Clinton versus Obama, Stimulus Package Showdown

With the Democratic primary in full swing Senators Clinton and Obama have served up competing fiscal stimulus plans. Given my posting last week on fiscal stimuli, I thought a rough and ready analysis of their plans might be in order.

To begin, both their plans are roughly the same size, $70 billion and $75 billion for Clinton and Obama respectively. On the scale of things, $5 billion is not going to make a huge difference but it should be noted that they are both short of the $100 billion target proposed by Brookings panelist, on Wednesday (see below).

Round 1. Both the plans also contain $10 billion for an extension for unemployment insurance, an issue that the Brookings panelists were split on. Zandi of Moody's Economy.com advocated the extension as a way to put money in the pockets of the unemployed (and thus support consumer spending) and Feldstein of Harvard opposed it because most workers tend to get a job of some sort when their benefits are close to running out. The real issue is whether the extension goes into a recovering economy, thus disincentivizing the unemployed from looking for available jobs. So, a debatable policy, depending on where you think the economy is going, but since they both
support it let's call it a tie.

Round 2. Both also take aim at the housing crisis. Clinton with a $30 billion fund to forestall foreclosures and help states and cities with associated costs, and Obama with a $10 billion fund for foreclosures and $10 billion to offset revenue lost by cities and states. Both emphasize helping the "respectable" people facing foreclosure but in practice it will be difficult to find the respectable ones, particularly in a timely enough manner to forestall an impending recession. Basically you have to choose between a bailout that helps everyone, or help for the respectable which ends up being a lot less of a stimulus.

The money to cities and states does make sense in that it prevents them from cutting programs and resources during a recession. So my guess is that the foreclosure fund is mainly a political move to show concern for people in mortgage trouble in swing states, not a technical economic one. As Clinton seems to focus on the foreclosure side, while Obama only places $10 billion in this category, I believe that Obama wins round two of the fiscal stimulus showdown.

Round 3. Clinton provides $25 billion in heating assistance for use by needy families this winter. If implemented quickly this would fulfill the necessary conditions (see post below) of timely and targeted. These people will quickly spend the money they previously used on heating on other essentials, thus stimulating the economy.

She also proposes $5 billion for efficiency and alternative energy. While a good idea, this does stray from the focus of a stimulus. While retrofitting public schools with more insulation might be a good investment it is not nearly as timely or targeted as giving directly to needy people who will spend every penny they get.

Obama's alternative is a $250 immediate credit to all workers and through offsetting the payroll tax another $250 supplement to low to mid-income seniors on Social Security. These programs would cost $35 billion and $10 billion respectively. The tax credit would be very timely in that it would go immediately into workers pockets and very closely matches the program proposed by Jason Furman at Brookings. Where it varies is that it would go to all workers who pay payroll tax, making it less than perfectly targeted.

The $250 Social Security supplement would be a very good stimulus. Low income seniors are highly unlikely to save, so this money will go straight back into the economy almost immediately.

So I think Obama slighty edges Clinton in round 3 as well. Obama wins the stimulus showdown in three rounds by a split decision!