I am beginning to understand why the stimulus plan is so bloated with stuff that is so obviously not stimulus. It was designed backwards.

Congress and President Obama could have identified a list of those proposals that are both timely and targeted, figured out what they would cost, and assembled them into a stimulus measure. Instead, they are doing what Washington always does with big bills such as this: They first invented, out of whole cloth, a number for the size of the stimulus. Having capped the price at a roughly a trillion dollars, they are now horse trading to choose the individual tax cuts and spending to fit that pre-arranged cost target. As my colleague Bill Gale puts it, first they built the bucket, now they are trying to fill it.

Remarkably and to their credit, a handful of senators including Ben Nelson (D-Neb.) and Susan Collins (R-Maine) are trying to swap this supersized container for a slightly more modest version. They have concluded that there is nothing magic about that $1 trillion and are combing through the plan, looking to cut proposals that are a) bad ideas or b) good ideas but not stimulus. They have plenty to choose from. On the spending side, for instance, they have identified $1 billion in comparative medical research, a critical initiative but one that will do nothing for the short-term economy. Collins thinks she can trim the package by $200 billion. Nelson is talking about $90 billion. 

I could add some tax proposals to their list: Patching the Alternative Minimum Tax (a nearly $70 billion item) is a fine idea, but it too has nothing whatever to do with stimulus. Subsidies to companies that hire disadvantaged youth don’t work in either the short- or long-term. It is hard to know how much of the trillion will produce a relatively low bang for the buck, but one-third isn’t a bad guess. 

What would I say to those who insist we need to spend the really big bucks to pump up the economy? That’s easy: Save any left over cash for Son of TARP, or whatever we are going to do for the credit markets. It will be more productive than stimulus spending or tax breaks that we know will be ineffective.

I suspect we got to this pass because macroeconomists, looking at the potential depth of the recession and the size of the overall economy, concluded that a stimulus had to be massive in order to have impact. Christy Romer, a top Obama adviser and premier economic historian of the Great Depression, has argued that fiscal policy accomplished little in the 1930s largely because the stimulus was so small. Obama appears to have decided to not make that mistake again.

The problem with the bucket-first strategy is not only that it wastes money, but it also drives all sorts of perverse choices. Take the AMT. It is clearly not stimulus. But it is a better idea than many other schemes that are floating around town. So, as my colleague Kim Rueben notes, if Congress is locked into a $1 trillion price tag, it may as well include temporary AMT relief even if it won’t help today’s economy. After all, at least it is taking up space that would otherwise go to something worse. Only in Washington.