Cash for Clunkers: P.J. O'Rourke Told You So

“You are going to be amazed at the number of clunkers in this country if you’re getting cash for clunkers," prophesied P. J. O’Rourke when he spoke at The Commonwealth Club on June 11. "You think there are a lot of clunkers now? I mean, I mow my lawn and I can find three. They’re going to be coming out of the woodwork, from under every deck, from behind every barn.”

And yesterday, less than a week after the Cash for Clunkers program began, there were talks in Congress of suspending the program because it had become too popular, using up its allocated $1 billion much more quickly than expected. But the program is still going strong after the U.S. House of Representatives voted today to give an emergency $2 billion to the program.

The program offers people up to $4,500 in rebates if they trade in their gas-guzzler for a more efficient vehicle. However, the real goal behind this legislation was not to help the environment, but rather to boost the struggling auto industry. Whether the program’s allocated budget is used up in 6 days or 6 months, the goal is still reached. So it seems the focus should be less on suspending a flawed program than figuring out how to fund a successful one.

Maybe Congress could invite O’Rourke to join the discussion, since he seems to enjoy talking about the number of clunkers out there. “I’ll bet people will be smuggling clunkers across the Mexican border,” O’Rourke told The Club, “and I know they have a lot of clunkers in Mexico.”

--By Camille Koué

Stimulating Transportation

California has about $1 trillion in infrastructure maintenance needs. So what good can just under $1 billion in federal transportation stimulus funding do for the state?

A lot, according to speakers at a special Commonwealth Club program today on "Transportation and the Stimulus." Tens of thousands of jobs are at stake, with the multiplier effect from their salaries spreading out throughout the state, according to the panel.

The panel discussion, underwritten by AAA of Northern California, Nevada and Utah, and moderated by San Francisco Chronicle transportation reporter Michael Cabanatuan, featured speakers Randell "Randy" Iwasaki, the incoming director of the California Department of Transportation; Joseph Cruz, director of transportation policy and government affairs at The California Alliance for Jobs; and Sean Randolph, president and CEO of the Bay Area Council Economic Institute.

"The Recovery Act couldn't come at a better time for California," said Iwasaki, noting that the roughly $910 million will help the state leverage funds already dedicated to transportation infrastructure on projects large and small. "When the contractor gets the money, ... that's when the rubber meets the road" in terms of job creation by the stimulus, he said.

Randolph noted that the stimulus effect is likely to be muted in 2009, due to the time it takes to choose worthy projects and get them going. "Most of the spending will be in 2010, trailing off into 2011," he said.

"There are very few projects that are 'shovel-ready,'" said Iwasaki, referring to the desired status of projects that would be able to bring the stimulus effect online as soon as possible. He said there's a complex process involved with choosing the project, including where it is located, how many jobs will it create, and what the criteria are from other funding sources.

But even if that stimulus doesn't really get felt until next year, the impact could affect many California families. Cruz estimated that this spending could support 40,000 jobs in the state, and he argued that projects should be chosen that use California-made and -sited project (as opposed to, for example, buying city buses that are manufactured in Detroit).

On a more somber note, Cruz noted that the state will have to be careful how it manages projects that use a combination of federal funds and state taxpayer-approved bond financing. "Our bond rating was downgraded to just above junk status," he noted. That means that the timing of the spend could be crucial, because when California has to go back to the bond markets to sell its next round of transportation bonds, it will be paying a much higher interest rate.

Economy Already a Hot Topic for 2010

The politics over the stimulus plan and its near-unanimous rejection by congressional Republicans is already taking center stage for the drama that will be the 2010 mid-term elections. Robert Reich wrote an interesting blog posting this week exploring the reasons why Republicans will not have a thing to do with the proposal.

Republicans don't want their fingerprints on the stimulus bill or the next bank bailout because they plan to make the midterm election of 2010 a national referendum on Barack Obama's handling of the economy. They know that by then the economy will still appear sufficiently weak that they can dub the entire Obama effort a failure -- even if the economy would have been far worse without it, even if the economy is beginning to turn around.

During two votes in the U.S. House of Representatives, no Republican backed either version of the stimulus. It took a few centrist-leaning Northeastern Republicans to win passage by a single vote in the Senate. A Reuters story yesterday implied that President Obama's rival Sen. John McCain was portraying the nascent administration as adverse to bipartisanship and characterized the plan by saying, "I think that the majority of people understand that this was generational theft." Democrats, conversely, begin to complain that the bill was too bipartisan -- even without GOP cooperation. In an interview with conservative newsweekly NewsMax, the leader of 1994's "Contract with America" Newt Gingrich said he "absolutely" sees a connection between when Republicans took over the House and 2010.

Irwin M. Stelzer imparts these talking points while writing in The Weekly Standard and illustrates this point by saying that Obama "now owns the recession." By pegging the troubled economy solely on Obama, these critics may believe that the president cannot possibly make in-roads in quite enough time for congressional elections next year.

He has asked to be judged by whether this bill and other measures he will propose create or "save" 3.5-to-4 million jobs, the number lost so far since unemployment turned up. Forget "save" -- if unemployment keeps rising, voters are not likely to rally around the slogan "It would be still worse if I hadn't spent your trillions." What the President has done is to promise what he certainly can't deliver in time for the congressional elections next year -- a reversal of job destruction, and millions of new jobs, said Stelzer.

When it's all said and done, it's still all about the economy, stupid, as Bill Clinton's campaign declared in 1992. How President Obama, congressional Democrats and the Republican opposition react to that in 2009 will be a tale we're likely to hear a lot about in 2010.

--Steven Tavares

Some Economists Fears that Stimulus Bill Is too Small

President Obama will likely sign a stimulus bill this week roughly the same size he initially offered, but wholly different in composition. Some like Robert Reich and New York Times columnist Paul Krugman never thought it was large enough in the first place, and the watered down bill is furthering their anxiety. Krugman wrote last week:

And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.

During a speech last month at The Commonwealth Club of California, former Labor Secretary Robert Reich reiterated his belief that the stimulus bill should be over $900 billion or more over the next two years. On his blog he wrote this week:

But what if the stimulus isn't big enough? (I fear it won't be, given the large and growing gap between what the economy can produce at near full-employment and the meager demand coming from consumers and businesses.) And what if the bailout doesn't quite work? (It may not, given that the banking system is collapsing and many banks are actually insolvent.) The economy in November of 2010 may be worse than it is now, with no turnaround in sight.

Reich also predicted during his Commonwealth Club address that President Obama might bargain with Republicans to win votes in a bipartisan fashion. This indeed occurred, and the nearly across-the-board rejection by Republicans of the plan has rankled many Democrats. Joan Walsh at Salon wrote today about President Obama, "He better have learned that Washington bipartisanship is dead." Even the president's chief of staff, Rahm Emmanuel, admitted that working with congressional Republicans who were dead set against the bill was a mistake. Not surprisingly, the editors at the conservative National Review declared President Obama's economic plan already has a ring of "no-confidence" surrounding it.

--Steven Tavares

Is the National Review correct in its description of the state of Obama's economic plan? What do you think about economists' Reich and Krugman arguing that the stimulus is actually too small? Leave a comment and join the discussion.