Obama/Biden and Romney/Ryan Issues

Election Economics: Too Much or Not Enough Stimulus Spending?

Oct 15, 2012 • Businesses, Economic Debates, Economic History, Education, Government, Health Care, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Uncategorized, US Presidential Election • 199 Views    No Comments

For the first quarter of 2009, GDP declined at a 5.5% rate and, at 7.6% during January, unemployment was rising. With the economy in a tailspin, policy makers wanted to act quickly. Primarily split along party lines, the Congress responded with the $825 billion American Recovery and Reinvestment Act (ARRA).

Was it too much or not enough?

Let’s start with Michael Grabell’s description of the 3 parts of the stimulus in Money Well Spent?

  1. “First, a flood of money in tax cuts, food stamps, and unemployment checks would get consumers spending.
  2. An even greater deluge of education and health care money would stop the bleeding in state budgets.
  3. Then, a wave of “shovel-ready” infrastructure projects would kick in, creating new jobs repaving roads and making homes more efficient. As the economy got churning again, new investments in wind farms, solar panel factories, electric cars…” would follow. (pp. x-xi)

 

For example, the plan for airport spending said projects had to be ready to start in 30 days, they could cost no more than $15 million, and the cap for any airport board was $20 million (105). That meant the NY/NJ Port Authority, with oversight for LaGuardia, JFK and Newark could get no more money than a South Dakota airstrip with 200 landings a year.

One expert called it the “peanut butter approach.” Because every state had to get something, they had to spread the resources thinly.

You can imagine the tradeoffs.

  • Politics or need? Huge money to be spent in countless towns and cities. Where was the money really needed? Would a politician say, “It’s okay, you need it more than my constituency?”
  • Shovel ready or deserving projects? Road and bridge projects that were ready to move forward were not necessarily the ones in severe disrepair.
  • All 50 states or only those that were recession devastated? The 50 states would all get funds. South Dakota, with an unemployment rate near 5% got twice as much per person ($1952) as Florida, unemployment, 12%.

It’s tough to judge whether the plan worked because econometric models that say “yes” or “no” reflect their creator’s bias. Instead, each of us has to decide.

And that returns us to the candidates. With the economy sluggish, unemployment still high and GDP growth sluggish, do we need more stimulus spending? The President tends toward more government assistance while Governor Romney says no.

Sources and Resources: For excellent detail and an overview, the Michael Grabell book, Money Well Spent? is ideal. Also, from this Mitt Romney policy paper and his website, you can see his philosophy while President Obama’s approach is reflected by the legislation he has supported.

Election Economics Topics:

My apologies to Mr. Grabell. I just discovered I gave his name an “i” and corrected my error.

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