Obama's Next Big Bailout
The Democrats are pushing — with little public scrutiny — a new bill to funnel $26 billion to the states and some of the party's favorite interest groups.
Harry Reid, Barack Obama and a range of other Democratic heavyweights are pushing—with surprisingly little public scrutiny—what once would have been considered a massive package of aid to the states. Under a proposal soon to come up for debate in the Senate (the House, currently out of session, won’t consider it until September), the federal government would funnel $26.1 billion in aid to the states in order to support Medicaid spending and teacher hiring. Both are bad ideas for different reasons. Even if the package is deficit neutral as Reid claims, it will delay necessary health and education reforms in order to give handouts to key Democratic Party constituencies.
Helping bail out states’ Medicaid programs would delay efforts to fix a broken system. Originally intended as an effort to provide health insurance for lower-income families with children, Medicaid has grown at an alarming rate. Although designed as a fifty-fifty match program, the share of federal spending has almost always been more than 50 percent. Even before the 2009 stimulus legislation, many states were getting federal aid for more than half of their Medicaid bills. (The stimulus increased it to an average of 57 percent). More Medicaid money right now, while possibly providing more people with health coverage, would delay necessary fixes in the program and put off the tough but necessary task of redesigning its aid formulas.
Teacher hiring grants, a favorite of Education Secretary Arne Duncan, also have little merit. Many urban school districts are full of deadwood and would probably increase performance with leaner workforces. Furthermore, there’s no evidence that having teachers teach fewer classes per day (the major impact of massive increases in teacher hiring over the past three decades) does much to improve student achievement. Private firms have trimmed their workforces; school districts should do the same. In short, there’s a prospect that teacher hiring grants would actually force needed reform. Even if they don’t, there’s little evidence that not providing them will do much harm. If states and localities, which pay the great bulk of education bills anyway really want to stave off school layoffs they can and should cut spending elsewhere or raise taxes. Saving individual teacher jobs just isn’t a federal responsibility.
And the bill is also a bad idea even if one accepts the wisdom of Keynesian “pump priming” in the first place. Reid’s pay-for provisions cut spending on the SNAP program (previously called “food stamps”), targeted tax credits, and infrastructure spending. In general, if the stimulus works at all, these types of programs are pretty good ways to do it: SNAP goes mostly to people with a high “marginal propensity to consume” who will spend the money right away. Even if nobody ends up hungry as a result of the cuts, they will directly decrease already anemic consumer spending. Likewise, whatever the downfalls of tax credits and infrastructure spending, they do sometimes induce investment that leads to future economic activity. Preventing teacher layoffs and boosting Medicaid rolls, however, will mostly benefit reasonably well-paid hospital staffers and teachers: money spent on those purposes won’t be spent as quickly or induce future economic growth the way that the programs being cut can. Even judged in purely Keynesian terms, in short, the bill seems like a loser.
But it still has an obvious appeal in the Democratic Party: teachers, social workers, and government-paid healthcare workers and others benefit the most from the bill’s provisions. There’s a good reason for them to like the bill. But Congress should reject it.