As we were driving around this summer on our various vacations this summer, we saw a lot of new highway construction. Our GPS would momentarily freak out; it was unsure how to deal with the new roads. When that happened, Steve would comment, "there's the stimulus money." I would look up from my magazine and nod and then go back to my article on the new fall fashions.
There's no doubt that a lot of stimulus money found its way to highway construction, but where else did it go? Did it really lead to new spending in other sectors of the economy or did it simply maintain existing services whose budgets were gutted by tax shortfalls?
In New Jersey, the state allocated a certain portion of the stimulus money to go to special education. Our town received nearly $400,000 for special education, but I just received a notice that special education services would be reduced. My son, who receives services for his disability, isn't getting the extra speech therapy or social skills classes that he needs. We're paying for these additional services out of our own pocket and are fighting a losing battle with the health insurance company to cover those fees. I have to send my son into school with toilet paper and paper towels, because his program can't afford it. Where did that stimulus money go?
I would really love to see some analysis of the implementation of this stimulus program. Where has the money gone? I want to see some analysis of the most basic question in political science. Cui bono? Who benefited?
Apt. 11d 
Cui bono?
Public sector employees with jobs where the biggest difficulty is using PowerPoint, poorly run banks, the good people of West Virginia, and great bunches of people on the extended unemployment benefits.
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A huge percentage of it went to infrastructure and education here in NC. We’re looking at SERIOUS school budget shortfalls next year b/c the stimulus money will be gone, and income and sales tax revenues are still far short of their pre-recession levels.
There were pretty reasonable cuts in state services around here, outside education, so I’m not convinced that it was the power-point people that the stimulus saved in NC, anyway.
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The stimulus money, I assumed, was intended to plug holes in budgets until the economy bounced back — which it hasn’t.
In other words, because of the stimulus, you are getting the notice that special ed services will be reduced next year, instead of last year.
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“The stimulus money, I assumed, was intended to plug holes in budgets until the economy bounced back — which it hasn’t.
In other words, because of the stimulus, you are getting the notice that special ed services will be reduced next year, instead of last year.”
That’s what they’re saying in our district, too. The way it was supposed to work is that the economy would have bounced back by now, so that the states weren’t facing huge deficits (which most cannot carry) and thus cutting services. And, they didn’t, last year. But this year (and next) they’re warning of big, painful cuts to come.
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“The stimulus money, I assumed, was intended to plug holes in budgets until the economy bounced back — which it hasn’t.”
Right, as well as to actually jumpstart the economy. The take-away lesson from the stimulus, as well as cash-for-clunkers and the $8,000 homebuying credit is that this type of program does not actually jumpstart anything. Once the federal money is spent and gone, there’s no inertia that keeps things running at the same level.
With the homebuyer credit in particular, I think the feds have created a sort of modified Pavlovian response, where homebuyers respond only to stimulus programs, but only in bigger and bigger doses. First there was the initial (Bush era?) homebuying “credit” that you had to pay back, then came our recent $8,000 tax credit, and I’ve heard that the real estate industry has been clamoring for a $15,000 credit, and it wouldn’t surprise me at all if they got it.
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The take-away lesson from the stimulus, as well as cash-for-clunkers and the $8,000 homebuying credit is that this type of program does not actually jumpstart anything.
This position is simply and objectively false.
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I don’t think there is much doubt that the tax credit for buying a house was not cost effective. For example, there is this from a guy who has been broadly supportive of the stimulus outside of the tax credit and cash for clunkers.
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The take-away lesson from the stimulus, as well as cash-for-clunkers and the $8,000 homebuying credit is that this type of program does not actually jumpstart anything.–Amy P.
This position is simply and objectively false.–Ragtime
Greg Mankiw, among others, seems to basically agree with Amy P. Since he is a Harvard professor with a Ph.D. in economics, and I am not (indeed, I don’t have a Harvard degree at all), it seems unwise to disagree with him. Of course, other people with similar credentials disagree with Prof. Mankiw, leading me to conclude that no statement in this area could be considered “simply and objectively false.”
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I was just looking at Ben Jones’ The Housing Bubble Blog and saw a link to an article on Tampa Bay, Florida. This is just one area, but it’s a microcosm of the housing situation:
http://www.tampabay.com/news/business/realestate/tampa-bay-home-prices-hit-10-year-lows-in-august-report-says/1120778
“Home Encounter estimates that area sales prices averaged $89 per square foot last month, down 7 percent from a year ago and down 4 percent from July. Home prices and total home sales fell substantially in July following the expiration of homebuyer tax credits.
“Home Encounter president Peter Murphy said there was no doubt the tax credit pushed prices higher, at least temporarily.
“”Sellers asked a premium for their homes, which buyers were willing to pay to take advantage of the tax credit,” he said.
“Four months later, he said, prices have dropped by an average of $13,000, indicating tax credit-buyers overpaid.”
I think it’s really irresponsible to lure first-time homebuyers with $8,000 tax credits if within a few months, their homes will lose $13,000 in value. The tax credit 1) temporarily inflates prices 2) creates an artificial sense of urgency (a trademark of sleazy salesmanship) 3) benefits primarily the home sellers and the banks, while creating a new generation of distressed homeowners 4) costs taxpayers billions.
Why do we need to keep doing this stuff?
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Based on my recent experiences as a buyer on the used car market, cash for clunkers did remove a substantial amount of inventory from circulation. Combined with heightened demand due to substitution, this raised prices long after the end of the program, as my wallet can attest.
Of course, that wasn’t the intent of the program, but it does suggest that folks trying to raise real-estate prices should have considered paying for a lot of bulldozers to reduce supply rather than using the tax credits.
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Pittsburgh has been putting some extra money to pushing over houses, mostly for fear of crime and fire. In certain areas, if your neighbor’s house is abandoned, the city will push it over, smooth out the lot, and sell it to you for next to nothing. You’ll have to pay property taxes, but they don’t seek the back taxes.
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“Of course, other people with similar credentials disagree with Prof. Mankiw, leading me to conclude that no statement in this area could be considered ‘simply and objectively false.'”
A reasonable anti-stimulus position could be something along the lines of, “The stimulus was not large enough to adequately stimulate the economy, and because of the size of the recession, the amount of money needed to sufficiently stimulate the economy would have been prohibitively large, and therefore we wouldn’t have been better off saving the money, and not borrowing to stimulate the economy at all.”
Amy, on the other hand, is parroting the new Republican talking point that stimulus spending never works, which was disproven by every stimulus program everywhere that has ever worked — including many initiated and taken credit for by Conservatives before someone decided somewhere that the new Republican orthodoxy is “economic stimulus never works” and we therefore have to pretend that this is a valid economic position and all the counterexamples since Keynes never happened.
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In New Jersey, the state allocated a certain portion of the stimulus money to go to special education. Our town received nearly $400,000 for special education, but I just received a notice that special education services would be reduced.
Could the system have applied the money to tuition for outplacements? Or, what counts as “special education” on the budget? Could the system have used the money to preserve administrative positions, rather than applying the money to preserve sped services? In other words, how many speech therapists equal one vice-principal?
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Ragtime, you could also argue that the housing tax credit was an especially unfair and ineffective form of stimulus. Because it was.
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Gee, Ragtime, John Cochrane at the University of Chicago has certainly argued that Keynesian stimulus will have zero effect, and he has Ph.D. in economics from Berkeley. Why should I believe that a professor at a major university, speaking within his field of expertise, is saying something “simply and objectively false”? Does that really seem likely?
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There’s plenty of Ph.D. people that argue the other way on stimulus in general.
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This is a big question I threw out there and frankly, none of us are going to give out a proper response in a comment section in a blog. It’s quite possible that the stimulus money stimulated certain parts of the economy more than others. In fact, I’m chasing down a paper that was given at APSA that made that argument.
I also wonder if there was a certain amount of creative accounting that happened at the local level. Obama gave this money as block grants to the states, who allocated it to certain areas. While the state put strings on the money, I’m quite certain that localities took the stimulus money, and with some creative accounting, it went to other places.
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Ben,
I have the morbid habit of periodically checking Craigslist to see what the market value is of our 2004 Ford Taurus. We bought it in 2007 and it was dropping, dropping…and then at some point, something (probably Cash for Clunkers) happened to the market, and the prices flattened out at around $4,000 (and I think that slightly older Tauruses weren’t much cheaper, either). So as the owner of a relatively low-mileage used car, Cash for Clunkers has (at least potentially) made me a couple thousand dollars richer than I would be otherwise, without the fuss and muss of taking on a $400 a month/7 year payment plan.
Ragtime says:
“Amy, on the other hand, is parroting the new Republican talking point that stimulus spending never works, which was disproven by every stimulus program everywhere that has ever worked — including many initiated and taken credit for by Conservatives before someone decided somewhere that the new Republican orthodoxy is “economic stimulus never works” and we therefore have to pretend that this is a valid economic position and all the counterexamples since Keynes never happened.”
Before I get to your main points, I’d like to point out that politicians are extremely selective about their use of Keynes. Keynes’ idea was that governments would build up surpluses during good times and then spend them down during bad times to smooth out the economy. Unfortunately, the “build up surpluses during good times” part of this hasn’t really caught on over the past 80 years, so in practice, what we like to do is borrow a little during good times, and then borrow a whole bunch during bad times, and call the resulting mess Keynesian. I don’t think this is at all fair to Keynes.
That aside, I don’t think that you get where I’m coming from, exactly. I’m a long-time housing vulture and reader of Ben Jones’ Housing Bubble Blog since around 2006, which has both a lot of liberals and a number of conservatives and can pretty hotly partisan, but is 100% foursquare against things like Cash for Clunkers and the housing tax credit. As far as Republican stimulus is concerned, I’d like to remind everybody of the Bush stimulus, which came and went without causing more than a ripple in the economy.
http://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008
Wikipedia says it was a $152 billion package. As I recall, our family was one of the lucky ones to get $1800 from the stimulus. We immediately paid off our car loan, which wasn’t really what they wanted us to do with the money, but it worked for us. The reason nobody remembers that Bush stimulus is that it had no lasting effect at all.
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$4,000 for a 2004 Ford Taurus? Maybe hipsters have started buying them for the irony.
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I thought Laura’s question wasn’t whether the stimulus money had an effect on jump starting the economy, but where the money actually went. It seems to me that that should be a [somewhat] solvable accounting problem (with the caveat that money is fungible, so creative accounting does mean that you can’t really tell where the stimulus money went).
At NIH, you can see the money that they attribute to “ARRA” dollars by searching for it at NIH reporter. One of the search items is NIH recovery act projects — they used that money to give 1-2 year bump awards to people who are already NIH funded. This meant the money could be transferred quickly (one of the ARRA requirements) and not produce an on-going cost. The bumps were applied for, and were supposed to be for “enhancing” a project that was already deemed worthy. They also used money to back fill some grants that were near the “merit” funding level.
So, you can get some numbers there about ARRA funds. It doesn’t really tell you exactly where the money went, since to really know that, we’d have to see the world without the spending of those funds and see what would have happened without them.
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— they used that money to give 1-2 year bump awards to people who are already NIH funded.
Everybody and their fellow sent in six things for that. If writing grants, as opposed to getting grants, could stimulate the economy, the recession would have ended last year.
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Well, I got some of it. (The 66% COBRA match, and extended unemployment–both of which were a godsend.)
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I assume that the stimulus money paid for my unemployed neighbor’s beer, his cable television and his family’s pool membership. It also paid the mortgage for my other neighbors who were in default after they went on the Disney cruises last year twice. However, I understand that the part allocated to my town for school repairs has instead been banked since they’ve decided to save it. Huh?
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I assume that the stimulus money paid for my unemployed neighbor’s beer
Depends on how long he was unemployed for. But, beer and cable for the unemployed makes more sense than 99% the economic ideas bounced around these days.
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However, I understand that the part allocated to my town for school repairs has instead been banked since they’ve decided to save it.
Does your school administration dream of rebuilding your school? We lived through that–obvious steps to improve the school campus were ignored. In my opinion, in the time leading up to a campaign to rebuild a school, a canny school administration will feed the perception that the current campus is “inadequate.”
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I’m going to repeat myself: here in our state, among other less-visible things, and ignoring the direct-to-citizens payments (social security, COBRA extensions, etc.) the stimulus went to long-deferred road repairs (a touchy issue for me, given that my mother was 15 minutes and a slight schedule change away from being on I35W when the bridge in MN collapsed two years ago) and to education, which would otherwise have taken a huge hit two years ago when state revenues collapsed. Those were necessary expenditures, and if the federal government hadn’t stepped up, we’d have been screwed. That we’ll be screwed next year when the money runs out doesn’t make me wish we’d been screwed already two years ago.
Has the stimulus magically solved the underlying structural and financial problems that caused the recession? No. Did stimulus dollars keep thousands of teachers employed in this state, thereby propping up state income-tax revenues and reducing demand on the unemployment office at a time when the private-sector economy was shedding jobs like a dog sheds hair in June? Yes. Do I think it was better that the stimulus happened than that it didn’t, taken all in all? Absolutely yes.
Then again, all things considered, I’d still support the TARP again. I’m not inclined to let the perfect be the enemy of the good when the bottom is dropping out of the world economy, and there’s only so much anyone can do, given the current situation in the US Senate. So possibly I’m just too crazy for my opinion to be taken seriously.
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Semi-related: Teh Feds just spent a small, but non-trivial, amount of money to remind me that it hurts to fall down and to note that I have been reminded on two databases.
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Yes. I was asking a political science question and not an economics question. I want to know how ARRA was implemented. Where did the money end up? What groups/sectors of the economy gained from this program? Whether or not is helped jump-start the economy is an above-my-pay-grade sort of question.
I suspect that Jody is right. A lot went towards road construction and propping up the schools for a year — all good things, I suppose.
I’ve got a paper on my desk which says that most of the money went to middle class districts, instead of being focused on urban or needy districts. I’ll sum it up, when I’m finished.
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As a very practical matter in terms of research, I imagine we could all start with the data found on recovery.gov and then move to our state goverment sites — e.g., here is RI’s: http://www.recovery.ri.gov/. We all understand that there are issues with this data, but it is a place to start. NJ has one too: http://www.state.nj.us/recovery/ We have to analyze that data and then drill down to our town and ask for similar data at that level, which likely isn’t available on a website but might take walking into town hall and requesting it. Once we have numbers, then we also begin the interesting, and more political, question of why money went to X and not to Y.
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Article from City Limits:
http://www.citylimits.org/news/articles/4133/how-much-stimulus-money-went-to-low-income-areas
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