Brzezinski suggests "welfare" provisions in stimulus bill don't stimulate the economy -- economists disagree

During the January 30 edition of MSNBC's Morning Joe, co-host Mika Brzezinski suggested that funding for "welfare programs" included in the American Recovery and Reinvestment Act would not stimulate the economy. Brzezinski did not specify what she meant by "welfare programs." However, economists -- including Congressional Budget Office (CBO) director Douglas W. Elmendorf and Mark Zandi, the chief economist and co-founder of Moody's Economy.com, who was reportedly a McCain campaign economic adviser -- have stated that, in Zandi's words, "aid to financially-pressed state governments" is an "economically potent stimulus." H.R.1, the House economic recovery bill, includes provisions that provide such aid to states, including additional federal matching funds for Medicaid and the creation of an "Emergency Contingency Fund for State Temporary Assistance for Needy Families Programs." Similarly, economists have stated that, in Elmendorf's words "[t]ransfers to persons" -- such as provisions in the bill that extend food stamps and unemployment insurance payments -- "would also have a significant impact on GDP."

On Morning Joe, Brzezinski asserted: "The stimulus plan: How much of it is welfare? How much of it is programs that have nothing to do with stimulating the economy?" Later, Brzezinski said: "I want to look at the plan and how much of it is sort of welfare programs and how much are things that we know, either from history or because economic experts somehow know this, actually stimulates the economy." CNBC Fast Money anchor Dylan Ratigan responded in part: "If we're going to propose a stimulus bill to the American people that borrows money we don't have from dollar number one, the least we can do is have everything be stimulus." Brzezinski later stated: "I mean, if you're gonna have welfare programs in this bill, call them welfare programs and pass them, but don't call them facets of the bill meant to stimulate the economy. I do feel like there's some old politics at play here."

According to a table Zandi included with his written July 24, 2008, testimony before the House Committee on Small Business, "General Aid to State Governments" would boost real GDP by $1.36 for every dollar spent, while "Extending UI [unemployment insurance] Benefits" and providing a "Temporary Increase in Food Stamps" would increase real GDP by $1.64 and $1.73 per dollar spent, respectfully:

Transfers to states

Regarding transfers to states, in his January 27 written testimony before the House Budget Committee, Elmendorf stated:

Grants to state and local governments (such as increased assistance for education) might not increase state spending for the programs designated in the grants but, instead, might free up funds that the states would otherwise spend on those programs. States could use those extra funds in a variety of ways: direct purchases of goods and services (or smaller cuts in such purchases), tax cuts (or smaller tax increases), transfer payments, or reduced borrowing. The impact of grants therefore would depend on how states used them.

Zandi also testified to the benefits of providing aid to state governments, specifically in the form of expanding Medicaid funds:

Another economically potent stimulus is aid to financially-pressed state governments. This could take the form of general aid or a temporary increase in the Medicaid matching rate, to help ease the costs of health coverage. Such help appears unlikely in the current stimulus plan, but this could quickly change in coming weeks if the economy's problems grow more severe and widespread as the legislation is being fashioned.

Fiscal problems have already developed in half the nation's states. Tax revenue growth has slowed sharply with flagging retail sales and corporate profits. Income tax receipts are also sure to suffer as the job market weakens. California and Florida are under the most financial pressure, but states as far-flung as Arizona, Minnesota, and Maryland are also struggling.

As most state governments are required by their constitutions to quickly eliminate their deficits, most are already drawing up plans to cut funding for programs ranging from health care to education and cutting grants to local government. Local governments are having their own financial problems; most rely on property-tax revenues, which are slumping with house prices. Cuts in state and local government outlays are sure to become a substantial drag on the economy later this year and into 2009.

Additionally, the Center for Budget and Policy Priorities' (CBPP) Iris J. Lav and Nicholas Johnson concluded in a January 29 report that "[b]ecause nearly all states are required to balance their budgets, states have begun to cut expenditures and raise taxes -- both of which create a drag on the economy and threaten to counteract part of the intended federal economic stimulus" and noted that "[t]he House economic recovery package recognizes this fact and includes substantial assistance for states."

Transfers to individuals

Regarding transfers to individuals, in his testimony, Elmendorf stated that "[t]ransfers to persons (for example, unemployment insurance and nutrition assistance) would also have a significant impact on GDP." He added, "Because a large amount of such spending can occur quickly, transfers would have a significant impact on GDP by early 2010. Transfers also include refundable tax credits, which have an impact similar to that of a temporary tax cut." Similarly, in his testimony, Zandi stated that "extending food stamps are [sic] the most effective ways to prime the economy's pump." Zandi further explained, "People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks. These programs are also already operating, and a benefit increase can be quickly delivered to recipients."

CBPP has also concluded that increasing unemployment benefits would have a simulative effect on the economy. Sharon Parrott, director of CBPP's Welfare Reform and Income Support Division, wrote on January 27: "Both the House and Senate recovery packages include a $25 per week temporary increase in unemployment insurance benefits. Economists, including Mark Zandi of Moody's Economy.com, routinely rate increased unemployment benefits as among the most simulative provisions under consideration. Zandi estimates that every dollar spent on increased unemployment benefits increases economic activity by $1.63." CBPP also stated in a January 21 analysis of the Senate's economic recovery package that "[f]ood stamps are one of the most effective forms of economic stimulus because low-income individuals generally spend their available resources on meeting their daily needs, such as shelter, food, and transportation."

From the January 30 edition of MSNBC's Morning Joe:

BRZEZINSKI: I want to tee up our next couple of blocks. Look at this headline -- and this is about where we're headed in terms of our economy, and it's not looking good at all. Washington Post. The stimulus plan: How much of it is welfare? How much of it is programs that have nothing to do with stimulating the economy? And how sure are we that this plan, that apparently no Republicans in Congress support, is going to get us from point A to point B?

[...]

BRZEZINSKI: I want to look at the plan and how much of it is sort of welfare programs and how much are things that we know, either from history or because economic experts somehow know this, actually stimulates the economy. Can you look that up for me?

RATIGAN: And I would say if I can't explain and if we can't explain to everybody why something would stimulate the economy --

BRZEZINSKI: Yes.

RATIGAN: -- then I'm not sure if it stimulates the economy.

BRZEZINSKI: I'm a little concerned. I'm a little concerned, I have to say.

RATIGAN: You should be.

[...]

BRZEZINSKI: I mean, the bottom line is, though, is this deceptive advertising when you look at the different welfare programs that are getting pushed through here?

RATIGAN: Yeah, I think --

BRZEZINSKI: I mean, come on.

RATIGAN: -- that the Democrats would do themselves a tremendous favor to not try to put spending programs in when we're dealing with a stimulus bill. There is a -- there are four years ahead to talk about spending. If we're going to propose a stimulus bill to the American people that borrows money we don't have from dollar number one, the least we can do is have everything be stimulus.

BRZEZINSKI: All right.

JOHN HARWOOD (CNBC chief Washington correspondent): But, guys, don't forget that a lot of that spending is stuff that government can put out the door quickly. There are some job aspects to that, which is the jobs of teachers, cops, state workers who otherwise would be laid off and make the recession worse, but there's -- it's also a fact that government can spend it more quickly. Now, there's an issue about which kinds of spending have more simulative effect --

RATIGAN: Exactly. Yeah.

HARWOOD: -- and I think they're going to look to fine-tune that package, and there's some legitimate criticism of the existing package, but don't assume that just because it looks like an existing government spending program that it's not going to have some simulative effect.

BRZEZINSKI: Well, I mean, I hope it does, that's for sure. But John Ridley, chime in. What's your take on this? Because, I mean, if you're gonna have welfare programs in this bill, call them welfare programs and pass them, but don't call them facets of the bill meant to stimulate the economy. I do feel like there's some old politics at play here.