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About that CBO stimulus study
Posted by: Bryan Pick on Tuesday, January 27, 2009

As discussed in my post yesterday, there was a bit of a dust-up over a preliminary CBO report on the stimulus, with some questions in particular about how quickly the money would be spent. Bloggers on the Left insisted that the money would be spent quickly, and that the bill had changed a lot since the preliminary report.

Well, now we have the new CBO report breakdown via the CBO Director's blog, so let's take a look:
Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period.
So, it will spend only 15% of its allocated funds over the next eight months, and another 37% over the next 12 months after that. So, only 52% of the spending comes in the next 20 months.

After that, $287 billion more in spending locked in for the next nine years.

Including tax cuts and the rest, a little less than two-thirds (64%) of the total package is spent out in the next 20 months, while Obama aimed to have "at least 75%" of the package spent in the first 18 months. Not as slow as the preliminary report had it, but not fast enough for Obama's own metrics, and not nearly as fast as the Left insisted either.

As Arnold Kling puts it,
Larry Summers famously argued for a timely, targeted, and temporary stimulus. This looks like something that is not timely, with only about 20 percent of it getting into the system in the next 8 months. It does not seem temporary, given that over one-third of it ($291 billion) will kick in at least 21 months from now.
Who wants to take bets on how well it's targeted?
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Previous Comments to this Post 

I’m also worried about the time scale over which these expenditures happen, but doesn’t Friedman’s permanent income hypothesis argue in favor of stretching out these time scales?
Written By: Rich Hanna
URL: http://
Well, if the permanent income hypothesis is entirely true, it’s difficult to justify a stimulus financed by borrowing. I’m perfectly willing to entertain the hypothesis, generally, but this post was for judging the stimulus on its own terms.
Written By: Bryan Pick
I think I see what you’re getting at Bryan - in terms of the PIH, that by borrowing the money for the stimulus, we know the bill will eventually come due and therefore tailor our spending accordingly.
I’m not really making an argument in favor of the stimulus - more trying to solicit more informed opinion than my own on this idea. Let me expand for a moment.

The income tax rebate checks didn’t provide any lasting gains, because everybody knew that that income was quite temporary. A $1000 check in hard times is nice, but unless I know I’m getting one every year, it’s not going to change my behavior.

Can the idea be extended to businesses and capital spending? Is it possible that the elongated spending timetable will encourage more aggregate demand? i.e. if I own a construction company that isn’t positioned to take advantage of immediate gov’t spending, I might consider hiring people and buying equipment now because I know that the government contracts will still be available next year and the year after. Yes, we know that the borrowing is eventually going to come due, in the form of higher taxes down the road, but as a construction business owner I could, theoretically, reap a disproportionate benefit from the borrowed cash by scaling up my business, knowing that I’ll receive a good chunk of the borrowed cash that _everybody_ will have to pay back.
Written By: Rich Hanna
URL: http://
I’ll take that bet on how well it is targeted.

The Dems targeted it to be a payoff/slush fund to their various pet groups and causes, and it is going to fill that bill very well.
Written By: shark
URL: http://
The payoffs are already in the works.
Acorn #1 - In excess of $4 billion for community work?
oh yeah buddy...oink oink oink.
Written By: looker
URL: http://
I hope this is NOT a short term, quick consumption-oriented stimulus, but a long term investment in future productive capacity. More consumption via debt may create a short uptick in the economy, but that will fade. The only chance this has to work is to focus on building infrastructure and setting the framework for enhanced productive capacity. That should be done over a number of years, not all at once.
Written By: Scott Erb
I was going to make a joke about this being very accurately targeted at destroying the money in our wallets.

But there is no way I can top Erb.
Written By: newshutz
URL: http://

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