Why Wasn't the Stimulus All About Job Creation?

In early 2009, the administration was faced with a difficult choice as it constructed the $800 billion stimulus. Do we spend fast to stop the bleeding or spend slow to build the country? The White House answered the multiple choice question with a yes.

The American Recovery and Reinvestment Act has a dual mandate that is made explicit in the title. Some money is for short-term recovery. Some money is for long-term investment. One-sixth of it, to be approximate, is earmarked for forward-looking contracts, grants and loans to make the economy smarter, greener, newer.

Is that dual mandate smart? Should a stimulus passed in the nadir of a recession -- one that was too small already -- set aside 16 percent of its funds for government investments in unsure emerging industries? Michael Grunwald, in a very fine piece for TIME, says yes. I'm not so sure.

It's a risk to divide your money between both short-term shovel ready projects and long-term investments. Government had a tendency to over-fund some bad projects that happened to be around shovels, and under-fund some smart long-term projects that needed more seed capital.

Consider high-speed rail. The three metro areas with the most promising HSR potential are concentrated in Florida, Southern California and the Northeast corridor. But the $8 billion set aside for fast trains in the Recovery Act is being spread like peanut butter across 29 states around the country. "Under the reinvestment part we have to make transformational transportation benefits, while the recovery part demands of us to quickly create jobs," Joseph Szabo of the Federal Railroad Administration admitted to me. That's why millions are going to regular old Amtrak updates rather than high-speed systems.

I'm hopeful that ARRA reinvestment changes the landscape of U.S. infrastructure and eco-friendly industry. But I'm ambivalent about the news that the Recovery Act waited to sprinkle the economy with transformational dollars for two reasons. First, government historically stinks at picking winners and losers in the economy (Grunwald addresses this) and a carbon price would better signal "Go Green" to the private sector.

Second, and more importantly, this economy stinks. Our monetary policy ammunition might be shot, Congress has decided that they're tired of parsing spending bills, the IMF is projecting 9 percent unemployment for another year, and here's Joe Biden all giddy that a sixth of the stimulus has been on ice for 19 months. "Fun stuff," huh.