SOME REAL EXPERTISE

Posted at 7:58 a.m. ET:

Conservative Harvard economist Martin Feldstein (a contradiction in terms) launches a direct frontal assault on the stimulus plan.  It's always nice to read someone who actually understands the situation.  Feldstein, who was chief economic adviser to Ronald Reagan, hits one bulls-eye after another in demanding that the huge package be radically altered:

In its current form, it does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that's what it takes to produce a much better bill. We cannot afford an $800 billion mistake.

And...

...the tax changes should focus on providing incentives to households and businesses to increase current spending. Why not a temporary refundable tax credit to households that purchase cars or other major consumer durables, analogous to the investment tax credit for businesses? Or a temporary tax credit for home improvements? In that way, the same total tax reduction could produce much more spending and employment.

And...

Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs. Has anyone gone through the (long) list of proposed appropriations and asked how many jobs each would create per dollar of increased national debt?

And...

The largest proposed outlays amount to just writing unrestricted checks to state governments...

...The plan to finance health insurance premiums for the unemployed would actually increase unemployment by giving employers an incentive to lay off workers rather than pay health premiums during a time of weak demand.

Do you get the feeling the Republicans were right to reject this package?

If rapid spending on things that need to be done is a criterion of choice, the plan should include higher defense outlays, including replacing and repairing supplies and equipment, needed after five years of fighting. The military can increase its level of procurement very rapidly. Yet the proposed spending plan includes less than $5 billion for defense, only about one-half of 1 percent of the total package.

It's World War II that got us out of the Depression.  No one wants war, but defense spending is a great economic stimulant.  However, when the left writes a stimulus package, defense is at the end of the list.  Not too popular in Manhattan or Beverly Hills.

In addition, a temporary increase in military recruiting and training would reduce unemployment directly, create a more skilled civilian workforce and expand the military reserves.

Can you imagine the reaction of the Daily Kos and the Huffington Post?

The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit. It is worth taking the time to get it right.

Wisdom, wisdom.  But will the pork-crazed Democratic congress listen?  Bets anyone?

January 29, 2009.