I think Matt is incorrect, for two reasons. First, it's not surprising that loan guarantees have a relatively large bang-for-buck, because if you get the criteria right, they're very cheap: since you only have to pay off if the loans go bad, you can move a lot of money if the default rate stays low.
However. Since my worry is that the administration, in its rush to move these loans, may have flubbed the underwriting, then the CBO's multipliers for this program will be wrong. That's no aspersion on the CBO--they have to assume that the administration will get the default rate correct, since they can't personally analyze the credit quality of loans which haven't been made yet.
More fundamentally, Matt is misunderstanding what I mean when I say that these initiatives "don't make good stimulus". Good stimulus is not simply a matter of multipliers; it is also a matter of speed. And projects like infrastructure and underwriting simply take time. In an economic crisis, you're better off with a lower multiplier that moves quickly, than a higher multiplier which doesn't.
I wrote about this problem two years ago:
It is a commonplace among conservatives that liberals just want to spend government money, as much as possible on almost anything they can find. This is, of course, not true. Liberals want to spend money on projects that they think will be more valuable than the equivalent usage in the private sector.As it turns out, I may have been wrong; the administration may have chosen to sacrifice "good" instead of "fast", at least in this case. Matt's arguments about why this made good stimulus strike me as all wrong if you control for quality:
This is presenting some problems now that the actual aim should, by the theory of Keynesian stimulus, to spend money as fast as possible on almost anything you can find.
It is very obvious, now that we have the stimulus plans, that the Democrats are using stimulus as an excuse to spend money on things they want to spend money on. Their demand for things like alternative energy programs is inelastic; it's just that it happens, right now, to be convenient to bill them as stimulus.
The problem is, that contra the Republicans, Democrats do care that money spent on these important projects is spent well. And spending a lot of money well takes time. It's an inversion of the old engineering aphorism: good. fast. expensive. You can only have two of the three.
There's no mystery as to why Democrats wanted the DOE loan guarantees in the ARRA. These were "shovel-ready" projects; the corporations involved were ready to spend the money quickly. Unlike tax cuts, there was no chance, for obvious reasons, that the loans would simply be pocketed as savings by the recipients.The whole question is whether this project was "shovel ready" or indeed ready for anything but the circular file. It's true that we should be ready to accept projects with a lower multiplier if it moves the money quickly, but we should aim to avoid projects which simply incinerate hundreds of millions of dollars.
I would far rather we'd simply put this cash in citizen hands and had them save it--in the process, cleaning up household balance sheets and letting us return to stable growth more quickly--than that we'd poured it into a solar cell process which apparently required permanently high prices of a mineral commodity in order to break even. I know Keynes suggested that we could pay people to dig holes and fill them up again, but honestly, I think we can do better than that.
This project should not have been wrapped up into ARRA because ARRA's top priority was moving money as quickly as possible--and the loan guarantee program's priority should have been to move money as carefully as possible. It seems likely from the emails uncovered by the House committee that once stimulus funds got involved, caution started falling by the wayside. Instead, the Democrats used stimulus as an excuse for passing their wish list, which slowed the stimulus, and seems to have lowered the quality their wish list could deliver.
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