One of the problems with Keynesian spending plans is that the spending doesn’t happen in a timely fashion. Infrastructure projects especially have long lead times because they need to be designed and permitted. And most of them can count on some kind of environmental objection. So if we pass the “stimulus” plan today, how long will it be before the spending actually starts to happen? The CBO has an answer (via the WaPo):
WASHINGTON — It will take years before an infrastructure spending program proposed by President-elect Barack Obama will boost the economy, according to congressional economists.
The findings, released to lawmakers Sunday, call into question the effectiveness of congressional Democrats’ efforts to pump up the economy through old-fashioned public works projects like roads, bridges and repairs of public housing.
Less than half of the $30 billion in highway construction funds detailed by House Democrats would be released into the economy over the next four years, concludes the analysis by the Congressional Budget Office. Less than $4 billion in highway construction money would reach the economy by September 2010.
The economy has been in recession for more than a year, but many economists believe a recovery may begin by the end of 2009. That would mean that most of the infrastructure money wouldn’t hit the economy until it’s already on the mend.
The CBO analysis doesn’t cover tax cuts or efforts by Democrats to provide relief to cash-strapped state governments to help with their Medicaid bills. But it illustrates just how difficult it can be to use public investment to rush money into the economy. It usually takes bids and contracts to announce such developments, which invariably take time.
Overall, only $26 billion out of $274 billion in infrastructure spending would be delivered into the economy by the Sept. 30 end of the budget year, just 7 percent. Just one in seven dollars of a huge $18.5 billion investment in energy efficiency and renewable energy programs would be spent within a year and a half.
And other pieces, such as efforts to bring broadband Internet service to rural and underserved areas won’t get started in earnest for years, while just one-fourth of clean drinking water projects can be completed by October of next year.
Still, other elements of Obama’s $825 billion economic recovery plan, such as $275 billion worth of tax cuts to 95 percent of filers and a huge infusion of help for state governments, will be distributed into the economy more quickly. But Republicans are poised to attack the bill for spending too much.
The Obama transition has stressed that a combination of old and new federal investments will help the economy recover, as well as tax cuts and other steps. Obama economic advisers and their allies on Capitol Hill have sought to identify federal programs that can deliver dollars fast, like food stamps and a boost in unemployment benefits.
At the same time, defenders of brick-and-mortar projects such as federal building and school construction are poised to reap benefits from the big recovery package.
Notice that last sentence. Yes, I think those who will benefit directly from the plan can certainly be expected to defend it. That doesn’t mean its the right thing for the economy or that the rest of us should support it.
If the economy returns to growth before 2010 (and I think that it will be sooner than most expect), the Obama administration and the Democratic party will be first in line to take credit. Remember this when they do. When the economy recovers it will be despite what the politicians have done, not because of it.