In December 2009, the House of Representatives passed a $154 billion stimulus bill (see above). It would extend unemployment insurance, offer states a crutch for Medicaid spending, and block a wonky pay cut for physicians accepting Medicare patients. Three months later, the Senate passed its own version of the bill, costing about $140 billion. But something funny happened on the way to reconciliation: concerns about the deficit went up, and the stimulus price tag went down.
Like fruits left out on the porch, the jobs bill has done nothing but shrivel up over the summer. Yesterday's vote fail was only the latest wrinkle to form in this raisin of a stimulus package. Summing up the shrinking:
-- $24 billion in Medicaid funding for states has disappeared in the House version.
-- Insurance assistance for the jobless has gone on the chopping block.
-- Unemployment insurance (UI) got whittled down by 25 bucks a week.
-- The Medicare fix was reduced from 19 months to 6 months (a totally cosmetic change, since the pay cuts will likely be voided in November, as well).
-- A $23 billion rescue fund for states and teachers remains in limbo.
The Atlantic's Graeme Wood once said that using geo-engineering to fight global warming was like fighting obesity with a corset and a diet of lard and doughnuts. Unemployment benefits and the Medicaid crutch are vegetables, not lard, for the economy. But the efforts among Republicans to demonstrate fiscal restraint by withholding UI, health insurance and state aid is the equivalent of wearing a bodice to get thinner. We're not in financial trouble because of a bill that could add a couple dozen billion to the budget over ten years to save state jobs. We're in trouble because we're several percentage points of GDP in the hole for the next decade, while Washington suffers from the kind of short-sightedness that should qualify as legal blindness.
But to grow in the next decade, prices and wages will have to rise, and today, the country is teetering on the edge of deflation. Private employment is slowing. Corporations are hoarding cash due to concerns about liquidity and aggregate demand. States are cutting back even more than the federal government is proposing to spend in the new stimulus bill.
There are no guarantees in crisis economics. But as Daniel Gross points out, you can't very well contract yourself to growth, and our unemploymed citizens and underpaid states need help. This isn't a perfect bill, but it's a bill worth passing before it withers any further into the summer.