Where Is The Stimulus?

The Obama Administration and Congress passed the “Stimulus” bill in March. Since then the U.S. economy has continued to shed jobs and posted anemic if no growth. There has been criticism that the problem is the slow way the U.S. Government pushes money out the door with its complicated contracting process. There are also catches and rules on how the funds must be spent like the “Buy American” provisions. These make it harder to obligate and expend the dollars.

One metric that has already been passed is the unemployment rate. When the bill was being debated the Administration said it was necessary to keep unemployment below nine percent. Now it is almost 9.4 percent and sure to go higher in June. The original estimate was to “create or save” 3.5 million jobs, but the Administration is only claiming credit for 150,000 so far.

One aspect of the economy that has benefited has been the personal savings rate. For years the U.S. has had a low or even negative rate. Over the last few months this has sky rocketed to almost seven percent. The reason is fairly strait forward as Americans are putting money aside and cutting back on spending. Much of this is driven by fear that there jobs will be lost in the future and a desire to avoid further debt. Some of this money is coming from the personal income tax changes and the payments to retirees and social security recipients in the “Stimulus”. The goal in the bill was for this money to be spent to help the economy but that is not proving the case.

That means there may have to be more direct spending by the Government of goods and services. Right now many of the money is flowing to road and transportation infrastructure projects that are not seeming to generate many jobs. The problem there is that the government needs to try and buy things that are needed and justified. It would be easy to just order another 100 F-22 aircraft for about 2 billion dollars or so, but would that really stimulate the economy? Maybe the way it was done in 2007 - 2008 with the sending of checks directly to people? If expedited contracting procedures were used there would be more chance of fraud, waste and abuse so it really is a two edged sword.

The trend with the U.S. economy is really not that good over the last twelve months. Right now the money that has been spent by the Federal Government on the TARP and Stimulus seem not to have the desired effect. There is already discussion of a second stimulus among Democrats but that would be an admission that the first didn’t work and would lead to more debt and borrowing. The repeated attempts at stimulating the economy by direct government spending would further the U.S. on the Japanese path.

There seems to be no easy solution except really to wait and see what happens with the rest of the funds and how the economy responds.