Previously, I've shown some evidence that the
stimulus worked in halting the spiral of job losses. There are very legitimate questions as to whether this was true, since the slide stopped before much of the stimulus money filtered into the economy. Looking at the evidence again, I think the stimulus was successful at stemming the recession, and I'll present that case here.
Tax Credits
First of all, much of the stimulus was in tax credits, some paid in 2010, but about
$140 billion in 2009. This money probably benefited the economy right away. Some of the money went into spending as intended, some into paying down personal debt, and some into savings.
Comments: Savings rate went up, so not all the money went into consumer spending. However, it's better for individuals to decide how to use the money, since they better comprehend their financial situation. In this atmosphere, the money probably didn't go into bubble investments.
Payments to States
The federal government gave states approximately
$175 billion to make up for their sharply declining revenues. States would have been forced to make significantly deeper cuts in teachers, police, firefighters, Medicaid, Head Start, community development programs, and health programs.
Comments: This portion was very effective at reducing massive public job losses. However, that means that it shielded public employees, who tend to vote Democratic. I doubt that cash infusion into the private sector could have be as effective, unless we set up programs like those in
Germany that help companies keep people in jobs at fewer hours.
Infrastructure
The government allocated
$184 billion for various infrastructure (highway, other transportation, broadband, water projects, schools, and veteran hospitals).
Comments: These are classic stimulus and/or pork barrel projects, which tend to range from excellent projects for safety and efficiency to throwing money down a sinkhole. On the plus side, it funneled money to a sector especially hard-hit by the recession, and some project were a boon to their regions. But among the negatives, it takes time to plan wisely before construction can begin. There's also a risk of boondoggles, such as the notorious high-speed rail program costing $8 billion.
One important lesson: A recession is not a good time to spend on expensive, highly speculative projects. Put away the wishlists and stick with vanilla, well-understood engineering projects.
Direct Aid to the Poor, Disabled, and Unemployed
For those you didn't receive tax credits due to lack of taxable income, the government gave
$82 billion. About half was unemployment benefits, but also included extra payments to those on SSI (federal disability) and Social Security and a large expansion of food stamps to meet increased demand.
Comments: I've read many places that money given to the poorer people in society ends up flowing very quickly back into the economy as consumer spending. This is helpful in keeping our economy afloat, but not in building it back up or correcting imbalances. I support food stamps as basic necessity, though the allotment is often more generous than necessary. I'm against raising and
disability and unemployment benefits when working people are generally doing with less. This may work as a fairly pure Keynesian stimulus, but it is terrible as a prolonged policy. It also looks like a gift to a favored cause.
Science, Research, Energy, and Technology
This is a grab bag, some of which are like infrastructure spending, but on a smaller scale, only
$67 billion. It includes grants for many green energy and efficiency programs, information technology upgrades for many federal agencies, and small grants increases for scientific research.
Comments: As with infrastructure projects, it's hard to tell good projects from wasteful ones, but at lest most of these projects were small and probably created future savings in energy costs. However, it also looks like a gift to favored causes and constituencies--environmentalists and white collar scientists and engineers in government agencies. Again, it may be easiest to stem unemployment by saving the jobs of government workers. But I'd argue that it's an expensive short term benefit and are likely areas to be cut when necessary budget cutting is finally undertaken.
Why (I Think) The Stimulus Worked
The stimulus worked because the federal government showed that it wasn't going to let employment go down the tubes--it would throw money at the country to prevent a depression. That, along with quantitative easing and the auto bailout, reassured businesses and people that we weren't going to let the free-fall continue, and it was safe to spend somewhat, rather than saving every scrap we could.
Parts of the stimulus were wasted, but time was of the essence, so careful consideration wasn't possible. The biggest boondoggle was probably high-speed rail. Probably some of the energy projects were also wastes, but of much smaller amounts of money.
This stimulus definitely had a liberal spin on it--money to ensure jobs for government employees and green energy, but not for large defense systems or oil exploration or coal projects. I can understand Republican anger about it. The stimulus does look like a big jobs program for Democratic constituencies. However, I think a temporary funneling of money into government was the best way to staunch to loss of jobs.
Why a Conservative Stimulus Wouldn't Have Worked
Funneling money through more corporations probably wouldn't have helped, since corporations that had cash were mostly hoarding it. (The TARP, a different topic, was necessary to unfreeze money circulation). Giving more money directly to people in the form of tax cuts wouldn't have directly saved jobs. State governments would have had to cut very deeply. And people who had extra money mostly saved it to create extra cushions in case they were next to lose their jobs. Giving extra money to individuals and companies that already had money didn't work to the extent it was done.
The conservatives are definitely right about something though. You can't maintain stimulus year after year without getting into a monstrous level of debt. As I've said before, it's
high time to end stimulative spending and
start intelligent cuts.
Extras:
The
graphic is from
Wikipedia, but I put some of the money into different categories. These are also interesting sources:
