Monday, December 22, 2008

Government spending is not stimulative (2)

Greg Mankiw's blog has a very interesting note from a government bureaucrat who points out the extreme difficulty of ramping up government spending.
I work for the DoD and when the Department of Homeland Security was established,we helped them with many things, not the least of which was contracting. To make a long story short, you cannot juice up a government agency's budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It's like trying to feed a Pomeranian a 25 lb turkey. It's madness.
In short, you can argue about what sort of stimulus spending is best, but in the end it is going to be nearly impossible for the Obama administration to ramp up government spending by any significant fraction next year. It would probably take at least several years before any meaningful increase in spending on infrastructure and alternative energy projects actually occurs. Government already spends a gargantuan sum of our money, but the logistics of spending even more of it are incredibly complicated and time-consuming.

Two thoughts flow from this: 1) perhaps Obama doesn't really care about stimulating the economy, and is simply using the current crisis as cover for promoting a massive environmental and union-friendly agenda, and/or 2) as his team drills down to the specifics of what they are proposing, they will realize that since stimulus by government spending is extremely difficult and time-consuming, it would be best to kick things off with something that has a high probability of success and can be implemented very quickly: tax cuts.

1 comment:

Tom said...

I cast my vote for (1). Obama will see a trillion dollars of deficit spending as a god send ensuring that he is a two term president. FDR's economy relapsed with an 1938 unemployment rate as high as when he took office -- but he was re-elected three times.

Of course, spending a trillion dollars with virtually no controls will also ensure that the Obama family and friends never again face deprivation, to say the least!

Tom Burger