Cuts After Stimulus

Now comes the hard part, making the unpopular spending cuts.  The hundreds of billions of dollars that was shipped out to states to keep them afloat last year is drying up and as budget makers plan for 2011 they are falling short, way short.  It’s impossible to truly measure the effect of the stimulus package but it appears that in many areas it became nothing more than a stopgap solution.  Instead of stopping the bleeding to allow for recovery to begin it appears that it just prolonged the inevitable.

Without federal stimulus money, states are scrambling to pay for big budget items such as education and medicaid.  This means that many jobs are likely to be lost unless something drastic is done and done quickly.  It is estimated that the stimulus package saved 300,000 jobs in the field of education.  Once the federal government is no longer picking up the tab almost all of those jobs, 275,000 of them could be cut.

I’m of two minds on this issue.  I don’t think that cuts in education are a good thing but if states believe that they can achieve the same results by trimming fat, then these are jobs that should have been shed previously to save money.  While the last thing we needed last year was for more people to lose their jobs, this year isn’t exactly any better.  Without stimulus money, states would have been forced to make unpopular decisions and work on balancing their budgets last year. 

I’m not about to suggest what should be cut and what should be saved – that’s why we pay our lawmakers big salaries, we expect them to make the hard decisions.  Every American has had to learn the hard way that we can’t spend more money than we make.  That’s why so many people have had houses foreclosed and bill collectors calling.  The government needs to make the same decision that we can’t borrow our way out of trouble until the next economic boom. 

Of course we haven’t learned our lesson.  There is already talk about sending more money to states so that they don’t have to make the necessary cuts.  This will only teach states that they don’t need to make unpopular decisions and that the federal government will bail them out. 

I’ll be interested to see how this plays out in the coming months.  State budgets have different deadlines but Congress is not going to want to touch this issue until after the November elections.  Any kind of second stimulus is going to give Republicans ammunition to use against what they will categorize as wasteful spending by democrats.

I Feel Like a Genius

I recently made a post about fixing health care.  Part of that included the radical idea that employers don’t pay insurance companies directly any longer but instead insurance is paid for by the government.  It appears that just may happen, not on a universal scale but it occur on a wide scale basis if employers drop employees’ health insurance. 

http://money.cnn.com/2010/05/05/news/companies/dropping_benefits.fortune/index.htm?cnn=yes&hpt=C2  There’s a ton of interesting information in this article including an amusing anecdote about democrats accidentally running across this information and immediately trying to bury it because it shows that the health care bill has the potential to cost massively more than was just estimated. 

Essentially, big companies started doing the math after the health care bill passed.  While the bill requires employers to provide insurance or pay a fine, it turns out that paying the fine amounts to a massive savings.  Employees who are not covered by their companies would be allowed to purchase through exchanges.  Families making $88,000 or less will have their health insurance subsidized by the government. 

The uninsured will still likely have to pay some money out of pocket but most people already pay some amount of their insurance.  It is assumed – and we all know the danger of assuming – that employers can’t just drop health insurance without increasing employees pay.  A relatively modest increase will cover the cost of employees paying for their own insurance.  Employees will still save a bundle of money and there’s a chance that employees will come out ahead as well with the insurance subsidies.

Of course we know that there’s no such thing as a free lunch.  Employers save billions of dollars while hopefully employees at least break even if not come out ahead.  The government picks up the tab to the tune of billions of dollars.  There’s no telling how much it could cost but the article above how some pretty interesting numbers.

By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO.

Only time will tell how this all pans out.  It depends quite greatly on if employers decide to actually opt out of paying for insurance.  It could be good for employees but the tax payer will end up paying for it in the end.  We’ll just have to wait and see if the cost of all of this comes in the form of increased taxes or decreased benefits somewhere down the government chain.

Stimulus a Year Later

Church got cancelled because of snow so I thought I’d chime in here instead. 

We are at the one year anniversary of the stimulus package and there is a lot of talk about it.  Obviously every article that you read on the subject is going to be biased based on whether a person is a democrat or republican.    Democrats claim that the stimulus has created jobs and therefore was a success.  Republicans say that people don’t like it and it increased the deficit significantly so it was a waste of money.  I’d like to offer a different perspective as an independent.

The stimulus package was necessary on account that it gave people hope.  It was passed when the stock market was spiraling downward and many people were scared.  For the time being, people needed to feel as if the government had a handle on things and the stimulus package provided that.  It may have been just as effective with a smaller price tag or could have been more effective if even more money was spent, I don’t know.  The stimulus package gave people hope however and the stock market soon rebounded in March, giving people the impression that things were on the upturn.

People are now turning against the stimulus package because it was not everything that they had hoped for.  It is possible that the stimulus will deliver absolutely everything that President Obama said it would but the American people expected more.  They expected that unemployment would have dropped instead of risen.  And more importantly they expected that the economy would be in better shape overall by this point.

What about actual numbers?  The stimulus passed in 2009 was said to have a hefty price tag of $787 billion.  Recently this price was raised by $75 billion.  To be honest I’m not clear why the price was raised except it seemed as if no one figured in the interest that this would cost us on the deficit. 

The first report that was issued by the government after the third quarter stated that 640,000 jobs had been created or saved as a result of the stimulus.  The reports that were received contained numerous factual errors including many instances where reported congressional districts did not ever exist.  Because of this and other problems, the accuracy of the jobs created was called into question.  The fourth quarter report claims that just under 600,000 jobs were created or saved as a result of the stimulus.  This gives us 1.24 million jobs that have been directly saved or created as a result of the stimulus package.

The Obama administration is touting a number of jobs created between 1.5 and 2 million as a result of indirect jobs created.  The reports only reflect jobs directly created with the money spent.  It is only fair to reason that these additional jobs created causes a need for more supplies, construction equipment, fast food meals, etc.  This indirectly adds to the job total as those companies must have more workers to deal with increased demand.

So far $263.3 billion has been spent of the stimulus money.  Using the most optimistic 2 million jobs number, this means that the cost of each job has been $131,650.  Mind you, this is not salary that has been paid to each worker for a year’s labor but reflects only what has been spent in six months of reports.  When projects are finished and completely paid for, that number will likely rise.  So yes, the stimulus has created jobs as promised.  And yes, the stimulus has come at a tremendous price tag.  One would think that we could create jobs at a much smaller price tag than $131k per job, especially considering that a third of those jobs were indirect jobs with no official government spending.  It also looks like the proposed $5,000 small business incentive to hire workers look like a pittance even at an overall price tag of $33 billion.

Not that a 10% unemployment rate isn’t a big problem for those who are out of work, but 90% of Americans are getting little to nothing for their tax dollars.  I believe that we can provide stimulus and provide lasting value for Americans.  Our infrastructure is crumbling.  Bridges and roadways are in bad repair.  The engineers who inspect these things give our infrastructure a grade of D.  They estimate that it will take $100 billion to repair our infrastructure to where it should be.  I say write the check.  $100 billion to repair our roads will provide real, tangible benefits to everyone as well as lasting value.  It will provide more jobs, even if they are mainly construction and manufacturing ones.  And the price tag seems like a drop in the bucket compared to what has been spent in the last six months and even smaller compared to the overall price that hasn’t even been paid yet.

One final note on all of this government money.  Not that anyone is a fan of big banks these days but they’ve mostly held up their end of the bargain.  Of the $700 billion provided by the Bush administration in TARP funds, only $99 billion is still outstanding.  Granted this is a huge chunk of change and would almost fully fund by proposed infrastructure improvements, it is much better off than the stimulus.  As mentioned earlier, the price of the stimulus package was just raised another $75 billion for a total of $862 billion.  The Obama administration keeps blaming the Bush administration for the current problems.  What is never mentioned is that it was a democratic congress that passed the bills and Bush just signed them into law.  Just comparing the two bills, it appears that Bush was far more financially smart.  That doesn’t account for anything else passed during his watch, just that TARP looks like the better of the two bills right now.