidizing home ownership

Now, Congress has apparently responded to a crisis where risky debt was mispriced by… passing a law to reduce debt costs for the riskiest borrowers and shift that cost to the least risk.

Nice job.

From the AZ Republic, Paul Krugman is claiming that the administration’s stimulus spending, which I don’t think has even reached $100 billion of the programmed $1 trillion, has officially averted another Great Depression:

Aggressive stimulus spending by governments helped the world avoid a second Great Depression

but full economic recovery will take two years or more, Nobel Prize-winning economist Paul Krugman said Monday….

“We have managed to avoid a second Great Depression … but full recovery is at least two years and probably more,” Krugman said.

This is just a pure joke.  First, the total additional spending was tiny compared to the size of the world economy.  Second, almost none of the stimulus money has actually been spent — even the article goes on to say that “Most of the money will flow in 2010.”  So is Krugman arguing that just the notion of stimulus spending, without the actual spending, has saved us?  Third, most of the early projects were typically stupid, whatever governments could ram through their procurement processes in a short period of time.   I challenge even the most ardent Keynsian to argue this stimulus was truly structured to target underutilized resources, or whatever their theory is.  I would love to see Krugman stand up in front of a doctoral committee and justify this wild-assed supposition with actual facts and analysis.

But the even more incredible unproven (and in fact entirely non-verifiable) part of the statement was that we were even headed for a second Great Depression anyway.  Many of us from the sidelines said that this looked like a recession similar in magnitude to that of the early 1980’s, and in fact that appears to be exactly what we got.  The whole “second Great Depression” meme is merely a giant straw man used first to stampeded ill-conceived spending legislation through Congress with little scrutiny and now to provide a fake alternative against which Obama and company can declare victory.   Krugman is so far in the tank, its impossible for me to even think of him as an economist any more.  The Nobel Laureate who now retails non-verifiable claims.

The fact is that this was a normal recession blown out of proportion first by the Bush and later by the Obama administration.  From the very beginning, it looked much like the recession of the early 1980’s or the bank crisis of the early 1990’s, and it recovered for the same reason – there are fundamental strengths in the economy.  In fact, the length of the Great Depression was in fact the aberration, caused more by FDR’s wild proposals (the worst of which was the National Industrial Recovery Act) which tended to dampen the investment that normally picks up at the bottom of the cycle to take advantage of reduced asset values and input costs.

Other Assertions by Krugman

Interestingly, economist Krugman appears to think that the problem with the financial system is that people can make money in it.  Really?  Gosh, I thought people just invested billions of dollars for the warm feeling it gives them:

He said there was a need to restructure the global financial system and impose tighter regulations to avoid a repeat of the economic crisis, but expressed concern that the momentum for reforms appeared to be easing.

“We do not have the political will to do that just yet … I suspect clever people can still make a lot of money from the financial system in the next few years,” he warned.

I also thought this was funny, in the context of the recent financial mess.  He says:

“Over-reliance on self-regulation is a mistake,” he said. “Global regulators should err on the side of investor protection and financial stability rather than rely on a ‘buyer beware’ regulatory regime.”

I must say it is surprising to see Krugman saying this.    Let’s think about mortgages, the primary driver of the recent financial difficulties.  In mortgages, the investor is the bank making the loan.  So is Krugman advocating for more protection of mortgage lenders and their insurers like AIG against home buyers who take their money and then don’t pay them back?

Update: Oh, and TARP never bought any troubled assets, just was used to bail out a few selected politically connected companies.

Any person with a room temperature IQ can figure out that the Obama “jobs saved” metric is complete BS, a measure that is totally unmeasurable, and therefore can be set to any value the Administration wishes.

But this is, if anything, even crazier:

How much are politicians straining to convince people that the government is stimulating the economy? In Oregon, where lawmakers are spending $176 million to supplement the federal stimulus, Democrats are taking credit for a remarkable feat: creating 3,236 new jobs in the program’s first three months.

But those jobs lasted on average only 35 hours, or about one work week. After that, those workers were effectively back unemployed, according to an Associated Press analysis of state spending and hiring data. By the state’s accounting, a job is a job, whether it lasts three hours, three days, three months, or a lifetime.

“Sometimes some work for an individual is better than no work,” said Oregon’s Senate president, Peter Courtney.

With the economy in tatters and unemployment rising, Oregon’s inventive math underscores the urgency for politicians across the country to show that spending programs designed to stimulate the economy are working — even if that means stretching the facts.

At the federal level, President Barack Obama has said the federal stimulus has created 150,000 jobs, a number based on a misused formula and which is so murky it can’t be verified.

On a full-time FTE basis, the report figures Oregon has “created”  215 full-time jobs.  They don’t even attempt to do the math on how many jobs were destroyed when $176 million was taken from other productive uses.  But does anyone else syspect that the private hands the $176 million was formerly in probably would employ more than 215 people for that chunk of change?

Having lobbied hard for the stimulus bill with the expectation they could get some extra local spending without the political cost of having to tax the locals more to pay for it, Americas mayors find they in turn got played:

President Barack Obama is facing complaints from big-city mayors and county politicians that parts of the economic stimulus package are shortchanging their constituents.

Vice President Joe Biden has been holding private conference calls on the stimulus with elected officials from around the country, some of whom have been telling him that metropolitan regions are losing out to rural areas in the competition for stimulus money.

That argument tracks a report released by the U.S. Conference of Mayors that concluded that cities have gotten a disproportionately small share of stimulus money set aside for road and other transportation improvements.

I thought the following was particularly hilarious.  It appears that the mayors have abandoned progressive tax policy in favor of a more classical notion of fairness:

The mayors commissioned a report looking at a pot of $18 billion set aside for transportation. When the report was released this month, the 85 most populous metropolitan areas had received $8.8 billion – or 48 percent of the total. Yet those same areas account for 63 percent of the U.S. population and 73 percent of the gross domestic product, the report said.

Chicago would need to get another $250 million in stimulus transportation funds to reach a level that reflects its contribution to the Illinois economy, the report calculated. In Ohio, Cleveland and Cincinnati account for 40 percent of the total economy yet received less than 5 percent of the transportation stimulus funds earmarked for the state.

I am sure the richest 10% who pay the vast majority of the taxes will be happy to know that the mayors are now advocating that stimulus money be spent in proportion to how people contribute to the economy.  Yeah, you can hold your breath for that.  It turns out that progressive redistribution is only a good thing if you are on the recieving end.

Via John Stossel, this is hilarious form Onion TV.  I think this has been around for a while but it could have been written for the Stimulus.

Obama and Congressional Democrats seem to have hit upon a way of helping the unemployed that is even more expensive than Welfare.  Many of the stimulus-related jobs programs turn out to spend millions of dollars to preserve just a few jobs.  Their only net benefit is to politicians — by making certain preferred corporations the intermediary for these funds, these corporations will in turn line politicians’ campaign coffers with money, something welfare recipients were never very good at.

A good example is the ongoing fight by Congressman Maurice Hinchey to force the Obama Administration to accept a new helicopter as part of an $835 million dollar program that supports 800 jobs in Mr. Hinchey’s district.  TJIC has a very apt counter-proposal:

Instead of spending $835 million, why not just cancel the program and hand each of the workers a $500,000 check with the memo line “welfare – because you produce something no one wants” ?

That’ll put food on the table of these 800 workers (for a decade), save us $435,000,000 and maybe teach 800 workers and 1 Democratic politician something about economics.

Yes, but Travis, in your model, who is going to write checks back to Mr. Hinchey?

If I have not been convincing enough, Q&O has more on why you really, really should be planning for inflation.

The answer to all of Obama’s spending in trillion dollar chunks is obvious.  All we have to do is make our currency work just like that of Zimbabwe, and we will be fine.  We could pay off a trillion dollars with 10 bank notes (I bought just one the other day on eBay for $30 or so).

The problem, of course, is that this is what the Obama administration actually appears to be doing.

MaxedOutMama echoes many of my thoughts on recent economic activity and the shameless way our President has been manipulating these issues:

In January, I was writing that fundamentals had taken an upswing, and that the US economy was going to try to resurge in the third quarter.

The numbers that came in for January and February did show what P-Nat projected, which was a gradual bottoming pattern overall and the beginning of some upticks. Bloomberg today:

Orders for U.S. durable goods unexpectedly rose in February on a rebound in demand for machinery, computers and defense equipment.
…
Combined with reports showing improvements in retail sales, residential construction and home resales, the figures indicate the economy is stabilizing after shrinking last quarter at the fastest pace in a quarter century. Stepped-up efforts by the Obama administration and Federal Reserve to ease the credit crunch may help revive growth later this year.

Last night Obama took credit for these events, but the stimulus package had nothing to do with it – the effects of that haven’t even hit the economy yet. Very little of that package will be felt in the first half of 2009, in fact, and less than 25% of the effect will be felt in 2009. I would also like to point out that at the time the stimulus bill was being debated, the administration was claiming that the economic emergency was so dire that the representatives and senators shouldn’t even be allowed to read the thing before they voted on it. Instead, this was what was really going on in the economy.

She also shares my concerns that the recovery may in fact be undone by recent government actions, not the least of which is the Weimar Republic-like printing of money to buy back government bonds and help fund a mushrooming deficit.  In fact, she and I must be fairly attuned, as she wrote:

Last week I was so sick at heart that I didn’t think I could continue writing this blog.

I too felt almost exactly the same last week.  Never have I been so depressed about the direction of domestic policy (I might have felt about the same around 1978, but I was only 16 and had other things on my mind).  Every day last week there seemed to be a new policy directive crazier than the last.  I had a real feeling like I was living through the last half of Atlas Shrugged, where an increasingly desperate government initiates a series of policies with disastrous long-term effects crafted just to survive a little longer in office.  The only difference was several years in the book seemed to have been compressed into about a week of real time.

Fortunately, I am basically a happy soul and I seldom stay depressed long.  I just did what I always do when I despair for the world – spent some time with my family and concentrated on what I could fix, namely the health of my own business.

The Liberty Papers thinks we have become a lawless Banana Republic.  George Will is thinking along the same lines, snarkily observing that Sweden, China, and Mexico have all observed in one way or another that the Feds seem to be acting outside the rule of law.

I have opined in the past that what really extended the Great Depression was not any real underlying economic issue, or even vast increases in government spending per se.  It was that arbitrariness with which the Roosevelt administration dealt with economic matters.  With nutty programs like the Mussolini-inspired National Industrial Recovery Act coming and going, investors and businesses never knew from day to day what the rules of the game would be next year, or even next week.

I fear that this is exactly the climate Obama and Congress are creating today.

• When Congress reacts to CNN headlines by retroactively confiscating legal compensation that it had protected just weeks before, what will happen to my compensation?
• When government deficits soar by trillions of dollars, what will taxes look like next year?
• When the Administration says that Co2 will have to be reduced by 80%, what numbers do I plug into my forecasts for fuel and electricity?
• When the government decides on a whim to print a trillion dollars more money to pay off government debt, what will inflation look like in the coming months and years?

As of two months ago, my company was still investing.  We were still getting bank credit, particularly for equipment financing, though it took more work than in the past to secure it.  We still saw opportunity in our business, and in fact saw increased opportunity in the recession for low-cost recreation options and outsourcing of public recreation facilities.

But today, I am reluctant to make any new investments.  Investing $5000 now for $8,000 a year from now normally sounds good, but what happens now that the Feds have more than doubled the money supply?  How much will $8,000 really be worth a year from now?  What will my taxes be on the increase?**  What new costs or liabilities  might be retroactively placed on me for making the investment?  What happens if beltway pundits start thinking I am making too much money?

All this commotion of government intervention started when Paulson and other Bush appointees started screaming that the banking system was going to shut down and therefore crash the whole economy.  As my readers know, I believe to this day that this was all sky-is-falling over-reaction and panic-mongering, and most of the credit crunch resulted from uncertainty about the Treasury and its statements, not due to realities on the ground.   However, whatever tightening of credit we might or might not have avoided by government action, it pales in its effect on investment in comparison to the arbitrariness and trillion-dollar-plan-of-the-day that has been the first 60 days of the Obama administration.

** footnote: For those of you who have not lived through high inflation times, taxes and inflation are a deadly combination.  That is because the Federal Government, after creating inflation, then taxes each of us on its effects.  Here is an example:  Invest $5000 now at a fixed 10% a year.  Suddenly, inflation goes up to 8% a year.  In five years, I now have a bit over $8000.  In economic terms I have made a small profit of, since $8000 in five years at 8% inflation is worth $5,445 today.

But the IRS thinks I have made $3000, not just $445, and will tax me on the full $3000.  If they take a third, I only have $7000 at the end, or $4,764 in current dollars, meaning that after taxes, I actually lost money.

This graph of the US monetary supply is un-freaking-believeable.  Someone please tell me that this is a data error or something.  I guess this is one way to bail out borrowers — if you create enough inflation, then the real value of principle owed drops.  Sure looks like it is time to borrow long at fixed rates.  Are real interest rates about to go negative?

Via Phil Miller

By the way, this really gives the lie to the whole government stimulus effort.  They may be moving large amounts of money around, but they can’t create value, and in the absence of real value creation all they are doing is inflating the currency.

Via Reason:

Obama has promised that no family earning less than $250,000 per year will pay one dime in higher taxes. But the companies that have to pay for permits will pass that cost on to consumers in the form of higher prices for electricity and other products. So these families will pay $645 billion, only some of which will be returned in the form of lower income taxes, for a system that is terribly inefficient.

The solution, of course, would be a straight-forward tax on carbon, the proceeds to be refunded through the payroll tax system. But unlike the hidden tax of cap-and-trade, a carbon tax is out there for the voters to see. And given the choice between a stealthy tax and a visible tax, politicians will pick the former every time.

Once upon a time, most entrepreneurs organized their business as what is called a C-Corporation.  Most of the publicly traded corporations you can think of, from Avon to Zenith, are essentially C-Corporations.   Such corporations had any number of advantages, but they had (and still have) one big, big disadvantage.  C-Corporations paid federal income taxes at the corporate tax rates.  And then, if after-tax profits were dividended to owners, those dividends would be taxed again.  This double taxation of earnings is something Congress talks about all the time, but never does much about.  And the implicit government tax subsidy for debt over equity does a lot to explain various waves of merger and LBO activity we have seen since the 1980’s.

Now, entrepreneurs were not stupid.  No one wants their hard-earned income taxed twice.   So, entrepreneurs who owned C-corps would do one of two things.  One approach was to have the owner pay himself a large salary, thus reducing corporate income and converting the dividends to more tax-advantaged wages.  The other approach was to have the company issue the owner loans rather than dividends.  I have seen many closely-held C-corps with huge accumulated corporate loans to their owners, which may only be unwound years or decades later when the company is sold or liquidated and profits can be taken out a lower capital gains rates.

Over the last 20 years or so, a new corporate vehicle called the sub-chapter S or S-corp has become popular.  With a few limitations, the S-corp offers all the same liability protections as a C-corp, with a big tax advantage:  S-corps are not subject to corporate taxes — corporate profits of the owners flow straight through the corporation to the owners’ 1040 personal returns, eliminating any double taxation  (Limited Liability Corps or LLC’s operate roughly the same, but with slightly different rules).  For this reason they are also sometimes called pass-through entities.

It is interesting to note something I never hear mentioned when discussing aggregate personal income data, which is that the switch over time from entrepreneurs using the C-corp to the S-corp creates something of a discontinuity in the income data.  Thirty years ago, much of the annual corporate earnings, and all of the retained earnings, of business owners would not show up in the IRS personal income data  — it shows up as corporate income, but not personal income.  Today, nearly all of that corporate income of small business owners shows up as regular income on personal tax returns.  Absent any other changes in income trends, business owners as a group will appear to have large increases in taxable income, when in fact economically nothing may have changed save the corporate structures of their businesses.

But the real point I want to make is that all of the retained income and potential investment capital of a small business using S-corps or LLCs (which is nearly everyone nowadays)  shows up on the owner’s personal income tax returns.  Let’s hypothesize an entrepreneur whose S-corp earns $250,000 in profits after-tax.  Let’s say he typically puts $150,000 of that to savings and living expenses, and the other $100,000 is reinvested in the growth and/or productivity of the business.  Now let’s look at proposed increases in upper income tax brackets.  With these higher proposed rates, the business owner will have less than $250,000 in after tax income.  Let’s say it goes down to $220,000.  Odds are that the owner will retain his lifestyle (he will as a minimum still have the same size mortgage and school and other payments).  The slack, then, comes out of the retained earnings.  Essentially, higher taxes result in less investment capital.  In fact, we can see an increased tax rate on wealthier entrepreneurs and business owners could easily result in a dollar for dollar reduction in business investment among small businesses, acknowledged to be the place where most all new jobs are created.

I think readers know that I don’t fully accept the Obama administration’s analysis of this recession.  However, let’s take them at face value for a moment.  They are concerned that savings of average people won’t currently translate into more business investment, as they fear the credit crisis causes banks to hold the savings rather than re-lend it.  If this were the case, then it would mean that as a policy, we would want to preferentially route tax savings to entrepreneurs and business owners who invest their own money directly, because their is no intermediary of a bank to interfere with the process.  But in fact, this is exactly opposite of what the Obama administration is doing through tax policy, instead taking away the investment capital and retained earnings of entrepreneurs through higher taxes.

This is the European-style corporate state in a nutshell.  In Europe, entrepreneurship is made extraordinarily difficult.  This is part of the deal that the political elite have with the largest companies in their countries — we will protect you from potential new competitors, we will bail you out when times get tough, and you in turn will support us politicians.  One only has to look at the turnover of the top 30 companies in the US since 1970 vs. the top 30 in Germany or France to see this at work.  Political turnover is even slower, as an elite group of ministers run the country, almost no matter the party voted in office.  The economy as a whole suffers, but for the top 1000 or so men in power, the system works to protect their position, be it in government or in the largest industries.

And now we bring this system to the US.  Small business owners and entrepreneurs are punished with higher taxes in order to bail out politically powerful but failing companies like GM or Citicorp.  Welcome to America, the new corporate state.

Postscript: A lot of folks erroneously associate corporate states with right-wing governments, and certainly that was the case in Mussolini’s Italy.  But the closest brush the US has ever had with such a system (prior to today) was implemented by leftish FDR via the National Industrial Recovery Act, and governments of both left and right have supported the corporate state approach of France and Germany.  In Britain, it was the left that built the corporate state and the right, under Thatcher, who tore it down.

It has been interesting to watch the reaction to Obama’s mortgage-holder bailout.  Certainly the plan is expensive, likely largely ineffective, and has terrible long-term impacts on incentives.   To my libertarian eyes the plan is awful, but no more awful, and actually less expensive (incredibly!) than other bailouts and legislation pouring out of Washington of late.  Like everything else we are seeing, it is a hair-of-the-dog plan:  fix government over-promotion of home ownership with more government promotion of home ownership;  Fix the fact that individuals are over-leveraged by trying to keep them in their mortgages.

But this issue changes the political map to some extent.  The usual rhetoric about milking one group to help another who are “on the outs by no fault of their own” is just stretched past credulity on this one.  Sure, there are enough folks who were really tricked or scammed in their mortgages to fill up any length of a news segment with tearful anecdotes.  But the 50% of the country that rents or the large percentage of homeowners that didn’t chase around after zero-down house-flipping deals don’t seem to be buying that their tax money is now flowing to innocent victims.

Postscript:  I know there is a tendency to leap onto this “fraud” excuse to help assuage one’s ego.  Yeah, I wasn’t stupid, I was tricked!  Well, I am in some financial tough times, and I will declare it here publicly:  It is all my fault.   I got overly exuberant in expanding the business, and doubled down on my mistake by agreeing to a large financial commitment based on a bank’s loan commitment letter, rather than an actual loan (a commitment letter that was pretty much worthless as the bank went into FDIC receivership).   I have found, by the way, that my banks have been very reasonable about restructuring commitments as long as I come to the table with a plan showing how I intend to pay them back every cent that is theirs  (yes, I said it, it is theirs – it is their money) though just with altered terms and timing.  The good news is that a ebbing tide reveals a lot of rocks, and the business has been vastly improved by the thorough review and restructuring we have put it through of late.

From the WSJ, via Carpe Diem

Isn’t this exactly the type of government policy that helped promote the housing bubble and in turn led to our current recession?

WASHINGTON (AP) — The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama’s recovery plan.

Republicans:  We want to prove we can do stupid, populist sh*t too!

Update: Via TJIC, more hair of the dog:

Fannie Mae, the mortgage-finance company under U.S. government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing.

Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases…

Frequent readers will know that I do not buy into the Keynesian multiplier effect for government spending.  But there is an even better reason why the stimulus bill will never work:   it is simply impossible to break ground on any new government construction project in less than a year.

A year from now, any truly new incremental project in the stimulus bill will still be sitting on some planners desk with unfinished environmental impact assessments, the subject of arguments between multiple government agencies, tied up in court with environmental or NIMBY challenges, snarled in zoning fights, subject to conflicts between state, county, and city governments, or all of the above.  Most of the money will have been spent by planners, bureaucrats, and lawyers, with little to show for in actual facilities.

The couple of exceptions I can think of are:

• The project has already been proceeding for years, and thus is just about to start construction anyway.  Which implies the spending is not incremental and that we are just substituting federal dollars for local dollars in completing local projects, never a good idea.
• It may be possible to get a repair project going faster, but even that is probably impossible.  The contract award process alone can take up to 6 months, and it is probably no accident that federal highway funds are one of the few areas the government budgets multi-year.

To illustrate, let me tell a story.  We operate a marina and campground on a lake in Ventura County, California.  The marina office and store used to be a small floating building attached to the dock and floating on the lake (this is a fairly typical arrangement in small marinas).  The County decided it, for whatever reason, did not like having a floating store building any more, and it wanted the floating building closed and a new modular building put in a corner of the parking lot, on dry land.

So we get a modular building and park it in the parking lot near the dock entrance, as ordered.  Having been required by the county to take these steps, we were subsequently shocked to find that a variety of County offices refused to permit the new structure.  Eventually, it took nearly 4 months and $10,000 in fees to obtain the 8 County permits and approvals we needed to park a trailer in the parking lot.   And this does not include the cost of a fairly senior manager spending half his time chasing down all these approvals.  At one point, the County demanded a soil sample, and so we had to have a company come out and saw into the concrete parking lot to obtain a sample of the soil underneath.  God knows how long it would take to approve new construction on virgin land with water, sewer, etc.

Finally, some of you might be thinking that these government hurdles would be easier for the government itself to clear.  Wrong.  You have never, ever seen a government employee display as much energy as they will muster when they think another government agency is bypassing his or her authority.  I made a presentation a while back to a group of county commissioners in California, and it seems like most of their jobs involve dueling with various state agencies and local governments.

Well, it appears that Democrats who were angry at the cost of the Iraq war (a feeling to which I was always sympathetic) are attempting to even the score by spending approximately the same amount in a single bill.

Looking at the stimulus bill was kind of an odd experience for me.  Despite everything I preach here about politicians, I must have, somewhere in my deep back brain, under the onslaught of cultish media attention, absorbed some small hope that maybe perhaps Obama was really different.   Then I looked at the stimulus bill.  It is all the same crap that various folks have been trying to peddle unsuccessfully for years, repackaged in a hurry-up emergency form to avoid close scrutiny.  This is politics as usual, but even more so.  Jeez, this easily could have come from Tip O’Neal.  Everywhere you look in the bill, it smells. And Republicans are almost going to have to go along because they have pissed away any credibility they have by doing the exact same thing under the guise of TARP.

By the way, if you are confused about Keysian stimulus, here it is in a nutshell:  The economy is contracting some as people deleverage from over-spending and an asset bubble.  I mean, that’s certainly what we are doing in the Coyote den, setting goals for both de-leveraging the business and our household.  But folks are worried, because while this has happened many times, one of those times we had a depression.  So the government does not want you to deleverage.  It wants you to spend and spend.  But it knows you won’t, and that it has not yet accumulated enough power to force you to.  So it will borrow and spend for you.  Government stimulus means that when you are trying to save and reduce debt, government is going to run up debt in your name.

By the way, for those wondering how well this works, the last time we tried it was during the aforementioned depression, and the depression lasted another 8-10 years.