In mid-June, I posted a blog entry about the status of the stimulus plan, which I have been following closely ever since writing a book about it (Great Jobs in the President’s Stimulus Plan). I rushed out this book before the American Recovery and Reinvestment Act (ARRA) of 2009 had actually been passed by Congress and signed by the president.
Today, the White House released its first numbers on the effects of the stimulus, so it seemed like a good time to take another look at what’s been accomplished. But the truth is that it is still too early to get a realistic picture.
At least once a week I drive my car over roads that have been targeted for repairs to be paid for with stimulus funding. One place is a bridge in Ringoes, New Jersey, where repairs started about a month ago and are still in progress. Another is a road in Ewing, where uneven places on the pavement are marked with paint, indicating where the repair work will be done—eventually. My point here is that much of the stimulus money has not been spent yet and, in some cases, not even allocated yet. The workers for the paving project in Ewing may already have been hired (or saved from a layoff), but the paving materials may not have been purchased yet, and there certainly has been no circulation of the money that the paving company will spend on fuel for the trucks or that the workers will spend on their lunch breaks. Those dollars, when they go into circulation, will be spent numerous times and contribute to a lot of economic activity, which means jobs.
Therefore, if you are not impressed by the news that the stimulus plan has saved or created 30,383 jobs so far, according to today’s report from the White House, or you’re alarmed by the unemployment figures that are creeping upward and are close to double digits, keep in mind how preliminary these job figures are. They are based on only a small fragment of the $787 billion committed by the ARRA: the $16 billion to be awarded directly by federal agencies, of which only about $2.2 billion has been spent to date. Job figures based on money that went to the states will not be released until the end of this month.
I can understand that the American people are impatient to see quantifiable results from stimulus funding, but sometimes I get exasperated at the short-sightedness of sniping comments, especially when they betray a political agenda. Yesterday’s New York Times reported that some states are not bothering to put up the road signs that indicate a project is being funded by the ARRA. For example, Georgia has 119 such projects funded through September but has decided to stop erecting the signs, which cost an average of $1,200 each. Senator Judd Gregg of New Hampshire, a Republican who voted against the ARRA and tried to prohibit the use of the signs, commented, "These signs are simply for political self-interest, and it’s high time we stop using stimulus dollars to fund them, and instead use these dollars for their intended purpose of creating economic activity." I’d like to point out to Senator Gregg that the manufacturing, distribution, and erection of these signs are economic activities; manufacturing, in particular, is an industry sector that needs a lot of stimulus right now.
The truth is that stimulus funding passes through many hands (this is what’s called the multiplier effect), so it is difficult to predict its effects on the basis of who is the first recipient. But it is a well-established rule in macroeconomics that tax cuts, which amount to 38 percent of the $787 billion stimulus plan, have a smaller multiplier effect than most other ways of using stimulus funds. So let’s wait and watch the effects of the spending parts of the ARRA, and let’s not pay attention to Senator Gregg and other champions of tax cuts as the solution to all economic problems.