In Search of Stimulus on Capitol Hill

While many cautious economists are at pains to point out that the bulk of the funds in the American Recovery and Reinvestment Act -- that is, the stimulus -- have not yet been spent, others are arguing that the economy is significantly weaker than was expected when the bill was passed and a larger fiscal boost should be considered.

Paul Krugman lays out the case for an expanded stimulus today in his New York Times column, for example. Even some within the administration are on board. Just this week, Obama advisor Laura Tyson speculated that the stimulus was too small given the economy's weakness, and new spending, focused on infrastructure, should be considered.

The problem with getting this done is political. Passing a large spending bill was no easy task the first time around. Now, with legislators occupied by health insurance and climate legislation, the administration is sure to be extremely reluctant to devote political capital to contentious fiscal stimulus packages.

Of course, stimulus is stimulus, whether or not it comes in a bill labeled "stimulus." Yesterday, Elana Schor reported on the status of the Senate's version of the energy and climate bill, noting:

This was supposed to be a big week for action on climate change in the Senate -- but it's ending with Republicans rubbing their hands in glee as the Environment and Public Works Committee delays its unveiling of legislation on carbon emissions...

Just two weeks ago, Boxer advised supporters of transportation reform to "work with me on my global warming bill" as she called for a quick rescue of the nation's highway trust fund.

The highway account is expected to run dry in mid-August, sending Congress and the Obama administration scurrying to find $20 billion to keep state-level road projects funded until the end of 2010.

To summarize, the Senator is delaying climate legislation while Congress works to address the highway trust fund's budget shortfall. Addressing the shortfall, in this case, means finding $20 billion in revenue somewhere in the budget.

But wait, you say. Why not simply deficit-fund the gap? That would be an additional $20 billion in stimulative oomph, and it would increase the size of the deficit by a mere 1 percent. What's not to like?

Pay-as-you-go budget rules, also known as PAYGO, would appear to be the reason. Senators can stall any bill that doesn't pay for itself by raising a point of order, and at any rate, the administration seems to be determined to prove its willingness to adhere to such rules.

There is a certain amount of logic to this. The administration doesn't want to earn a reputation as a willy-nilly deficit spender, and it may be concerned about the effect of frequent violation of PAYGO rules on credit markets, which might sour on American debt.

At the same time, it seems absurd to allow funding problems to slow or derail important legislation while simultaneously worrying that current deficits aren't big enough to pull the economy out of recession.

I think markets, and voters, would accept a formulation from the president that the Congress needn't adhere to PAYGO when unemployment is above 9 percent. Instead we get this -- scrupulous attempts to pay for everything on the one hand, and fretting about an insufficient stimulus on the other.