Best of 2009: Obama’s Brewster’s Millions Problem

The classic 1985 film Brewster’s Millions is strangely analogous to the tale playing out in Washington these days as lawmakers — and President-elect Barack Obama — draft plans for an enormous spending bill to buoy the sinking economy.

You remember the story: Monty Brewster (Richard Pryor) is forced to spend $30 million in 30 days in order to inherit $300 million from a rich old uncle he never knew he had. The catch is that he’s not allowed to own anything at the end of the 30 days, forcing him to find all sorts of creative ways to get rid of the cash.

Fast-forward 24 years. Economists are warning lawmakers that, unless Washington injects the economy with hundreds of billions of dollars quickly another Great Depression looms on the other side. Some are pushing for a spending package of $1 trillion, or seven percent of GDP.

Many of these experts agree that spending the money on public works projects like roads, bridges and sewers would provide the best “bang for the buck,” in terms of creating jobs and bolstering the larger economy. But there’s a snag: There simply aren’t enough “shovel-ready” infrastructure projects in the country to account for the levels of spending being suggested. In Rhode Island, for example, which has one of the highest unemployment rates in the country, only about $55 million in DOT projects are ready to launch immediately, according to a state Department of Transportation list compiled in October.

“There’s a limited amount you can spend quickly,” said Dean Baker, co-director of the Center for Economic and Policy Research, in a phone interview last week.

The situation has caused Obama’s economic team, like Monty Brewster, to search creative places to put the money — including a proposal for $300 billion in controversial tax cuts. Indeed, on Saturday, two members of that team — Christina Romer and Jared Bernstein — issued a report conceding as much:

Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly.

The New York Times’ columnist Paul Krugman writes today that the downturn will likely last long enough that Obama and his team should not ignore longer-term projects as part of their stimulus strategy. But time, Krugman warns, is of the essence:

Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.

In the film version, Brewster ultimately barrelled through the cash to win his inheritance. (I think he even won the girl in the process). We can only hope that Obama’s spending bill also meets its objectives.