Posted by: Bill | January 22, 2009

Spending Money Well is Hard

As the most recent stimulus package has taken shape, I have been reading about the large portion allocated to the world of education. As Mike notes, there is some good and some bad and still several question marks. I can’t imagine how states and schools will be able to handle a tripling of their Federal money. It’s pretty much inevitable that it won’t all be spent in a timely fashion (from a economic stimulus perspective) or it will be spent poorly. I guess I would rather the former as the lesser of two evils. I always hope that the public sector uses our tax dollars wisely. I don’t actually believe it though.

It appears that the Congressional Budget Office feels the same way about the entire stimulus package.

The nonpartisan Congressional Budget Office projected less than half of the $355 billion that House Democrats want to spend on highways, bridges and other job-creating investments is likely to be used before the end of fiscal 2010. The CBO said the balance would likely be spent over the next several years, after the recession is projected to end.

The good news here is that some of the Dems appear to be reading the report and considering changes such as relaxing requirements to spend the money in 90 days or lose it. Again, I am in favor of spending the money wisely or not at all. Rushing to spend money benefits rent-seekers and probably criminals.

Overall, I worry that most of this will be for naught. Speed of spending aside, I remain skeptical that this will help in the long run. There is no conclusive evidence (is there ever in economics?) out there that Keynesian-style stimulus is actually going to help us out of the recesssion. You can look at the results of recent packages in the U.S. or, even better, the 8 times this was attempted in Japan during the 1990’s.

I worry more about insolvent banks these days.

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Responses

  1. A lot of it will be spent, and by most standards, spent wisely (smart boards, materials, computers, specialists). The question is, whether the districts will use some of the money to train the staff in the use of all the new material and equipment. That is certainly a longer term spend but it must be part of the plan. I always come back to pure education and this is no different, we need to educate the educators. There are still a great deal of teachers out there using dated methods simply because they have not been exposed to new ideas in a hands-on environment.

    Here’s hoping that a significant portion of that money will go to professional development and training.

    As for whether this will stimulate the economy, I am with you. I doubt it. Unless you put more cash in the hands of consumers directly, it will be a short-term patch that will dry up in a few years. The feds are trying to throw money at a problem that is actually a correction and that must/will happen. Housing and credit will correct and people still hate American cars. The stimulus package will do little to impact that. Too bad our kids will have record tax levels to pay down the debt.


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