Before the passage of the American Recovery and Reinvestment Act
of 2009 (also known as the "stimulus bill"), President Obama and
his chief economic advisor, Larry Summers, stressed that the
government's response to the economic crisis needed to be "timely,
targeted, and temporary." As predicted by a Heritage Foundation
analyst, the bill is neither timely nor targeted.
Only time will tell if it is temporary.
Government agencies have spent only a tiny fraction of money
planned to be spent in fiscal years 2009 and 2010. Moreover,
agencies have not allocated most of the money that has been
directed toward them for any named projects.
As of May 8, less than 8 percent of the spending scheduled for
fiscal years '09 and '10 has taken place. That 8 percent ($37 billion)
had been spent almost entirely on Health and Human Services until
the week of May 1, when $12 billion was spent in one week by the
Department of Labor. Before the week of May 1, just 3.3 percent of
scheduled '09 and '10 spending had occurred.
Of the $461 billion called for to be spent by the stimulus bill
before the end of fiscal year 2010, just $37 billion has been doled
out. Of that, $16 billion has been spent by the Health and Human
Services department, $12 billion has been spent by the Department
of Labor, and $6 billion has been issued in one-time payments to
Social Security recipients. All of the other agencies combined have
spent a total of $2.6 billion as of May 8.
Fiscal year 2010 ends September 30, 2010, but the recession
could end sooner than that. Indeed, a majority of economists
surveyed in April predicted the recession will end in 2009. Fed
chairman Ben Bernanke also thinks the recession will end this year.
The stimulus bill threatens to miss the very target it was meant to
Spending to fight an already-ended recession is unnecessary and
wasteful. More diffusely, the specific spending programs targeted
to fight the recession have mostly not been named.
Of the $461 billion of the stimulus bill the President's budget
blueprint says will be spent in fiscal years 2009 and 2010, just
$102 billion has even been targeted for specific outlays by
government agencies. Once again, a large amount of this sum is
allocated by the Health and Human Services Department. Several
agencies (such as the Agency for International Development, NASA,
and the National Science Foundation) have yet to say how any of the
billions of dollars granted to them by the act will be spent. Just
22 percent of the fiscal years 2009 and 2010 stimulus spending has
been planned by government agencies.
The New Keynesianism
The new Keynesian philosophy fashionable among Washington
policymakers is that government spending can pull an economy out of
recession--that government spending "injects" new demand into the
economy, thereby increasing GDP.
But every dollar Congress injects into the economy must
first be taxed or borrowed out of the economy. Rather than
add new demand, government spending merely redistributes existing
demand. Even transferring money from savers to spenders will not
add new demand, because nearly all savings are banked or invested
and then quickly made available for someone else to spend. Simply
put, Congress cannot create new demand out of thin air, and this
explains the repeated failure of Keynesian policies.
People Will Spend It Better
- Call back unspent funds when it is clear the recession has
- Call them back immediately and budget the unspent money for
across-the-board tax cuts.
The former would be fiscally responsible, while the latter would
be more effective at fighting the recession than continuing to wait
for agencies to decide what to do with the money. Private citizens
will spend the money more wisely, or in the case of some, save it.
This would be better than having the money go to government
overhead and squandering it on more unneeded programs that burn
through the wealth of America's children.
Patrick Tyrrell is a Research
Coordinator in the Center for Data Analysis at The Heritage
White House Office of Management and Budget, A
New Era of Responsibility: Renewing America's Promise (Washington,
D.C.: Government Printing Office, 2009) at http://www.whitehouse.gov/omb/assets/fy2010
_new_era/A_New_Era_of_Responsibility2.pdf (April 29,
2009); Recovery.gov, "Investments by Agency," at http://www.recovery.gov/?q=content
/investments-agency (April 21, 2009); Douglas W.
Elmendorf, director of the Congressional Budget Office, letter to
Hon. Nancy Pelosi, at /static/reportimages/69D4830585B01B22FE512B4F3E0CD98B.pdf
(April 21, 2009), and The Heritage Foundation calculations.