Obama economic plan has safety net

A big part of President-elect Barack Obama’s economic stimulus plan that hasn’t received as much attention as its job-creating infrastructure spending will pour billions of dollars into welfare programs for low-income people and help states balance their budgets.

Though the chief focus of the massive spending package - estimated at $850 billion - has been on giving the economy “a jolt” by spending nearly half of it on repairing roads, bridges, rapid-transit lines and run-down schools and on other long-delayed public-works projects, the president-elect’s plan also calls for large social-safety-net and bailout expenditures for local governments, even though those outlays would not necessarily create new jobs.

At least $100 billion would be spent to shore up depleted funding for state Medicaid programs that provide health care for the poor. Billions more would be directed to food stamps and other welfare benefits for low-income workers, plus an extension of jobless-income benefits for the nation’s mounting unemployment rolls.

Perhaps the next-biggest chunk of assistance money, between $50 billion and $100 billion, would be in the form of large block grants to the states and funds for local governments to maintain public services and prevent budget-cutting layoffs and tax increases. Though critics of Mr. Obama’s stimulus plan support its social-welfare spending as the economy plunges into a deep recession, they say it will do nothing to spur economic growth.

“Assistance to households facing economic hardship can and should be given, but policies that provide such assistance shouldn’t be confused with policies that will help turn the economy around,” said Stanford University economist John Cogan.

The plan is described as a “work in progress” that Mr. Obama’s economic transition team hopes to have ready before the end of the month, though large chunks of it remain undefined, including Mr. Obama’s promised tax cuts for low-to-middle-income Americans. Some Democrats said last week that there was growing talk of a cut in the payroll tax, which hits lower and middle incomes the hardest.

Members of Mr. Obama’s team have been meeting with Democratic allies in Congress in a conference room in the basement of the Capitol to engage lawmakers in the plan’s design, but there have been increasing concerns among conservative Democrats about the stimulus bill’s impact on the deficit and how long it will take to get so much money into the economy’s income arteries.

“There are things that can be done quickly, but infrastructure spending is the hardest,” said Alice Rivlin, a Brookings Institution economist and former White House budget director in the Clinton administration.

“Increasing the Medicare match and food stamps are things that can be done immediately, but infrastructure is harder because most infrastructure has to be planned and designed by engineers, and it takes quite awhile, depending on what it is,” Ms. Rivlin said in an interview.

“If you are building a highway, it could take years. That doesn’t mean it’s not a good thing to do, but the experience of infrastructure stimulus is that it takes a long time for the spending to start,” she said.

“Now this recession will be serious and probably take a long time, so that argument is probably less relevant at the moment.”

Still, she advised Mr. Obama’s economic team to choose public projects carefully and “spend it wisely. There’s certainly other kinds of infrastructure that can be done more quickly, repairs to highways and schools. Lots of governors and mayors have lists of projects that, if they had the money, can be done quite quickly.”

However, it’s the price tag of those encyclopedic lists of public-works projects that has conservative, Blue Dog Democrats in the House demanding that the stimulus bill include measures to rein in the mounting deficits, which could exceed $1 trillion next year as a result of Mr. Obama’s new stimulus spending.

Last week, Blue Dog Democratic Reps. Jim Cooper of Tennessee and Ron Kind of Wisconsin proposed that the stimulus package call for the creation of a commission to recommend steps to shrink the government’s long-term liabilities.

Mr. Cooper, who sits on the House Budget Committee, told the Hill newspaper that a “fiscal cancer” was eating away at the country’s financial foundations and a commission to deal with it was the “chemotherapy.”

However, the stimulus plan’s emerging infrastructure expenditures, swallowing up nearly $400 billion of the entire package, remain the overriding focus of Mr. Obama’s strategy to get the economy growing again. They will be put on a fast track in the new Democratic Congress next month, with heavy lobbying by the nation’s governors and mayors. All of them want a piece of the massive money bill Mr. Obama’s advisers fear will be turned into a “Christmas tree,” bearing more projects than the president-elect wants or thinks the country needs.

Critics have bombarded Web sites and Washington reporters with broadsides warning against stimulus bills they say never worked in the past and wouldn’t work now.

“Just like Keynesian economics, electroshock therapy was first introduced in the 1930s and then gained widespread use in the 1940s,” the Heritage Foundation said in an analysis titled “Electroshock Therapy We Don’t Believe In.”

“Now President-elect Barack Obama, ’anxious to jolt the economy back to life,’ is considering a federal stimulus package that could reach a whopping $1 trillion. Now that is a shocking number,” Heritage said.

“Problem is, there is just no academic or real-world evidence to suggest such a massive ’shock’ would be healthy for the U.S. economy,” the conservative think tank said.