How The “Stimulus” Is Working

It isn’t:

As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.

According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.

This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.

Of course, if the real goal is to promote government at the expense of civil society and to create a one-party state in which business success is based on political favoritism, then the stimulus is working exactly as intended.

Yup. But it’s a misnomer to call it “stimulus.”

[Update mid afternoon]

The “reality-based community” has a collision with reality:

Cohn reports how former CBO director and current OMB chief Peter Orszag pressured careerists to assume sizable savings due to proposed reforms. The problem is the bean counters did not believe the alleged savings were justified according to the available evidence…it is interesting that the reality-based Obama crowd, which promised to roll back the “Republican War on Science” is now arguing against what Cohn calls “a super-strict reading of the evidence.”

Well, there’s science, and then there’s, you know, “scientific socialism.” Or maybe they’re just waging a war on math.

[Update late afternoon]

Wishful thinking, not a plan:

Congress is working on a health-care bill to expand coverage mainly by subsidizing insurance for tens of millions of households. This new entitlement is likely to cost $150 billion per year initially and grow, on a per capita basis, at a rate that is about 2 percentage points above GDP growth each year going forward. In other words, the cost of this new program will rise just as rapidly as Medicare and Medicaid spending has for decades now.

Orszag and others are saying, don’t worry, health-information technology, comparative-effectiveness research, more attention to prevention and wellness, and some very modest provider payment reforms in Medicare will make all of this governmental spending — on Medicare, Medicaid, and the new subsidy program — grow much more slowly in the future than it has in the past.

But this is an assertion — not a fact. Where’s the evidence to back it up?

“Wishful thinking” is a pretty good summary of Democrat policies in general, both domestic and foreign.

27 thoughts on “How The “Stimulus” Is Working

  1. Jim

    Some of the spending is happening now. I had a very smooth drive to a business meeting week before last, thanks to fresh asphalt on Interstate 89 paid for by the ARRA. You can go to recovery dot gov to see how the money is being spent, and how many people are being hired.

  2. Rand Simberg Post author

    Since no one said that “some” of it isn’t being spent now, I’m not sure what your point is. I guess it’s easier to knock down straw men than facts and logic, though.

  3. McGehee

    The whole point of a big-spending stimulus, Jim, was supposed to be that a huge infusion of buying power be injected to the economy in a very short time.

    As has been explained repeatedly since the bill was passed and signed, the overwhelming majority of the funding in the “stimulus” bill won’t even be appropriated until after an unstimulated economy would have recovered anyway.

    Hence…

  4. Dennis Wingo

    The ten year interest rates are spiking on treasuries and since mortgage rates are tied to that, they are moving up as well. If interest rates keep going up, you can kiss any real estate recovery good bye. This is 100% the current government at work, you cannot blame Bush for it.

  5. MG

    And even the CBO, prior to the passing of the “Democrat Patronage Act of 2009″, announced that recovery would likely start in 2H09 without the act.

  6. Teche

    So, after the Interstate is paved, they must tear it up and fix it again, otherwise, what kind of job stability are those new highway workers going to have?

    This is assuming that the interstate wouldn’t have been fixed in the absence of the “Stimulus package”.

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  8. jack lee

    “the overwhelming majority of the funding in the “stimulus” bill won’t even be appropriated”

    The funds were appropriated when the bill was passed.

    What you mean is The majority of the funding won’t be obligated.

    We will see, they are obligating as fast as they can.

    What is messier is that the bulk of the funds then need to be expended.

    There is a fine line between waste and too late to matter.

    Given GDP went down 5.7%, they need to be spending.

  9. McGehee

    The funds were appropriated when the bill was passed.

    You obviously don’t know how appropriations work. First comes the budget, then comes the appropriation. Since most of the spending from the “stimulus” isn’t planned until future fiscal years, there isn’t even a budget in place for those funds.

    Besides, the point of my comment was this:

    …until after an unstimulated economy would have recovered anyway.

    Which I notice you chose not to include in the excerpt so you could try to distract from the real issue.

  10. Jim

    This is assuming that the interstate wouldn’t have been fixed in the absence of the “Stimulus package”.

    Which is the case. The I-89 repaving wasn’t scheduled to happen this year. Having it happen now, when GDP is falling, instead of later, when we (hopefully) will be out of the recession, is exactly how a stimulus is supposed to work, right?

    If all of the ARRA money could be spent this year that’d obviously be preferable. There just weren’t enough projects that were ready to go.

  11. Jim

    As for the question of whether there’s potential for cost savings in Medicare and Medicaid (without compromising quality), click my name to read a fantastic piece by Atul Gawande on health care spending. There is an enormous amount of waste in the current system.

  12. Andy Freeman

    > There is an enormous amount of waste in the current system.

    Yes there is. And yet, it manages to be no more expensive than US govt healthcare.

    Do what you will with the folks currently covered by govt healthcare, including both Medicare and govt employees. When that’s as good as what you’re promising for “universal healthcare”, we’ll talk.

  13. jack lee

    Andy

    The most efficient and high quality health care system in the US is VA.

    Try doing some reading

  14. Karl Hallowell

    Which is the case. The I-89 repaving wasn’t scheduled to happen this year. Having it happen now, when GDP is falling, instead of later, when we (hopefully) will be out of the recession, is exactly how a stimulus is supposed to work, right?

    Why do you keep pushing highway construction? We already know some stimulus money was spent as stimulus. Nobody contests that. You can’t be claiming that fixing I-89 is going to, on its own, regenerate the economy. So what’s the point?

    The most efficient and high quality health care system in the US is VA.

    Two observations. First, the usual way such “efficiency” occurs in the US is by ignoring fraud and waste. A lot of people don’t care as long as “no veteran was deprived of his or her rightful benefits.” Second, what will keep the VA efficient and high quality? My view is that it happened merely because Bush needed additional carrots for troops in Iraq and Afghanistan. The current state of the VA hospitals are temporary.

  15. jack lee

    Karl

    Do you have any data to support your first claim?

    Second VA effeciency actually fell in the later part of the Bush Term, once his minions focused on wrecking VA. VA entered a golden decade between 1995 and 2005 when Clinton’s people instituted a series of improved practices.

    If you would bother reading any of the cited literature you would understand why VA is so efficient, but if you prefer Dogma to reality, just keep ignoring the literature. VA is efficient because they invest up front money into patient preventative care and not into the backside of procedure medicine. VA is effiecient because they have an electronic medical record which allows data mining and prevents loss of medical information. VA is efficient because they use IT the way Walmart uses IT.
    VA uses electronic pharmacy dispensing, one pharmacist supervises 4 dispensaries, everything is computer controlled, the one tech is there to service the machine not count pills.

    VA is efficient because they don’t get money for services dispensing, they get money for care.

  16. Karl Hallowell

    Do you have any data to support your first claim?

    Just observed behavior on things like Social Security, workers comp, unemployment insurance, and the VA.

    Second VA effeciency actually fell in the later part of the Bush Term, once his minions focused on wrecking VA. VA entered a golden decade between 1995 and 2005 when Clinton’s people instituted a series of improved practices.

    I saw no indication at the time of this supposed “golden decade”. It’s only been brought up recently. Maybe the IT stuff and preventative care really did help the VA just as it hypothetically will help universal care.

    If you would bother reading any of the cited literature

    If someone would cite some literature so I can evaluate it, I’d appreciate it. I’ve googled a number of different search strings and haven’t hit any of this alleged literature yet. jack, you seem to just be parroting talking points for the Obama administration. I’d like to see some hard evidence not assertions.

    VA is efficient because they don’t get money for services dispensing, they get money for care.

    Pardon me, but I see no difference in the distinction. If you had said something like “better health consequences”, it might have made sense. But “care” can mean a lot of different things including “services dispensing” or even just being government funded. After all, if I’m cashing healthcare checks from the VA, I must be providing “care” even if I’m not actually doing anything other than scamming the US government.

  17. jack lee

    Karl

    I have cited this article several Times, and had it derided as socialist
    nonsense from the well known leftist business press, so, I know it’s been
    mentioned before

    http://www.businessweek.com/magazine/content/06_29/b3993061.htm

    It discusses in Depth the use of IT by the VA, their use of automation
    and preventiative care.

    Jim Has repeatedly cited this book

    http://www.amazon.com/Best-Care-Anywhere-Health-Better/dp/0977825302

    Now if you don’t want to read the literature, I can only think of the old saying “You can bring a fool data, but you can’t make him think”.

    as for money for providing care versus dispensing services, look at how your doctor bills insurance. A preventative office visit is $50 and a surgical amputation for diabetes complications is $9000 where is the incentive?

    VA has no incentive to do the expensive surgery so they instead invest into preventative care.

  18. Karl Hallowell

    I notice several things. First, the BusinessWeek article confuses prescription accuracy (the VA has an impressive 3 errors in 100,000) with actually filling the right prescribed medication. There’s no indication that the VA does the whole process of prescription much better than private hospitals, though communication between care provider (what appears to me to be covered by prescription accuracy) and drug store should be a big source of error in that process.

    I also note that VA doctors have considerable protection from malpractice lawsuits. That alone may explain the cost difference (around 20%) between the VA hospitals and regular hospitals. The VA lost a large number of patient records in 2006. A private business doing the same thing (on a scale appropriate for the business) would have incurred a considerable liability. Finally, VA doctors get paid less than equivalent doctors in the private world. The article (dating from 2004) claims the difference is around 35% less for VA doctors in a variety of professions.

    As for the book, I will attempt to read it some time. But I find the blather about the VA being the only “evidence-based” health system in the US a turn off.

    So just at a glance, I see several cost advantages to the VA due to its status as a government agency: cheaper labor, lower malpractice costs, and a huge, guaranteed pool of customers. These facts do not mean that the VA is inferior to private care. But I think it significant that they are downplayed even though they are significant advantages that may by themselves more than explain the cost difference between the VA hospitals and equivalent private care.

    as for money for providing care versus dispensing services, look at how your doctor bills insurance. A preventative office visit is $50 and a surgical amputation for diabetes complications is $9000 where is the incentive?

    So what? Virtually all service professionals have similar incentives to increase the quantity and cost of their service. We somehow manage to muddle on despite these perverse incentives.

    The insurance companies on the other hand have incentive to reduce excessive services. By paying a copayment, the customer as well (who ultimately is the one making the decisions) has incentives to consume less health care. If there ever is universal healthcare in the US, I hope there is also a copayment to naturally reduce the demand for excessive consumption of health services from the customers.

  19. jack lee

    “There’s no indication that the VA does the whole process of prescription much better than private hospitals, though communication between care provider”

    You misread. Part of the EMR is that it flags contra-indications, and
    dosing errors. I’ve been doing some research on VISTA, what it looks for
    is ICD codes for illnesses, and cross refs the drugs to the indicated condition. The Database will flag out of reference prescription, and, out of reference dosing. It’s imperfect, but, it’s a big step forward.

    VA does get advantage for malpractice insurance, in that it’s hard to sue the government, but, the fact that VA is able to hire staff, at a lower cost indicates the working conditions offset the reduced paygrades.

    BTW the VA pool is only 5 million patients, that’s only 100,000 per state (A useless average). Aetna and UH and BCBS have far more people in their system.

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  21. Jim

    Do what you will with the folks currently covered by govt healthcare, including both Medicare and govt employees. When that’s as good as what you’re promising for “universal healthcare”, we’ll talk.

    That is a reasonable objection that I haven’t seen much talk about. The great New Yorker piece by Atul Gawande (click my name to read it) is largely about the explosion in Medicare spending in McAllen, Texas. In McAllen the average per-enrollee Medicare spending is $15,000, almost twice the national average. The article goes on to try to pinpoint the reasons for this spending, and the vulnerability of the rest of the country to becoming more like McAllen.

    So one might ask: the government runs Medicare, why doesn’t the Obama administration start by implementing its cost-saving proposals for Medicare? If these great ideas show that they can save Medicare lots of money, then it’ll be easier to extend them to other parts of the health care system. Why start with extending coverage to the currently uninsured?

    Part of the answer is that cost-containment isn’t the only reason for wanting universal healthcare.

    But I suspect (I haven’t heard leading reformers address this question directly) that the other reason is politics. You can’t get 60 votes (or even 50) in the Senate for a Medicare reform that mandates serious cost-containment reforms. As the Clintons found out in 1993, people hate even the false suggestion that the government is going to force them to give up a health insurance arrangement that they are happy with. Telling senior citizens, who have a lot of clout, that you have singled them out as guinea pigs for your new approach to health care, is a political non-starter, regardless of the merits of your proposal. And it isn’t just seniors who would object; the doctors and hospitals in McAllen, Texas are pulling in a lot of Medicare money. If a new Medicare system was effective in reducing ineffective spending, the taxpayers would win and the patients would win but the doctors and hospitals would lose. They would fight such a proposal tooth and nail.

    So if you want to do anything you have to approach it from another angle. Creating a public universal coverage option is such an angle. It would be starting with a blank slate, so it would not be burdened by current practices. Its patients would be people who either don’t have insurance, or choose it because they don’t like their private insurance, and they won’t object to having another option. Doctors and hospitals won’t immediately lose their Medicare and private insurance revenue, and will gain newly-insured patients, so they won’t fight the idea. Private health insurers are the major obstacle, because they see the writing on the wall: over time a cost-effective public option will force them to change their practices in order to stay in business.

    Once you have a public insurance option that implements best practices in delivering quality health outcomes for less money, that becomes a proof-of-concept and incentive for the rest of the system to move in the same direction. That’s how we get system-wide savings, and avert the looming health care spending disaster. Maybe it won’t work; but is there any politically-feasible alternative?

  22. Paul Milenkovic

    “Creating a public universal coverage option is such an angle. It would be starting with a blank slate, so it would not be burdened by current practices. Its patients would be people who either don’t have insurance, or choose it because they don’t like their private insurance, and they won’t object to having another option. Doctors and hospitals won’t immediately lose their Medicare and private insurance revenue, and will gain newly-insured patients, so they won’t fight the idea.”

    That one quote is such a target-rich environment I need to figure out where to begin.

    Medicare is already practicing massive cost containment. Do any of you have any idea how Medicare chisels doctors and other health care providers, reimbursing many services 40 cents on the dollar or less?

    The only reason doctors treat Medicare patients is the same reason why airlines take passengers on deep-discount advanced-purchase non-refundable fares. They have another pool of passengers that they stick with much higher fares. Its called “segmenting the market.”

    What it costs for a doctor to provide a service like a physical exam or a nursing home visit or whatever is perhaps anyone’s guess, much as the “cost” of providing a coach airline seat between point A and point B. But like the spread in airline fares, what a doctor charges for a service probably has little relation to the cost and even less relation to what a doctor collects for that service. Medicare gets a deep discount because they are the 500 pound canary. Private insurance companies with their “networks” and “PPOs” get perhaps a lesser discount. Many self-employed with financial means but without insurance take it on the chin, paying full fare.

    The reason that Medicare putting on the squeeze does not achieve true cost containment is that the costs are shifted on to other groups of patients. The reason for some form of univeral health plan with respect to containing costs is that once everyone is under “Medicare”, the gub’mint can put the squeeze on everyone to produce the result of rationing care, the only way one can put a cap on costs. And no, health care providers are not going to be happy serving all of their patients under the fee caps for Medicare.

    As to the notion of Public Univeral Health Care with an opt-out for private insurance, I suppose that is what they have in England to some extent, and the results are not pretty.

    And the choice is not between Socialized Medicine and Free Markets. What we have right now is heavily socialized (Medicare, health plans of big employers with their market power to get discounts) and the question is whether we want to go the whole hog into full Socialization. I rightly don’t know if there are small reforms to bring the benifits of markets back into the medicine.

    But someone who is suggesting that there are simple, straightforward, and effective answers to what society wants from health care and that these answers would already be in place if it were not for a bunch of stick-in-the-mud Conservatives and the odd Libertarian is a person who does not much know what they are talking about.

  23. jack lee

    “I rightly don’t know if there are small reforms to bring the benifits of markets back into the medicine.”

    Market practices don’t work well in medicine.

    Only Rand Simberg would bargain over price while he’s having a heart attack. A ordinary person who has a heart attack is loaded into a ambulance, is taken to a hospital, signs whatever they shove at them, and focuses hard on breathing.

    consequently, you can’t easily engage in substitution while you are at the ER.

    A fundamental premise for the market is substitution and complementary choice. I can go to the market buy milk by the gallon, the half gallon the quart and the pint. I can opt for Whole Milk, 2%, Skim, Organic, Lactose free and condensed or even powdered milk. If i don’t like the Safeway prices or quality, i can go to the farmers market, the Giant, the Whole foods etc.

    BTW we buy mile 2-3 times per week, so we have an excellent pricing feel.

    Now, when i have gone to the ER, i was injured or in serious pain, I didn’t have a lot of choice, i maybe could have driven to another ER in one case, when I had an arm injury, but when I had an eye injury i could barely see to drive to the closest hospital.

    When I got the bill for the eye injury, i just sucked it up and paid what the insurance didn’t pay. I had no choice in the matter.

    Most medical services you have no choice in the matter.

    I fully Expect Mr Simberg to engage in name calling but I’d like him to explain how the market works in emergency services and to please explain how as a daring Transhumanist he was able to engage in market related functions during a medical emergency.

  24. Andy Freeman

    > The most efficient and high quality health care system in the US is VA.

    Is it as efficient and good as what the universal healthcare folks are promising? If not, why not?

    If it’s so great, why not move all govt employees to it, and the medicare folks while you’re at it? Heck – why aren’t those folks demanding to join?

    Universal healthcare folks have made several promises. Let’s see them deliver using govt employees (state and local included) and dependents as test subjects. When they’re actually delivering better healthcare for 25% less money, we’ll talk.

    And yes, it has to work nationwide.

  25. jack lee

    “f it’s so great, why not move all govt employees to it, and the medicare folks while you’re at it? Heck – why aren’t those folks demanding to join?”

    not a bad idea do you think the Vets would mind sharing?

    Andy you sign up Limbaugh and the GOP for this experiment.

  26. twistedelm

    I live in a town that is very depressed. Two large plants have closed and moved to North Carolina. If you have a job-keep it. Many here are job-less. Why is it always a political partys fault if something doesnt go as planned? People here have been depressed for 5 years. We are sort of use to it. I heard that our town is going to hire some workers to repoint an historic building-because of the stimulus package. People in some citys dont know how to live on nearly nothing /usually. I support the stimulus package.

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