More on Stimulus Lag

Greg Mankiw posts the lag in fiscal spending as analyzed by the CBO.

2009: 29.0
2010: 115.8
2011: 105.5
2012: 53.6
2013: 26.5
2014: 13.0
2015: 6.9
2016: 3.0
2017: 1.6
2018: 0.9
2019:0.4

Total: $356.0 billion

Notice that about $105 billion occurs in or after 2012. How about we just remove that portion of the spending as it strikes me as being well outside even the most pessimistic projections for the economy. And if things do turn out to be that bad (i.e. the economy is still in the dumps even after 2011 then a new stimulus plan could be put in place that takes effect in 2012).

I’m thinking much of this spending will kick in well after the recession is over.

The transfer payments and tax relief portions of the bill take place much faster.

And in another post Mankiw points to this quote from John Maynard Keynes,

Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.–Keynes, Collected Writings, vol. XXVII, p.122

Seems to fit with the above. Not that I suspect this will do much good.

FILED UNDER: Economics and Business, Government, , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Steve Plunk says:

    $52 billion will come under a new administration.

  2. just me says:

    I am not sure where I fit in all this, but I am not convinced the government needs to do any kind of stimulus, but it seems to me any “stimulus” that doesn’t reach its fruition until 4 years from now is just spending money not stimulating the economy.

  3. Brett says:

    The bill-writers must be really falling down on the job in terms of getting aid to state-federal programs (like Medicaid and unemployment insurance), if there is only $63 billion planned for the rest of fiscal year 2009 (which ends on October 1).

  4. odograph says:

    I first sensed the coming backlash against economics in our discussions here Steve. Since then I’ve made it my occaisional hobby to collect quotes along “backlash” lines. One from Arnold Kling:

    Not all disagreements among economists are alike. Some are based mostly on ideology, and some are based more on analytical points of view.

    For example, on the issue of recapitalizing banks, I think the division is not so much left-right as it is mainstream-maverick. I can think of a lot of mainstream economists, left and right, who favor bank re-capitalization. On the other hand, I am very skeptical. I think Joseph Stiglitz is skeptical, also.

    On the stimulus proposal, the division is almost entirely left-right. I cannot think of a single economist on the Left who is skeptical, and I cannot think of a single economist on the Right who is a supporter.

    Am I surprised by Mankiw’s post? Not at this point.

    See the full series under The Backlash Continues

  5. Franklin says:

    Hmm, I read on another site that this CBO report showed that some 67% would be sent in 2009 and 2010. This doesn’t match up with the above list, which looks like it’s almost the opposite.

  6. Franklin says:

    Edited after previewing, then hit the wrong button, sorry. Let’s try again:

    Hmm, I read on another site that this CBO report showed that some 67% would be spent in 2009 and 2010. That doesn’t match up with the above list, which looks like it’s almost the opposite … off to investigate where I saw that number.

  7. Franklin says:

    I recalled incorrectly or was looking somewhere else. It was 79% over 2009, 2010, and 2011. This was from a post by Kevin Drum.

    Drum included the direct spending numbers, though.

  8. bob in fla says:

    Gee, Steve. Nice job of quoting a partial report which does not even evaluate part of the proposal currently before Congress, & was not an official CBO report. IOW, it was obsolete & incomplete before the republicans handed it to AP. The $356B total should have been a clue.

    How about you bring up the real CBO report that was published late yesterday that talks about the real bill now up before Congress? You know, the one Franklin referred to in his post?

  9. Brett says:

    Keep in mind that Steve was talking about the spending outside of Direct Federal Spending (i.e., more money for Medicare, Medicaid, federal education payments, etc.), which compose the bulk of the “spending” side of the stimulus. The new CBO analysis includes all the tax cuts, direct federal spending, and the above kind that Steve takes from the CBO report (“Appropriations”).

  10. Brett says:

    To clarify: Direct Federal Spending composes the bulk of the “spending” side of the stimulus.

  11. odograph says:

    A crazy but interesting read on what constitutes government spending, taxes, and private savings: Interfluidity

  12. Steve Verdon says:

    Drum included the direct spending numbers, though.

    That would be the tax cuts and transfer spending (unemployment benefit extensions, etc.).

    Gee, Steve. Nice job of quoting a partial report which does not even evaluate part of the proposal currently before Congress, & was not an official CBO report. IOW, it was obsolete & incomplete before the republicans handed it to AP. The $356B total should have been a clue.

    A perfect example of Jane’s Law. Prior to the election, why not reporting stuff like this was bad. Now when the shoe is on the other foot and the other party is in power…its still bad.

    The $356 billion is only part of the bill. Last sentence of the fourth paragraph points out that the total budgetary impact is $816 billion which includes all spending, tax cuts, etc. Note that sentence also points out the total time period for this bill: about 10 years.

    This is not just fiscal stimulus it is also pork barrel politics. All this talk about fiscal stimulus is at least in part a ruse.

    How about you bring up the real CBO report that was published late yesterday that talks about the real bill now up before Congress? You know, the one Franklin referred to in his post?

    If it was published post the link.