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CBO's Non-Estimates of Stimulus Spending Rates
It turns out that the media reports of spending rates from the Congressional stimulus package were taken from a preliminary CBO analysis of a bill that has since been altered. While opponents of the stimulus package have touted these estimates to claim that the stimulus will have little effect in the next two years, CBO produced nothing that can support this claim.
CBO will produce an analysis next week that will examine the bill in its current form. It is also important to keep in mind that the preliminary analysis (and probably the analysis that will be produced next week) relied on standard rules of thumb for spendout rates rather than the spendout rates for the specific projects in the stimulus package.
There can be a big difference. For example, as a rule of thumb, the spending for highways in the first year after an appropriation may be just a small percentage of the total cost of the highway, with spending in the second year being on a little bit higher. It takes time to plan a highway and to bid out contracts.
However, if there are maintenance projects where planned maintenance has been deferred, then it is likely that spending can proceed far more quickly. Furthermore, contractors will typically have to find time to fit a government project in their queue of other work. Given the severity of the current downturn, especially in the construction sector, there are likely to be plenty of contractors who are ready to move almost immediately after a contract is signed. For these reasons, CBO's rules of thumb on spendout rates may substantially understate the amount of spending that will be carried through in the next two years.
Hopefully the CBO report will be clear on its methodology in its report so that there will be less confusion on this issue.
--Dean Baker
COMMENTS (7)
Caught your appearance on the Kudlow Klown Show with the aptly named Mr. Laffer. I don't know why you bother. What a joke.
Posted by: Lee Gibson | January 23, 2009 7:36 PM
Laffer has it right, a-hole. What's your last name, I'll make a joke out of it. I love the way liberals discuss "simulus", as if the money's just lying around somewhere and we just haven't needed to use it. Fact: it is either deficit spending or money extracted from individuals via higher taxes, supposedly given back to them through govt. "works." That's the joke, chief.....
Posted by: sub | January 24, 2009 8:22 AM
Thanks for this information. Having previously participated in government funded infrastructure projects, I was initially skeptical of the immediacy of the impact of such stimulus. Then, when Pres. Obama spoke of "shovel-ready" projects, I bought in somewhat. When to CBO estimates came out, I felt whipsawed again. Although I personally give limited credence to the CBO, it will be interesting to see the next estimate which, I suspect, will be subject to political pressure.
Posted by: dallas | January 24, 2009 8:28 AM
i love it when conservatives start talking holy about deficits and the national debt. they invariably fail to mention that they sat silent when the W admin doubled the national debt over 8 years thru tax cuts, an illegal war, and just pissing it away for fun.
these are what we used refer to as "reformed whores". if the shoe fits.
Posted by: ripmondo | January 24, 2009 10:31 AM
A lot of the funds will be spent almost immediately. As an example, many cities and towns now have hiring freezes because of the recession. Money to them will allow them to lift the freeze and hire personnel they need--from police and firemen, to road maintenance, to teachers and support staff at schools.
In my community of 110,000 I estimate at least $10 million could be used by the Friday after the money came!!! And I should know, I'm an elected member of the School Board. A great number of other projects could begin this spring/summer. As for labor, in my area there more than enough trained, well equipped people who are currently working part time, if at all.
I too was amazed at the CBO report. It's way "off base."
Posted by: Beezer | January 24, 2009 2:32 PM
To "sub" - Wwhere have you been the last 8 years? Apparently not here and paying attention or learning anything from the blogs you comment on. At least consider cleaning up your language.
Posted by: joe | January 24, 2009 5:46 PM
As a conservative, I would ask "sub'' to please not embarrass us with the kind of juvenile responses that poison this format and reduce the level of dialogue to what you hear in a middle school lunchroom.
Posted by: Mike | January 26, 2009 10:04 PM