The Obama Stimulus Plan – and Doug Flutie

A few comments on President Obama’s stimulus plan.

1. I hope it works. The logic of the plan is plain. The economy is suffering a slowdown. People and companies are spending less. Therefore, in order to get things going again, government needs to spend more. That will boost economic activity. It will provide jobs. It will get the economy moving.

2. The concern, however, is whether the stimulus plan will really work like it is supposed to. One of President Obama’s own economic advisers has done research that indicates stimulus plans such as the one President Obama is proposing haven’t worked in the past.

3. One of the problems with this kind of stimulus plan is that the money is not spent fast enough. The economy needs spending now, but that is not what tends to happen. In the case of the Obama plan, the Congressional Budget Office has said that, of the money for infrastructure and discretionary spending, less than half will be spent by October 1, 2010; i.e., 20 months from now. Back in the ‘60s and ‘70s, when government was trying to fine-tune the economy, they would pass stimulus packages when the economy slowed down. What tended to happen, though, was that most of the stimulus spending would not kick in until after the economy was already recovering. At that point, the extra spending stimulated the economy too much, so that the government would then try to cool things down. Speed it up, slow it down, speed it up, slow it down. It didn’t work well.

4. Another idea would be for the federal government to give money to state and local governments which are being forced to either raise taxes or cut jobs and spending because of lower tax revenue. Raising taxes in a recession is not a good idea, no matter what level of government does it. Private businesses are already laying people off. It would be really unfortunate if state and local governments have to do it, too. If the federal government could get money to these state and local governments so they could keep their spending up and keep people employed, that would be a big help. Of course, things aren’t that easy. The money couldn’t just go to those state and local governments which would otherwise have to raise taxes or cut spending/jobs. It would have to go to all of them. And once they get used to getting money from Washington, it would be really hard to cut it off, even after the economy got going again. (Remember revenue sharing under President Nixon. It was really hard ending that program.)

5. Maybe a tax cut would help, but it would be better for it to be a permanent thing, not temporary. Also, it ought to be a cut in rates, not just another rebate like last summer. People complain about the banks who got money in the bailout last fall and then did not lend it. Well, many of the people who got the rebates last summer did not spend it. They saved it. Another rebate or other temporary tax cut for individuals would probably result in the same thing. In any case, any kind of a significant tax cut is probably a non-starter given the current political alignment.

6. Actually, however, none of this matters. The stimulus plan is going to pass. It is going to pass because the economy is in terrible shape, and Congress has to do something, and the stimulus plan sounds like a logical idea. (See point #1 above.)

7. In other words, the stimulus plan is sort of like that Boston College–University of Miami football game back in 1986. With just six seconds left in the game, Boston College trailed Miami 45-41. As time ran out, Boston’s quarterback, Doug Flutie, scrambled, eluding Miami tacklers. Finally, in desperation, he threw the ball as far as he could from his own 37-yard line. And the ball came down in the end zone into the hands of a Boston College receiver for an incredible Boston College win, 47 to 45. The play probably shouldn’t have worked, but it was the only thing they could do. They just threw it and prayed.

In final analysis that seems like what the Obama administration is doing with its stimulus plan. Time is short. They have to do something. So they are going to throw a "Hail Mary" pass and hope it works, like Doug Flutie did back in 1986. I hope the stimulus plan works as well for the United States as Doug Flutie’s pass did for Boston College.

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Note: Tyler Cowen at MarginalRevolution.com called the Obama stimulus plan "a kind of Hail Mary pass." (See here.) For more information on the Boston College-Miami game, see here. For a clip of the famous pass, see here.

Update (1/25/09 2:45 p.m.):  Here is the source for the Congresssional Budget Office report mentioned in point #2 above.