The anti-stimulus crowd is getting desperate. The possibility that a young charismatic new president will push through an ambitious package that begins to set the economy right is truly terrifying to this crew. After all, if the economy begins to turn around and has largely recovered in three or four years, the Republican leadership can look forward to spending most of their careers in the political wilderness.
President Obama will cakewalk to re-election, and even his designated successor will be able to benefit from the glow of his success. If the New Deal serves as precedent, Congress will stay in Democratic hands long past the time that the current leaders of the Republican Party start collecting their pensions.
This explains the need that many Republicans feel to block the stimulus package. This desperation led them to fabricate a report from the Congressional Budget Office (CBO), which purportedly showed that most of the stimulus would not be spent in 2009, or even in 2010. Based on this report, they argued that President Obama's stimulus would do little to boost the economy out of recession. The Republicans managed to get a story to this effect in The Washington Post, in addition to extensive coverage in other major news outlets.
The only problem is that there was no CBO report. The CBO had done some very preliminary analysis of a package that was loosely modeled on a portion of President Obama's program. This preliminary analysis was done at the request of members of Congress to give them what was available at the time. It was not a full analysis that had gone through the CBO's normal review process, and was not posted on its web site where it could be assessed by budget analysts and the general public.
In short, this analysis was clearly not ready for prime time. But, when you're as desperate as the Republican leadership, you take what you can get. Unfortunately, many in the media got taken by this ploy and now have egg on their face as well.
The CBO will produce an analysis this week that examines the most recent version of the full stimulus bill. This analysis will provide a much more serious basis for assessing the proposals than the CBO "report" invented by the Republican leadership. It will provide a full analysis of the proposal, including an explanation of the methodology that the CBO used in its calculations.
In this respect, it is important to caution against one possible limitation of the CBO methodology. The CBO typically relies on rules of thumb in calculating spendout rates for types of projects.
For example, as a rule of thumb, the spending for highways in the first year after an appropriation may be just a small percentage of the total cost of the highway, with spending in the second year being a little bit higher. It takes time to plan a highway and to bid out contracts. Based on analysis of the time between the passage of appropriations and the actual spending, the CBO can project the time period over which a wide range of appropriations will actually be spent.
However, these rules of thumbs are likely to understate the spendout rate for the projects chosen as part of the stimulus package. These projects are being selected specifically because they are ready to go, with plans already in hand and contracts ready to be submitted for bids.
Furthermore, because of the severity of the economic downturn, contractors are likely to be able to move much more quickly than would usually be the case. Typically, contractors will have to find time to fit a government project in their queue of other work. With the sharp downturn in the construction sector, there are likely to be plenty of contractors who are ready to move almost immediately after a contract is signed.
Finally, the bill threatens state and local governments with the loss of funding if they do not move quickly to spend any money appropriated. For these reasons, the CBO's rules of thumb on spendout rates may substantially understate the amount of spending that will be carried through in the next two years.
The Republicans have raised a serious issue in questioning the rate at which the stimulus will be spent. The plan should be scrutinized to determine if there are not ways to get money into the economy more quickly. But this effort requires looking at evidence and data, not invented CBO reports.