Monday, July 13, 2009

Revisting the stimulus

There are complaints in Washington that the stimulus package isn't working fast enough and not getting money out the door at a sufficient clip to turn around the economy. Well, why should that surprise anyone? After all that's the way the bill was designed:
The $819 billion program passed by the House will only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent of the new spending and tax cuts will flow to the economy. For 2010, the estimate is another 44 percent. The total of 65 percent means that, by CBO's estimate, about a third of the $819 billion package would be spent after fiscal 2010.
Designed, however, may be too kind a term as it implies some kind of organization or coherent narrative, which the stimulus bill lacked. Rather, to the extent that any kind of method to the madness existed it was simply to spend money, on pretty much anything. Even President Obama admits the slow nature of the bill, calling it a "two year program."

This brings up a number of questions:
  • Why is a slow acting program the necessary response for an immediate problem? Is there an assumption that the recession will last for two years? (Average recession length since WWII: 10.4 months. Official beginning of the current recession: December 2007)
  • Why is the current approach superior to tax cuts (actual rate reductions as opposed to the 2008 rebate stimulus) that would have an immediate impact on taxpayer wallets and involve less bureaucracy? Does government allocate money more efficiently and to its best uses than the private sector?
  • If you, like Paul Krugman, believe that this year's $787 billion stimulus bill was insufficient in size, what would a more appropriate size be? Why? And how would a subsequent stimulus bill that relies on government spending overcome the inherent obstacles in getting the money out the door in a timely manner?
  • Finally -- and this is the question I most want an answer to -- what would failure of the stimulus look like? What are the metrics for evaluating its success? How do we know if the stimulus has worked or not?

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