What would a stimulus do-over look like?

Nascent rumblings on the possibility of a second stimulus package:

From a strictly economic perspective, the jury is still out. Congress passed the Recovery Act six months ago, but job losses continue, with nearly 500,000 jobs shed in June. The unemployment rate has now reached 9.5 percent, the highest in nearly 26 years. That’s worse than the administration’s baseline job-loss scenario without the stimulus. Paul Krugman is now calling for “a second round, ASAP.” Dean Baker of the Center for Economic and Policy Research says “I think we can make that call already.” But Mark Zandi of Moody’s Economy.com says give it a few more months: The rollout so far, from tax cuts to state aid to infrastructure spending, has been “pretty much what we expected.” Former Reagan-administration economist Bruce Bartlett argues it’s too soon to double down, since a huge chunk of funds don’t get spent until 2010 and 2011.

When the first stimulus package was rushed through Washington by a coterie of economists and policy wonks with hair afire, I didn’t much question it.  After all, I’m no economist–what would I know except that US$787B seems like a lot of money?  Yet, I was not particularly surprised when the chorus of complaints about stimulus mismanagement emerged.  When that many politicians move to spend that much money that fast, it’s certain that it will not be managed to perfection, and the need for speed sacrifices some measure of planning and control.

That said, I look at the quote above and wonder whether the real weakness of the stimulus package was that it didn’t move faster and risk breaking a few more eggs.  Okay, unemployment is pushing 10%, but maybe the reason this scenario is so close to the one without the stimulus is that the stimulus hasn’t really started.  There are tax cuts, most of which logically wouldn’t be expected to show up in the economy just yet, and there are infrastructure projects–construction–that take a long time to design and build.  Aside from that, there are funds earmarked for unemployment benefits and proposed initiatives.  Very little of the package (to my admittedly basic understanding) appears to have gone to direct, near-term job creation and preservation.  The Slate article mentions some ideas should a second round become necessary:

Another relatively speedy way to jumpstart the economy would be to give more money directly to state and local governments. That money gets spent a lot faster, since the programs it goes to—food stamps, for instance, or unemployment insurance—already exist. Construction projects, by contrast, take a while to plan. That’s why less than 5 percent of the money allocated to the Department of Transportation has so far been spent. (That presumably includes the “shovel-ready” projects that began right away.) Giving states money makes sense from a need-based perspective, too. If the downturn continues, state budgets will be at risk of collapse. (See California, State of.)

In other words, invest in going concerns.  The thinking here appears to be that an investment in an established company is more likely to pay immediate dividends than investing in a start-up and waiting for it to turn a profit, should that ever happen.  That seems logical.

Caveat:  I never read the Recovery Act in full, so the opinions above are based on what I can glean from what others have said.

MORE:  The US government has a web site tracking federal spending.


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