Lessons of the Stimulus, by James Q. Wilson and Pietro S. Nivola

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lessons of the stimulusby James Q. Wilson and Pietro s. nivola

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e s s Ay s In Publ I C P o l I Cy

lessons of the stimulus1

by James Q. Wilson and Pietro s. nivola

october 14, 2010

Hoover Institution • Stanford University 2 ideas defining a free society

For most people and for many economists, the central question about the big stimulus legislation, enacted in February 2009, is whether it worked. When the American Recovery and Reinvestment Act (ARRA) passed, the president and Democratic leaders in Congress said that it would create or save millions of jobs. Republicans in Congress were skeptical. All of them in the House and all but three in the Senate voted against it.

After the act passed, debate over its effects intensified. Supporters argued that the law aided consumers strapped for cash, enabled state governments to avoid slashing payrolls and making other budget cuts, and launched important new public investments that had long been deferred. Without the stimulus, its defenders claimed, the economy would have plunged into a depression.

Detractors replied that households largely used their extra cash not to boost consumption but to pay down debts or increase their savings; that an appreciable drop in the national unemployment rate had yet to occur; that propping up state budgets postponed essential retrenchment in the local public sector; and that the lead times for many of the new investment projects were too long to have much countercyclical impact. Skeptics also feared that even if there were government interventions that helped avert an even deeper recession, the stimulus included programs that could prove difficult to wind down after the economy fully recovered, thereby adding to the nation’s structural deficits and towering debt and inviting another economic crisis.

It is not the purpose of this paper to take sides in an ongoing dispute over whether the ARRA “worked.” It is quite plausible that the stimulus was one of the actions of government that helped prevent the severe economic slump from worsening. To answer scientifically, however, whether a particular anti-recessionary policy succeeded, there would have to be a controlled test examining a series of identical recessions, and somehow applying exactly the same policy to some but not others.2 Then we would have a better idea of what works. Obviously, such a test is impossible.


Nor do we suppose that the nation’s recent economic bust was a garden-variety recession, amenable to easy solutions.3 Understandably, policy makers attacked it with a variety of imperfect experiments, not a magic wand. What our paper will address is why some portions of the stimulus package were relatively quick-hitting, while others lagged.

The ARRA consisted of three parts: tax breaks for households and, to a lesser extent, businesses; expenditures to shore up the safety net and extend fiscal relief to the states; and support for a variety of ventures intended to refurbish the nation’s infrastructure.

Generally speaking, the first and much of the second of these three sets of ingredients have operated more smoothly than the third. By “operated more smoothly,” we mean relatively unencumbered by red tape or interjurisdictional intricacies that could cause delays. The constraints of bureaucracy and intergovernmental relations differed among the multiple moving parts of the ARRA, and they help explain differences in how the parts performed.

KeynesJohn Maynard Keynes fathered the theory that an economic downturn can be reversed by increasing government spending. But in his famous 1936 book, The General Theory of Employment, Interest, and Money, he also favored lowering interest rates, and a “somewhat comprehensive socialization of investment” to render capital less scarce.4 His only description of how government funds might be used to stimulate demand and thus restore economic growth was this:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town trash, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again. . . there need be no more unemployment and, with the help of the repercussion, the real income of the community, and the capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build


houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.5

But the scope and complexity of government has vastly expanded in the three-quarters of a century since Keynes published his treatise. In some respects, the changes have facilitated Keynesian remedies. For example, the welfare state now is equipped with established channels through which economic stabilizers and safety-net agencies can dispatch extensive relief to distressed individuals and other entities in need.

On the other hand, there also are a lot of government-funded undertakings that have decidedly grown much harder to implement expeditiously. They have to clear legal or regulatory hurdles, and require a degree of coordination among levels of government, that did not exist in the 1930s. Naturally, for these enterprises, ensuring that anti-recessionary expenditures flow fluidly and on time to their desired targets is challenging.

These issues warrant closer scrutiny when an expensive stimulus bill is contemplated. Because timeliness matters, the spending schemes orchestrated by lawmakers and bureaucrats in Washington and the statehouses ought to minimize administrative friction. Measures aimed at putting money directly into the hands of households and businesses would seem more likely to accomplish that objective—though this is not to say, of course, that such measures (direct transfers or tax incentives) guarantee an impressive countercyclical payoff. Many households may choose to save instead of spend.6 When beset by vast idle capacity and slack demand, many firms may thumb their noses at incentives such as investment tax credits.7

Whatever their ultimate results, there is little doubt that investing in discretionary projects like elaborate public works, and hoping to execute them within a relevant time frame, can be frustrating in modern America. The Hoover Dam was finished in 1935, in the throes of the Great Depression. It was completed below budget and ahead of schedule.8 The construction of a visitors’ center


at the dam was finished in 1995; freighted with new regulatory requirements, it cost a lot more and took much longer to erect than originally planned.9

Just as there was social benefit in constructing the Hoover Dam, society may eventually gain from investments that help modernize the nation’s infrastructure, improve schools, develop the next generation of energy technologies, upgrade medical record keeping, and more. It would be ideal if bolstering such projects could simultaneously jump-start a stalled economy. Alas, although there are exceptions, the twofer tends to be elusive.

Does this mean that any federal stimulus should confine itself to direct transfers and tax expenditures for consumers and businesses? Arguably, so limited a portfolio would be problematic, not least for the following reason: the United States is an increasingly tangled and messy federation, where Keynesian economic stabilization faces special difficulties. State and local governments account for nearly half of all public revenues and outlays, and many of them behave pro-cyclically in an economic downturn (that is, raising taxes and cutting expenditures to balance their budgets). By mid-2010, about thirty states had increased taxes or added new fees to raise revenue.10 As a result, the states were taking large amounts of money out of circulation while Washington was trying to put more into people’s wallets.

To prevent federalism from creating a massive fiscal drag in bad economic times, a case can be made that policy makers in Washington have to introduce, in effect, forms of countercyclical revenue sharing. The trick is to identify mechanisms that can be readily streamlined. Parts of the American Recovery and Reinvestment Act did exactly that—a notable example being the hike in Medicaid payments through the so-called FMAP system. As we shall see, however, the dollars of some other programs of intergovernmental assistance under the ARRA did not run so easily to hard-pressed states, or inside them.

There are at least two broad, related sets of concerns with which today’s anti-recession spending has to grapple. One, as we


have noted, is proper timing. The second is problems of public management. The latter challenge, it should be stressed, pertains primarily to a subset of programs in the 2009 stimulus. The picture therein has been complicated by considerations such as the framework of regulations, planning exigencies and uncertainties (many of which arise when local cooperation is required), and the vagaries of cost sharing across jurisdictions.

PreliminariesThe stimulus promised $787 billion in aid, a number later revised by the Congressional Budget Office to $862 billion.11 As of July 2010, most of the ARRA’s tax reductions had gone into effect. But much of the authorized spending had progressed more slowly.12

Most of this difference was wholly unsurprising. Tax provisions are legislated to take effect by a certain date, whereas spending provisions have to be administered. Even the most straightforward, expeditious forms of spending—for example, handing out unemployment benefits, food stamps, or COBRA or Medicaid payments—cannot rush to their destinations in a torrent. Their flow into people’s pockets follows enrollments and claims.

But not all of the pace of spending could be accounted for by such elementary dynamics. Some of the ARRA’s expenditures dragged in part because they had to run a gantlet of federal regulatory strictures and of barriers at the state and local level. These impediments call for more attention, and are worth describing with some recent illustrations.

But before turning to them, we offer two caveats. The first pertains to tax cutting. While the ARRA’s multiple tax reductions, credits, and rebates were timely, we have no idea how much of a punch they ultimately delivered. Economists continue to debate the relative countercyclical advantages of tax cuts versus spending programs.13 Though there is a literature that suggests favoring the former, it is far from sufficient, much less conclusive. That said, the timing of any anti-recessionary relief is obviously relevant, and the ARRA’s tax benefits were available promptly.


A second consideration pertains to the spending side. What, exactly, is meant by spending? Government data show three categories: appropriated, obligated, and outlaid. ProPublica, a reputable public-interest investigative organization on whose analysis we draw, calls obligated money “in process” and outlaid money “spent.” “Appropriated” refers to funds authorized by Congress in the text of the recovery act. “Obligated” or “in process” refers to funds that the federal government has legally committed to paying to cover costs incurred by a specific program or project. Finally, “outlaid” or “spent” refers to funds that have actually left the Treasury’s coffers—including checks issued, cash disbursed, and funds electronically transferred—to liquidate an obligation.14

We doubt that local agencies will typically start splurging on the basis of money Congress has merely appropriated but which has not yet gone beyond that point. Money actually disbursed to a state or local agency, on the other hand, will likely have a clearer effect on people hired, jobs created, and contracts let.

But what about “obligated” or “in process” funds? These are dollars that state and local governments do not currently have, but could expect to receive from the federal government in the future, that cover costs incurred on specific programs and projects. This money is available to be drawn upon, though it might sit in an account waiting to be deployed for some time. Even if it merely remained in an account, however, it could indirectly affect how many people a state or local authority planned to lay off, hire, or contract with.

State bureaucracies could differ in how they reacted to obligated funds, even when those funds had yet to be dispensed by the federal donors. Some may have considered obligated money as, in effect, a form of collateral, or a federal promissory note, enabling a commitment of local resources that would otherwise be unavailable. Other state bureaus may have held back until they had the dollars in hand and their final beneficiaries identified.


There is no way to be sure what effects “obligated” or “in process” funds have had, but the reader should remember that they could also make a difference.

Spending Patterns and TimingBy midsummer of 2010, according to ProPublica, federal agencies had “spent” 35 percent of their ARRA funds and had “in process” 54 percent. So, based on these percentages, it seemed safe to say that a year and a half after the ARRA was enacted, over half of its money was wending its way into the economy. Meanwhile, over three-fourths of the tax cuts had occurred.

Some federal agencies spent their dollars rapidly. Those that had spent over three-fourths of their ARRA money by July 2010 were the Railroad Retirement Board, the Social Security Administration, the Department of Labor, the National Endowment for the Arts, and the Smithsonian Institution. The leaders were Social Security and the Department of Labor.15 The former mailed out more than $13 billion in checks of $250 each to nearly 55 million beneficiaries.16 The latter paid out $60 billion, including more than $2 billion under the COBRA law that helped temporarily extend health insurance for workers who had been laid off between September 2009 and the end of May 2010.

At the opposite end were those agencies that had spent less than a third of their money by mid-2010. These included the Departments of Commerce, Defense, Homeland Security, Interior, and State, plus the General Services Administration and the National Science Foundation. By far the slowest were the Departments of Energy, Treasury, and Transportation. Energy and Transportation were authorized to undertake, among other things, major new investments in clean fuel and other new power sources, a more efficient system of distributing electricity, and additional highway and intercity rail projects.

In Table 1 we can see how large were the differences among spending programs. Within a year after ARRA was passed, 91 percent of the extra Social Security cash and about half of the food stamp, Pell grant, and new Medicaid payments had


been delivered. By contrast, less than 1 percent of the money appropriated for broadband improvements, high-speed rail, a “smart” electric grid, and new health information technology had been spent.

Much of this investment agenda would not disburse most of its funds before 2011 at the earliest.17 Three-fourths of the money to be used to buy health information technology, two-thirds of the money to pay for renewable energy and broadband technology, and over half the money for highway construction and other transportation plans will go out the door in 2012 or later. To be sure, in relative terms, these items represented a lesser share of the overall stimulus package, and they may well prove to be worthwhile over the long haul. Still, if the central aim of the stimulus was to lower unemployment as fast as possible, their role has been meager. Not only are the dollars at stake relatively modest, but they move slowly.18

In short, money moved out swiftly when the government, in essence, mailed checks to people. It went out less quickly when it entailed intermediate forms of assistance to states (for example, fiscal stabilization to help them retain schoolteachers and other public employees and maintain various services). And the process bogged down even more in major infrastructural projects, for example, especially ones that were not sufficiently “shovel ready.”

We might add at this point that the frustrations of the ARRA’s infrastructure component are well known. After the recovery act was passed, it soon became apparent that only about $20 billion to $40 billion in construction contracts were really ready to roll.19 And progress on more ambitious ideas, like the multibillion-dollar plans for smart-grid development, would run afoul of the “not in my backyard” problem, not to mention countless regulatory obstacles. By one estimate, no fewer than 231 state and local regulators would have to sign off on modernizing the grid.20

In sum, as of mid-2010, much of the stimulus could be said to have played a part in mitigating the recession. The rest remained a work in progress. And some of its elements would be, so to speak,


mugged by reality; they will take years to bear fruit, as the smart-grid story makes clear. Among them are policy priorities that were attached to the stimulus on the theory—alas, unproven—that they could readily complement the legislation’s central purpose: a robust and forceful Keynesian corrective. This double-duty strategy, or hope, appears to have been at the root of what former White House chief of staff Rahm Emanuel intended in his early opinion that one should “never let a serious crisis go to waste.” For, he explained, “it’s an opportunity to do things you couldn’t do before.”21 Again, contrary to a widespread misapprehension, this segment of the stimulus was of comparatively modest scale. Nonetheless, its tab isn’t chump change, and so its challenges need to be further understood.

Management ProblemsConsider the tales of two states, California and Virginia, which activated stimulus money at very different rates. Glancing at what happened there to certain ARRA-funded activities helps shed light on the kinds of snags encountered.

By the end of March 2010, California had disbursed 68 percent of its ARRA funding, but Virginia barely over half.22 Spending on education and transportation saw Virginia lagging farther behind, so much so that the chairman of a congressional committee concerned with highways wrote a letter to the Virginia governor complaining of the state’s alleged derelictions.23

Some transportation projects—for example, non-controversial road construction already under way, resurfacing streets and sidewalks, and so forth—were indeed shovel ready in many parts of the country. As a result, about one-fourth of the money authorized for investing in highways was spent within a year after the ARRA became law (see Table 1). The same could not be said for much bigger undertakings, such as a proposal to build a high-speed rail system in California and efforts to complete an extension of the state’s Interstate 710, a struggle that has been going on for decades, with many neighborhood organizations opposed.


President Obama, interviewed by a reporter about his first two years in office, came to suspect that “there’s no such thing as shovel-ready projects” when it comes to public works.24 He misspoke; there were enough of them to consume within one year a quarter of the money earmarked for highways. But the president’s remark suggested a growing realization that trying to combine rebuilding the infrastructure with ending the recession was no simple feat.

Uncertainties about funding and local consent complicated matters. In an interview, a Los Angeles County transportation executive observed that “very, very few people can afford to get projects shovel ready on the bet that money will show up magically.”25 Making plans for projects that may in time be funded “is not a good use of what limited resources . . . we generally have.” And the necessary professional staff was insufficient in some places. Finally, it can be hard to get a popular consensus on what to build. “If you don’t have consensus, it doesn’t matter what money you are using; you are not moving very quickly.”

California approved a bond issue to start developing high-speed rail that would link the southern part of the state to the Sacramento-San Joaquin Valley and the Bay Area. The state has been counting on up to $19 billion from the federal government to advance this megaproject, which, needless to say, involves formidable design, engineering, and organizational tasks. Construction is supposed to begin in 2012. Perhaps it will. But planners have already faced an eight-month delay, called to revise the environmental impact report for portions of the trunk line (the major leg between Anaheim and Los Angeles). And more recently the state auditor warned of possible additional postponements over a variety of planning and funding concerns.26

Virginia experienced different problems. Because the legislature, with popular support, had decided that no transportation project could be considered unless funding was already in hand, there was, quite simply, little shovel-ready work teed up.27 As the governor explained to a congressional committee chairman, his state “has not maintained a ‘wish list’ construction program.”28


In general, ARRA money spent on education ran into fewer implementation issues—though new reporting requirements slowed things down in some states.29 The State Fiscal Stabilization Fund (SFSF) was designed to send $48.6 billion to the states in what was, in effect, a large revenue-sharing program aimed chiefly at ensuring that schoolteachers—and indirectly other public employees—would face fewer layoffs, but also at helping keep essential services intact.30 The money was to be distributed quickly, using existing funding formulas, with four-fifths of it intended to fill gaps in the states’ local education budgets and the remaining fifth to help the governors pay for other needs. By the end of March 2010, California had disbursed over 92 percent of its SFSF allocation to local educational authorities and public universities.31

But Virginia had spent only 31 percent.32 One reason seemed to be that Virginia did not choose to begin spending the money until the new school year had started in September. This meant that much of its educational funding would be outlaid in 2010 and 2011, possibly many months after the recession had bottomed out.

Educational funding from the ARRA was of three kinds: the State Fiscal Stabilization Fund designed primarily to aid public schools; additional allocations to the Individuals with Disabilities Act (IDEA) to support education for students with special needs and Title I Part A of the Elementary and Secondary Education Act to support education for disadvantaged students; and the “Race to the Top,” a competitive grant program to spur school reform. One-fifth of the SFSF money was made available to support local services other than schools. That schools received most of the funding was no surprise. Education absorbs a vast share of state and local payrolls and budgets, and teachers’ unions are a bigger lobby than, say, those of police or firefighters.

The U.S. Department of Education tried to encourage states to use the SFSF and IDEA funds for things such as professional development and instructional materials rather than to hire staff. Adding personnel, it was feared, would create “funding cliffs,” or


expenses the states might not be able to afford after the ARRA money was exhausted.

Despite these rules, many school districts evidently planned to use their SFSF dollars to try to protect or create jobs. According to a Government Accountability Office study, two-thirds of the school districts surveyed planned to do so, and many intended to use Title I and IDEA money for the same purpose. In states such as Georgia and Michigan, four-fifths of the school districts put stimulus money toward staffing.33

Precisely how many jobs were thereby saved or created and for how long is hard to know. That states and local authorities were often willing to risk a funding cliff suggests many were undeterred. It also suggests limits to the ability of federal regulations and even gubernatorial advice to prevent local agencies from spending more revenue than they might have in the future. (In August 2010 a new bill, the Education Jobs Fund, was added, to reduce the chance of additional layoffs.)

In some commonwealths the state internal distributional formulas—which determined how federal aid would be passed through to local communities—added yet another layer of complexity. Massachusetts, for instance, sent education money to its cities and towns on the basis of a complicated formula that handed some municipalities millions of dollars while others with similar numbers of students received far less, and sometimes none.34 So while the aid formula may have helped salvage teachers’ jobs in some localities, it appeared to do little or nothing for others.

Elsewhere in the ARRA, other kinds of unexpected twists occurred. The low rate of spending in the Department of Energy, for instance, could be explained in large part by the nature of the tasks the law imposed on state and local governments. For example, to take advantage of funds intended to weatherize old homes according to code, many states and localities first had to build up capacity and staff.35 This could take time. Of the ten states that received the most funding, only Ohio managed to weatherize more than


4 percent of its housing units scheduled for modification by the end of December 2009.36

Among the questions that arose in the course of trying to scale up the program were whether workers engaged in weatherization would be covered by the Davis-Bacon Act—the federal law that, in effect, requires federally funded workers to be paid at the same rate as unionized employees—and also whether any weatherization equipment could be bought from foreign suppliers at lower prices.

The Department of Labor initially ruled that states and localities involved in weatherization projects were not “contractors” subject to the law. A few months after the ARRA passed, the department changed its mind. But it did not define what a “weatherization worker” was, and so for a while there seemed to be no clear standard to discern. As a result, states waited until the fall of 2009 for an unambiguous wage classification, whereupon weatherization work could begin.37

Table 2 shows state differences in spending stimulus money. A little over one year after ARRA was enacted, twelve states had spent less than half of their money, thirty-five had spent between half and two-thirds, and four had spent over two-thirds. These variations reflect differences in state laws, rules, and political constraints rather than differences in degrees of fiscal distress—hence, need—from place to place. The variance also reflected funding formulas; aid for education, for example, mostly varied according to the size of state populations.

Thus, in large part because of the constraints of distribution formulas, spending levels could be a function of factors other than jobless rates. The five states that had the highest unemployment rate in 2009 had not received more money per resident by 2010 than the five with the lowest unemployment rate; if anything, they got somewhat less.38 As the economist Edmund Phelps, a Nobel laureate, observed, in order to get money out quickly, the government relied on extant funding formulas that were not originally designed to offset an economic downturn.39


Sometimes even in the same state—Michigan, for example, which had the highest unemployment rate (15.2 percent) in August 2010—counties with the most unemployment apparently received considerably less per person than those with the lowest unemployment.40

One of the puzzles of the ARRA is that long after its enactment, only 14 percent of the money designated for Temporary Assistance for Needy Families (TANF), or what was once called welfare, had been spent. Giving more money to welfare recipients—the neediest people—ought to be a high priority. And it should be a relatively simple assignment. The program has been in existence for years, eligibility is reasonably clear-cut, and agency staff to administer it are already in place.

But as it turned out, there could be glitches. Each state faces a matching requirement of one dollar for every five the federal government allocates. As a result, when Washington is eager to spend more, the states must also spend more. From a Keynesian standpoint, this match makes sense. But for some states it posed a dilemma.

Case in point: Virginia. As in other states, the Virginia government is duty-bound by its constitution to balance the state budget annually. To take advantage of additional federal welfare funding between 2009 and 2011, the state legislature would have had to appropriate an extra $16 million.41 Fiscally beleaguered as the state was, that decision became controversial and drawn out, all the more so amid an election campaign in 2009 to choose a new governor.

Keynesianism: Then and NowIf Keynes had written his General Theory in 2010 instead of 1936, and had observed the American Recovery and Reinvestment Act in action, how might he have assessed it?

With relatively few exceptions (TANF apparently being one, at least in some states), Keynes probably would have been impressed by how quickly facets of the government’s intervention helped extend


society’s safety net, ease certain tax burdens, and, to an extent, supply relief to fiscally troubled states.

But Keynes also would have taken note of the fact that a good deal of the recovery act was slow to have a palpable impact on the economy, and that even admirable complementary projects (such as the Race to the Top initiative to advance educational reform) could not possibly provide a big economic return in the near term.42

The parts of the ARRA that Keynes might have found especially disappointing were the discretionary expenditures for complex, capital-intensive building plans—not because such projects are pointless, but because they are often too ponderous to relieve much current unemployment. An important reason why many have had trouble accelerating is something that would have surprised Keynes: namely, the extent of modern regulatory encumbrances and managerial complications. It is not entirely facetious to say, in other words, that Keynes’s famous countercyclical solution—filling bottles with banknotes, burying them in coal mines, and digging them up again—might falter if it involved, among other contemporary liabilities, the review of dozens of federal and local agencies, environmental impact statements, Davis-Bacon compliance, set-asides, Buy-American procurement, antidiscrimination steps, bulletproof reporting requirements, complete community group buy-in, and so on.

It was not always this way. In many respects, political, legal, and institutional constraints were considerably less cumbersome during the Great Depression. In 1933, shortly after Franklin D. Roosevelt became president, the Public Works Administration (PWA) was created. Headed by Harold Ickes, the PWA was given $3.3 billion to spend on public works, mostly schools, streets, highways, and flood-control projects. Ickes labored to create an organization to carry out this mission under the policy that these projects were to be “self-liquidating” (that is, financed by consumer charges, local taxes, and the like). This meant coordinating with state and local officials as well as private contractors, no easy job even then. And it also meant that the fees and taxes assessed for this work would dampen the stimulant the PWA was intended to be.


By 1935 FDR decided that this strategy was not achieving enough, and so he created the Works Progress Administration (WPA) and put Harry Hopkins in charge. His mission was to create a federal agency that would hire the unemployed and put them to work directly on projects designed, in many cases, by the Army Corps of Engineers.43

The WPA employed people promptly. It got its full share of abuse, with WPA coming to stand for “We Poke Along” and even more vulgar labels. But it soon became the largest employer in the country. It was up and running faster than many employment projects funded by the ARRA.

ConclusionsA compelling case was made for a major fiscal stimulus to help combat the Great Recession in 2009, especially since other anti-recessionary steps, such as lower interest rates, had more or less reached their limits or run their course. To tolerate passively an extended era of economic stagnation would be to countenance an unacceptable human toll, and to incur long-range deficits and debt far greater than what might result from remedial stimulus spending. But what kind of stimulus?

While economists continue to debate the efficacy of alternative instruments—such as tax relief, transfer payments, forms of intergovernmental fiscal stabilization, and support for discretionary construction projects—this much seems clear: some of these techniques take longer than others to put in play.

All were in the mix of the American Recovery and Reinvestment Act. A substantial share of the act included tax benefits and direct transfers that were generally straightforward to administer. Another large share deployed various existing federal programs and familiar funding formulas to aid state governments. Some of this component did not seem optimally suited for Keynesian purposes, since it did not always target communities with the greatest need. For the most part, though, it was comparatively simple to get started.


But still another portion of the legislation aimed higher; it sought, for instance, to help rebuild the nation’s aging infrastructure, and included some new, long-term ventures that could strengthen the American economy in the future but that would not be easy to launch.

From a Keynesian standpoint, this last assortment of initiatives would be the ARRA’s most controversial feature. In practice, many of the projects it envisioned were hardly “shovel ready,” and frequently unfolded too slowly to take effect in the teeth of the crisis. Why? Because they proved hard to expedite amid the complexities of the modern bureaucratic state.

This should not come as a big surprise. Knowledgeable observers have been keenly aware of such difficulties for years. In an interesting essay released in 2004, Princeton’s Alan S. Blinder, a former vice chair of the Fed, bluntly concluded that based on past experiences, “timely variations in government purchases (say, public works) for stabilization policy, though fine in theory, do not appear to be either sensible or workable.”44

A final reflection about the stimulus is in order. Regrettably, the way some of the American Recovery and Reinvestment Act underperformed exposed all of it to considerable misrepresentation. The parts that involved greatly delayed spending left, in the minds of many, the false impression that the entire “stimulus” amounted to little more than a bunch of slow-going roads and bridges to nowhere. In fact, of course, the most sluggish segment of the stimulus, even if sizable in absolute terms, made up only a fraction of the whole. And it represented a pittance of the growing federal deficit compared to, say, runaway entitlements spending.

For architects of an anti-recessionary program in the future, there is a lesson here: keep it simple. Beware of attaching too much to the edifice. Fewer complicated additions, including fewer lightning rods, makes for a prudent structure.


TABLE 1: estimated stimulus spending by Payment/Project, one year after ArrA

Recovery Appropriation Outlaid Percent1

spending type In billions In billions unless otherwise noted

PaymentsFood stamps 20 8.8 44social security checks 14.4 13.1 91

state Fiscal stabilization Fund 53.6 20.9 39FMAP payments 87.45 47.3 54Pell Grants 15.6 8.7 56tAnF 5 722.4M 14.4

ProjectsHighway Infrastructure Investment 27.5 6.47 23.5broadband 9.1 7.96M .087 (<1)Health Information technology 19 .045M .00000237

(<1)smart Grid 11 82.2M .75 (<1)High-speed rail 8 1.56M .02 (<1)

1 Percent outlaid of total recovery appropriation for payment or project type

Sources:

1. Weekly Financial and Activity report, for week ending February 19, 2010, Department of Health and Human services, available at http://www.hhs.gov/recovery/2010/arra2010feb.html.

2. Weekly Financial and Activity report, for week ending February 19, 2010, Department of transportation, available at http://www.dot.gov/recovery/reports.htm.

3. Weekly Financial and Activity report, for week ending February 19, 2010, Department of education, available at http://www2.ed.gov/policy/gen/leg/recovery/reports.html.

4. Weekly Financial and Activity report, for week ending February 19, 2010, social security Administration, available at http://www.ssa.gov/recovery/Archivedreports.htm.

5. Weekly Financial and Activity report, for week ending February 19, 2010, Department of Agriculture, available at http://www.usda.gov/wps/portal/arra?navid=usDA_ArrA_PlAn.

6. Weekly Financial and Activity report, for week ending February 19, 2010, Federal Communications Commission, available at http://www.fcc.gov/recovery/.

7. Weekly Financial and Activity report, for week ending February 19, 2010, Department of energy, available at http://www.energy.gov/recovery/reports_archive.htm.


TABLE 2: estimated Federal Agency stimulus spending1 by state, Approximately one year after ArrA

Funds Announced2 Funds Available3 Funds Paid Out4 Percent5

Alabama $3,561,021,334 $4,168,210,153 $2,081,059,439 49.93

Alaska $1,602,122,872 $1,337,748,229 $460,119,996 34.40

Arizona $5,867,786,068 $6,631,156,535 $3,964,099,339 59.78

Arkansas $2,529,983,635 $2,627,588,891 $1,449,819,821 55.18

California $29,410,080,897 $37,293,678,518 $25,185,103,206 67.53

Colorado $4,207,354,888 $4,356,939,216 $2,541,338,116 58.33

Connecticut $2,965,286,768 $3,853,150,340 $2,421,707,282 62.85

Delaware $935,411,405 $1,095,706,720 $529,649,475 48.34

District of Columbia $2,645,953,216 $3,248,922,180 $951,412,207 29.28

Florida $13,019,587,156 $16,731,719,558 $9,098,020,113 54.38

Georgia $7,145,860,560 $8,970,504,390 $5,221,810,010 58.21

Hawaii $1,519,090,272 $1,351,865,816 $631,314,650 46.70

Idaho $1,776,969,296 $1,412,876,576 $849,319,100 60.11

Illinois $11,912,350,501 $13,772,241,262 $9,417,720,988 68.38

Indiana $5,234,340,859 $6,968,461,381 $4,276,896,122 61.38

Iowa $2,532,404,096 $2,925,156,821 $1,888,065,819 64.55

Kansas $2,224,603,411 $2,365,277,070 $1,391,505,749 58.83

Kentucky $3,463,645,923 $3,940,381,114 $2,364,449,639 60.01

louisiana $3,796,465,014 $4,024,443,303 $1,953,026,166 48.53

Maine $1,468,461,208 $1,562,908,381 $954,432,096 61.07

Maryland $5,122,459,827 $5,224,929,171 $2,666,116,975 51.03

Massachusetts $6,566,600,759 $9,416,434,090 $5,516,552,315 58.58

Michigan $8,230,021,227 $12,203,898,305 $7,365,100,480 60.35

Minnesota $4,374,683,540 $5,356,256,326 $3,567,142,022 66.60

Mississippi $2,771,228,414 $2,749,678,312 $1,538,435,852 55.95

Missouri $4,934,564,283 $5,407,248,254 $3,338,645,945 61.74

Montana $1,473,224,027 $1,177,537,915 $590,417,304 50.14

nebraska $1,445,713,977 $1,392,689,419 $578,015,552 41.50

nevada $1,907,531,813 $2,837,926,543 $1,857,175,048 65.44

new Hampshire $1,491,708,259 $1,132,455,114 $595,733,012 52.61

new Jersey $6,083,339,630 $9,692,961,420 $6,779,978,573 69.95

new Mexico $2,598,116,708 $2,145,411,145 $1,001,504,192 46.68

new york $19,997,863,336 $25,279,661,970 $15,266,669,709 60.39

north Carolina $6,582,000,027 $9,000,501,262 $5,370,313,027 59.67

north Dakota $868,913,429 $770,185,184 $355,045,170 46.10

ohio $9,046,858,299 $11,469,987,925 $6,467,307,563 56.38

oklahoma $3,163,891,685 $3,362,561,062 $1,945,520,093 57.86


oregon $3,441,438,987 $4,208,350,165 $2,733,839,771 64.96

Pennsylvania $10,281,750,829 $13,378,099,654 $8,051,059,690 60.18

rhode Island $1,112,769,022 $1,425,771,198 $890,911,228 62.49

south Carolina $4,977,901,082 $4,167,802,229 $2,211,357,796 53.06

south Dakota $1,085,160,017 $923,381,963 $414,754,655 44.92

tennessee $5,771,720,300 $5,951,045,304 $3,388,312,144 56.94

texas $19,458,948,096 $20,686,702,565 $10,898,267,904 52.68

utah $2,205,455,956 $2,338,899,596 $1,508,031,360 64.48

vermont $718,613,814 $867,894,120 $482,539,826 55.60

virginia $5,685,861,990 $5,602,735,906 $2,824,267,340 50.41

Washington $7,626,814,008 $6,627,760,600 $4,070,161,318 61.41

West virginia $1,772,782,922 $2,165,019,298 $843,236,216 38.95

Wisconsin $4,283,638,971 $5,710,889,047 $3,698,220,825 64.76

Wyoming $668,633,679 $631,303,734 $270,569,612 42.86

not Assigned $65,664,781,255 $42,629,093,167 $22,234,794,901 52.16

Total $333,479,835,191 $358,816,400,264 $208,842,959,610 58.20

1 Includes entitlements, contracts, grants, and loans.

2 Funds that have been publicly announced as available to entities outside the federal government. this category tracks ArrA funding only and should not be viewed as reflecting the total funding that an agency has made available to any given recipient. Funds going to a project started prior to ArrA that are commingled with the project’s ArrA funds are not announced publicly, but are included in funds available to a recipient (Source: recovery.gov glossary).

3 Funds set aside for release to a recipient either immediately or in the future (also called “obligation”). this category tracks ArrA and non-ArrA money set aside for projects that are being supported by both funding streams (Source: recovery.gov glossary).

4 Funds that a federal agency has paid out to a recipient (also called “Gross outlay”). like the “funds available” category, this category tracks ArrA and non-ArrA money that has been paid out to states for projects being supported by both types of funding (Source: recovery.gov glossary).

5 Percent of funds available that has been paid out. note that because both the “funds available” category and “funds paid out” category include an unspecified amount of non-ArrA funding, the figures provided are only rough approximations of how much ArrA funding has been outlaid for each state.

Source: Federal agency reported data, March 30, 2010, recovery.gov.


Notes

1 this report draws on research by Jennifer Cohen, ryan F. early, Matthew W. Frost, tracy Gordon, Xandra Kayden, steven teles, and Zaahira Wyne.

2 edward l. Glaeser, “What We Don’t Know, and Perhaps Can’t,” New York Times, June 1, 2010.

3 rather, the crisis resulted from the bursting of a huge financial bubble. Historically, recessions originating this way differ from an ordinary swing of the business cycle; they tend to be of longer duration and more intractable. see Carmen M. reinhart and Kenneth s. rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, nJ: Princeton university Press, 2009).

4 John Maynard Keynes, The General Theory of Employment, Interest, and Money (new york: Harcourt brace, 1964), 372, 376, 378. the book was first published in 1936.

5 Ibid., 129.

6 Marginal propensity to consume is inversely related to household income. so, for example, unemployed persons or households on welfare are the most likely to spend additional assistance.

7 on the “bunker mentality” of businesses amid the recent severe and protracted economic slump, see robert J. samuelson, “the big Hiring Freeze: Profits Are up, but Cost-Cutting Continues,” Newsweek, August 2, 2010, 26.

8 Joseph e. stevens, Hoover Dam: An American Adventure (norman: university of oklahoma Press, 1990), 252.

9 stephen barr, “Cost of Hoover Dam visitors Center nearly Quadruples to $119 Million,” The Washington Post, April 24, 1994, A13.

10 nicholas Johnson, Catherine Collins, and Ashali singham, “state tax Changes in response to the recession,” Center on budget and Policy Priorities, March 8, 2010, 3, available at http://www.cbpp.org/files/3-8-10sfp.pdf. see also “tax Hikes sway Congressional Districts,” Wall Street Journal, september 28, 2010, A1, A4.

11 Congressional budget office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, Appendix A, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-outlook.pdf.

12 Christopher Flavelle and Jeff larson, “stimulus: How Fast We’re spending nearly $800 billion,” ProPublica’s Eye on the Stimulus, July 2010 update, available at http://projects.propublica.org/tables/stimulus-spending-progress.


13 see, for example, Alberto Alesina and silvia Ardagna, “large Changes in Fiscal Policy: taxes versus spending,” working paper prepared for the national bureau of economic research’s 24th conference on tax Policy and the economy, Washington, DC, August 2009 (revised october 2009), available at http://www.economics.harvard.edu/faculty/alesina/files /large%bchangs%bin%bfiscal%2bpolicy_october)2009.pdf.

14 see “A Glossary of terms used in the Federal budget Process,” u.s. Government Accountability office, report no. GAo-05-734sP, september 2005, available at http://www.gao.gov/new.items/d05734sp.pdf.

15 see ProPublica’s Eye on the Stimulus.

16 Ibid. Also, social security Administration, Social Security Administration Information Related to the American Recovery and Reinvestment Act of 2009, available at http://www.ssa.gov/recovery.

17 According to the Cbo, overall, more than one-third of the ArrA’s authorized outlays would not be spent before the period 2011–19. Congressional budget office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010, Appendix A, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/frontmatter.shtml.

18 letter from Douglas W. elmendorf, director, Congressional budget office, to House speaker nancy Pelosi, February 13, 2009, available at http://www.cbo.gov/ftpdocs/99xx /doc9989/hr1conference.pdf.

19 Jonathan Alter, The Promise: President Obama, Year One (new york: simon and schuster, 2010), 85. ”the rest,” writes Alter, “were tied up in the endless contracting delays and bureaucratic hassles associated with building anything in America.”

20 Ibid., 89–90. there is little question that modernizing the nation’s electric grids would eventually yield important productivity gains. Its job-creating potential in the nearer term, however, was more dubious. see, for example, the interesting assessment by sunil sharan, “the shrinking Great Green Hope: Why a Clean-energy economy Won’t save the Job Market,” Washington Post, February 26, 2010, A23.

21 “A 40-year Wish list,” Wall Street Journal, January 28, 2009.

22 Federal agency reported data, March 30, 2010, 72, table 3 and 57n, recovery.gov.

23 letter from rep. James l. oberstar, Chairman of the House Committee on transportation and Infrastructure, to virginia Governor timothy M. Kaine, october 1, 2009, available at http://transportation.house.gov/Media/file/ArrA/Worst%20state%2010-01-09--virginia.pdf.

24 Peter baker, “the education of a President,” New York Times Magazine, october 17, 2010, 42.


25 Douglas Failing (executive Director, Highway Programs, Mass transit Authority, los Angeles) interview by Xandra Kayden, January 21, 2010.

26 Patrick McGreevy, “California High-speed rail Plan troubled, official Warns,” Los Angeles Times, April 30, 2010. California’s high-speed rail system is supposed to be operational by 2035, if everything were to go according to plan.

27 Code of Virginia, § 33.1-12, available at http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+33.1-12.

28 letter from virginia Governor timothy M. Kaine to rep. James l. oberstar, Chairman of the House Committee on transportation and Infrastructure, october 2, 2009, available at http://voices.washingtonpost.com/virginiapolitics/Kaineoberstar.PDF.

29 two members of our research team, Cohen and teles, found that reporting requirements encouraged some states to first develop more elaborate application procedures and online systems to track spending before it could begin.

30 because educational personnel claim a large share of state budgets, federal fiscal aid aimed at that sector would provide especially consequential relief to the states. because funds are relatively fungible, teachers would hardly be the only beneficiaries of that relief; indirectly, layoffs may have been forestalled for other categories of public employees, too.

31 Department of education, American Recovery and Reinvestment Act of 2009—Spending Report By State as of March 31, 2010, available at http://www2.ed.gov/policy/gen/leg/recovery/reports.html.

32 Ibid.

33 Jennifer Cohen, “the truth About Funding Cliffs and the ArrA,” Ed Money Watch (Washington, DC: new America Foundation, January 4, 2010); Jennifer Cohen, “What’s Fueling the redirection of special education Funds,” Ed Money Watch (Washington, DC: new America Foundation, January 12, 2010).

34 see “Proposed Fy10 Foundation Funding,” Massachusetts Department of elementary and secondary education, March 30, 2009, available at http://www.doe.mass.edu/arra/sfsf _foundation.xls, and “school Finance: Chapter 70 Program,” Massachusetts Department of elementary and secondary education, June 19, 2009, available at http://finance1.doe.mass .edu/chapter70/chapter_10_conf.html.

35 linda baker, “staffing up to Power Down,” Governing, november 2009, available at http://www.governing.com/node/4515/.

36 Department of energy, office of Inspector General, Special Report: Progress in Implementing the Department of Energy’s Weatherization Assistance Program under the American Recovery and Reinvestment Act, February 2010, 2, available at


http://www.ig.energy.gov/documents.OAS-RA-1-04.pdf. See also Garance Burke, “Obama’s Weatherization Program Lags Far Behind on Its Job Goals,” Boston Globe, March 28, 2010, A10.

37 National Association for State Community Services Programs, NASCSP Response to Department of Energy Office of Inspector General Special Report on Weatherization and the American Recovery and Reinvestment Act, February 25, 2010, available at http://www.nascsp.org/Weatherization-Mews.aspx?id=23.

38 Jennifer LaFleur, Dan Nguyen, Joe Kokenge, “How Much Stimulus Money Goes to Your County?” ProPublica 2010, available at http://projects.propublica.org/recovery/.

39 Michael Grabell and Jennifer LaFleur, “Stimulus Spending Fails to Follow Unemployment, Poverty,” ProPublica, August 13, 2009, p. 4, available at www.probublica.org/article/stimulus-spending-fails-to-follow-unemployment-poverty-805.

40 Ibid, for breakout of Michigan data. See also Grabell and LaFleur, “Stimulus Spending Fails to Follow Unemployment, Poverty” ProPublica, August 13, 2009, http://www.propublica.org/article/stimulus-spending-fails-to-follow-unemployment-poverty-805.

41 This figure is an approximation, calculated by taking 20 percent of Virginia’s $80 million TANF allocation. In order to receive additional federal TANF funds, states must post a 20 percent match. See “2009-2011 ARRA Estimates for Health and Human Resources,” bar chart, Commonwealth of Virginia’s Recovery website, available at http://www.stimulus .virginia.gov, and Sharon Parrott and Liz Schott, “Overview of the TANF Provisions in the Economic Recovery Act,” Center on Budget and Policy Priorities, February 26, 2009, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=2693.

42 The program involves only about $4 billion, and at the time this essay was written, only eighteen states had qualified in the competition.

43 Jason Scott Smith, Building New Deal Liberalism (Cambridge: Cambridge University Press, 2006), seriatim.

44 Alan S. Blinder, “The Case Against the Case Against Discretionary Fiscal Policy,” in The Macroeconomics of Fiscal Policy, ed. Richard Kopcke, Geoffrey M.B. Tootell, and Robert K. Tiest (Cambridge, MA: MIT Press, 2006), 48–52. We should add, however, that there may be at least one circumstance where such projects, materializing very gradually, may indeed be sensible in a Keynesian sense: an extremely protracted economic slump.

Working Group on Critical Junctures in American Government and Politics About the Authors

Pietro S. NivolaPietro S. Nivola is a senior fellow at the Brookings Institution, where he holds the C. Douglas Dillon Chair in governance studies. Nivola was vice president and director of Governance Studies at Brookings between 2004 and 2008. He began at Brookings as a visiting fellow in 1988, and was appointed a senior fellow in 1993. Before that, he had been an associate professor of political science at the University of Vermont, and in 1976–77 a lecturer in the department of government at Harvard University.

James Q. WilsonJames Q. Wilson was a professor of government at Harvard and a professor of public policy at the University of California at Los Angeles. He now lectures at Pepperdine University and Boston College. He is the author of fifteen books, including Bureaucracy, The Moral Sense, and (with John DiIulio) American Government. He is chairman of the Council of Academic Advisers at the American Enterprise Institute and a trustee of the RAND Graduate School. He has been a member of the President’s Foreign Intelligence Advisory Board, the president of the American Political Science Association, and the recipient of that organization’s James Madison Award for a distinguished scholarly career. In 2003 he received the Presidential Medal of Freedom, the nation’s highest civilian award.

The Working Group on Critical Junctures in American Government and Politics examines the governmental and political changes set in motion by the 2008 election. Political scientists and historians will assess the unfolding policy agendas of the legislative process, the politics of policy, and the growth of the administrative state.

For more information about this Hoover Institution Working Group please visit us online at www.hoover.org

Lessons of the Stimulus, by James Q. Wilson and Pietro S. Nivola

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