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Stimulus that was so "urgently needed" goes mostly unspent

CNS News:

The GAO reported that of the $787 billion in spending authorized by the Obama stimulus plan, only $173 billion (or 22 percent) had been spent by Sept. 30, 2009, the end of the fiscal year. Of this $173 billion, only $47 billion (or 25 percent of the 22 percent) went to contracts, grants or loans for projects. The rest of the money went to federal entitlement programs such as Medicaid and to immediate tax relief.

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CMike's picture
Submitted by CMike on

I'm no apologist for the Obama White House but there's zero news in this November CBS report. The American Recovery and Reinvestment Act of 2009's spending schedule was laid out for all to see back in February when the president signed it. In January, as the bill was making its way through congress, Paul Krugman wrote:

Now that we have a genuine CBO estimate of the timing of the stimulus plan, how worried should we be about the effects coming too late? ...

It’s not a problem if some or even most of the stimulus arrives after the official recession, as determined by the NBER, is over. Why? Because in modern recessions, unemployment keeps rising long after the NBER has determined, based on things like industrial production, that the recession proper is over. You can see that the need for stimulus doesn’t end with the recession by the simple fact that in each of the last two recessions the Fed continued to cut interest rates long after the official cycle trough. if it’s good enough for the Fed, it’s good enough for fiscal policy. ...

Given what I’ve said, any spending that comes in fiscal 2009, 2010, or 2011 is good, and it’s no tragedy if some of the spending trails off into the years following. CBO divides the plan into three parts: Division A, which is more or less stuff like infrastructure spending; Division B spending, which is stuff like increased food stamps;and Division B revenue, which is tax cuts.

By my count, 70 percent of the Division A stuff and 91 percent of the Division B spending comes within the fiscal 2009-2011 window. If you go up to the end of calendar 2011, we’re probably up to about 77 and 96 percent. That’s not at all bad.

Here's Dean Baker writing this past July:

In terms of spendout, it takes time to spend money even for the most shovel ready projects. If we are repairing a bridge, even if everything moves quickly, the project itself might take several years. The government will not make the full payment for repairs in the first month.

On the tax side, the government has put in place a schedule of lower tax rates so that we are all paying lower tax rates. That will continue through 2010. So, we have already had 3 months of lower tax rates, with 18 more yet to come, that's about 15 percent of the total period. So, we've done reasonably well in getting the money out the door.

But, we should already be seeing most of the impact that we will see. The logic is simple. The tax cut put another $45 in our paychecks in April, in May, and in June. We will continue to see this extra $45 a month for the next year and a half, but that will not be a further boost. In other words, insofar as we will spend more each month because of this extra $45, we presumably are already seeing this effect. There will be no further uptick in consumption based on this money.

So, we have probably already experienced most of the boost that we will get from the stimulus. The economy would have been in worse shape without it. Consumption is higher than it would have otherwise been and state and local governments have been able to keep many programs funded that otherwise would have been cut. People have jobs (most obviously in state and local governments) who would have been unemployed in the absence of the stimulus.

However, the stimulus clearly was inadequate to get the economy back towards full employment. With the unemployment rate almost certain to cross 10 percent this summer, it should be clear that we badly need more stimulus.

The CBS report leaves the impression the stimulus bill is proving itself to be ineffective. That is part of the fiscal scold argument that President Obama seems to be buying into with his recently expressed concerns about the deficit. However, Joe Stiglitz and Krugman, the most eminent of the neo-Keynesians, have argued all along that the stimulus bill would have some good effect on the economy but was undersized and ultimately would prove itself inadequate to overcome the magnitude of our current problems.

With this report CBS seems to be advancing the dumbed-down argument that government spending is ultimately useless to bring about recovery, if not counter-productive. Last I looked in early October, MSM organ Slate was still trying to deal with the issue rationally:

From the moment it passed, the $787 billion American Recovery and Reinvestment Act—the stimulus bill—has been the subject of controversy. Many critics have deemed it a debacle, since unemployment has continued to rise in the months since its passage. The Republican Party declared the bill a failure over the summer, and House Minority Leader John Boehner recently deemed it a waste: "You can't spend $800 billion of taxpayer money and not create jobs when you say that's what the goal was." At a dinner several weeks ago, I heard a cable news reporter, one whose job is to report numbers accurately, declare that "we've already spent $800 billion and it was a waste."

I suppose it's too much to ask political hacks and TV reporters to get the size and timing of the stimulus package right. But I expect better from my colleagues at the Washington Post editorial page, which on Sunday argued against further stimulus measures because they would add to the scary national debt and because "the government still hasn't run through half of the $787 billion in tax cuts and spending increases enacted this year."

Some things about the stimulus are indeed complicated. How precisely do you measure the number of jobs "saved" when the federal government cuts checks to states, thus allowing them to avoid budget cuts? But some things about the stimulus are quite simple, including its size and the amount of it that has been spent so far. ...

As was planned from the start, in fact, only a small portion of the $787 billion has been spent. The Council of Economic Advisers recently issued a comprehensive report on the impact of the stimulus. "As of the end of August, $151.4 billion of the original $787 billion has been outlaid or has gone to American taxpayers and businesses in the form of tax reductions," the CEA reports. That's 19 percent. If projections made for September expenditures are right, "between one-fifth and one-quarter of the total $787 billion" was spent by the beginning of October. ...

What the CBS story now adds to the mix coming from the right is an implication that the Obama administration, itself, has been incompetent in getting the funds out of the door fast enough. This is just overkill. There never was going to be a second stimulus package once the undersized one was settled on in February.

Submitted by [Please enter a... (not verified) on

Well, firstly, thank you for your well-thought out response.

Secondly, I would say the news here is how urgently everything was presented versus what they have actually done with the money.

As the article states, Nancy Pelosi and Harry Reid "both called floor votes on the proposal less than 24 hours after the final text of the bill—which was more than 1,000 pages long—had been completed and posted on the Web site of the House Appropriations Committee." I'd say that's a pretty big rush. They clearly used fear to get this thing passed, and now that it's been passed, they're taking their time. Well, if you're only going to use $173B in the first ten months, why not simply ask for something closer to that? Is it because they didn't want another round of media scrutiny that would come with a vote on another round of stimulus?

Plus, they still seem to be behind schedule. The CBO apparently said that 2/3rds of the stimulus should be spent within 18 months. Well, we're at about 9.5 months, and only 22% has been spent. Roughly 35% should be spent, if we're keeping up with that projection, as far as I understand it.

Also, you say that the stimulus has been undersized. I disagree. Let's take a look at this quote from Krugman: You can see that the need for stimulus doesn’t end with the recession by the simple fact that in each of the last two recessions the Fed continued to cut interest rates long after the official cycle trough. if it’s good enough for the Fed, it’s good enough for fiscal policy.
So, what Krugman's saying is that because the Fed was "stimulating" (aka flooding the market with money) it was needed. Well, perhaps he should take a look at Time's list of 25 people most responsible for the recession. Greenspan is right at the top because of this policy. He kept flooding the market with money, instead of contracting it, which made credit too easy to get and helped contribute to the housing bubble. (Not to mention the fact that the low rates of return forced people out of treasuries and into mortgage backed securities.) We don't need constant stimulation. Not to mention the fact, that there's a cost to us in terms of debt, which affects our treasuries auctions, which affects the worth of the dollar worldwide, which affects our entire economy. It's not like we can print up as much money as we want and there are no effects.

I think, yes, in a crisis some government stimulation of the economy might be necessary, but I don't think this was a crisis; I think it was a crisis for a few select "banks," meaning hedge funds/investment firms, and not the entire economy. Look at us now. We've added trillions of dollars to our debt. Our tax revenues have gone down (all the while we continue to neglect to collect income tax from 2/3rds of our US based corporations.)

How should the money be used? You can give people shovel ready jobs, but I think you either need to help build industries or reduce people's costs of living. Those are the only things that will last. Otherwise, nothing's permanent and you're just fueling consumption and we'll be right back where we started. We should be lowering people's fuel costs. There should be should be solar panel fields all over the place (just like in China and Germany.) There should be real health care reform. There should be increased government built or subsidized housing so people don't have to go onto the street.

But this thing? It just seems to be more waste. I mean, the government even said that roughly 1/10th of all jobs that have been counted as "created or saved" have occured on jobs where no money has been spent. What a crock. It's just more bs to make it like they're doing something, when in reality we're going to go right back to where we started.