From Carpe Diem:
WASHINGTON POST -- Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.
A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.
For example, of $30 billion in highway spending, less than $4 billion would occur over the next two years. Of $18.5 billion proposed for renewable energy, less than $3 billion would be spent by 2011. And of $14 billion for school construction, less than $7 billion would be spent in the first two years.
From Bruce Bartlett's Wall Street Journal article "If It Ain't Broke, Don't Fix It" (12/2/1992):
This follows the pattern of postwar countercyclical programs: All were enacted well after the end of the recession. They exacerbated inflation, raised interest rates and made the next recession worse.
Bartlett documents the fiscal stimulus plans that were passed in response to the recessions 1948-49, 1957-58, 1960-91, 1969-70, 1973-75, and 1981-82, and shows that: a) in each of the six recessions, the fiscal stimulus legislation wasn't even signed into law until the end of the recession at the earliest, and in some cases wasn't passed until a year after the recession ended, and b) in all cases the fiscal stimulus plans took effect well after the recessions had ended.
MP: There has been a lot of debate lately about the effectiveness of stimulus plans, and the size of the multipliers, etc., and most of that debate probably assumes that the timing of the stimulus is perfect. But what if the timing isn't perfect, due to the long legislative lags designing the policy and the long lags before the policies actually take effect? In that case, even if some of the multiplier effects work as intended, it's still possible the policy will fail, and will actually destabilize an economy that has already recovered from a recession.
In other words, unless fiscal stimulus is timed perfectly, it will fail to stimulate the economy. Given the reality of legislative and effectiveness lags, perfect timing is impossible. Given that reality, fiscal stimulus policy won't work due to the problem of lags, regardless of any multiplier effects.
See Greg Mankiw's related post about fiscal policy lags here.
here is the problem with this:
ReplyDeleteit turns out, there was no report from the Congressional Budget Office (CBO).
"CBO had done some very preliminary analysis of a package that was loosely modeled on a portion of President Obama’s program. This preliminary analysis was done at the request of members of Congress to give them what was available at the time. It was not a full analysis that had gone through CBO’s normal review process, and was not posted on its website where it could be assessed by budget analysts and the general public.
In short, this analysis was clearly not ready for prime time.
CBO will produce an analysis this week that examines the most recent version of the full stimulus bill. This analysis will provide a much more serious basis for assessing the proposals ... It will provide a full analysis of the proposal, including an explanation of the methodology that CBO used in its calculations.
In this respect it is important to caution against one possible limitation of the CBO methodology. CBO typically relies on rules of thumb in calculating spend-out rates for types of projects.
For example, as a rule of thumb, the spending for highways in the first year after an appropriation may be just a small percentage of the total cost of the highway, with spending in the second year being a little bit higher. It takes time to plan a highway and to bid out contracts. Based on analysis of the time between the passage of appropriations and the actual spending, CBO can project the time period over which a wide range of appropriations will actually be spent.
However, these rules of thumbs are likely to understate the spend-out rate for the projects chosen as part of the stimulus package. These projects are being selected specifically because they are ready to go, with plans already in hand and contracts ready to be submitted for bids.
Furthermore, because of the severity of the economic downturn, contractors are likely to be able to move much more quickly than would usually be the case. Typically contractors will have to find time to fit a government project in their queue of other work. With the sharp downturn in the construction sector, there are likely to be plenty of contractors who are ready to move almost immediately after a contract is signed.
Finally, the bill threatens state and local governments with the loss of funding if they do not move quickly to spend any money appropriated. For these reasons, CBO's rules of thumb on spend-out rates may substantially understate the amount of spending that will be carried through in the next two years.
The Republicans have raised a serious issue in questioning the rate at which the stimulus will be spent. The plan should be scrutinized to determine if there are not ways to get money into the economy more quickly. But this effort requires looking at evidence and data, not invented CBO reports."
from http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-anti-stimulus-crowd-blows-a-gasket/
And the problem with this is that there's actually only about 30 billion dollars in the stimulus package dedicated to construction projects focusing on roads and bridges out of the over 800 billion dollars. Although, I suppose diverting some of the money to an organization like ACORN will do much more to provide jobs and long term growth for the economy...
ReplyDeleteI don't know the intricate details of the stimulus package, but in terms of the "30 billion dollars ... dedicated to construction projects focusing on roads and bridges", Dean Baker writes:
ReplyDelete"It also includes substantial funding for shovel-ready infrastructure projects. Much of this spending will go to badly needed repairs to roads and bridges. Fixing potholes and ensuring the safety of bridges should be a high priority.
Unfortunately, some of this spending may take the form of sprawl-promoting highways. Representative James Oberstar, the chairman of the House transportation committee had proposed screens that would have blocked environmentally harmful projects. However, these screens were removed in the negotiating process. The rules of the House make it unlikely Oberstar’s screens can be placed back in..."
regarding the 'diverting money to ACORN' comment:
ReplyDeletehttp://www.factcheck.org/askfactcheck/does_the_stimulus_bill_include_a_52.html