Too Soon to Judge Current Stimulus Package

The WSJ's Corey Boles brings some common sense to the table:

According to the report, 90% of the money distributed has come in the form of increased federal education and health-care grants to state governments...[but] most of the spending money from the stimulus plan had yet to go out, and so it was too soon to tell whether it was working.

The author says that $29 billion out of the $787 billion stimulus package has been given to state governments. The WSJ author also writes that of the money that has been spent, almost all of it has gone to state governments, presumably to prevent layoffs and the stoppage of essential services.

Unless I'm missing something, the $29 billion number does not represent the total amount distributed so far. The federal government's own website states that a total of $60.4 billion has been paid out. The government's website is quite interesting, because it shows several non-U.S. states receiving millions of dollars from the Recovery Act. For example, Palau is receiving about $2 million. I don't necessarily mind these smaller outlays--it's good to have friends all over the world--but why did it have to part of the "American Recovery and Reinvestment Act of 2009"?

In any case, although we still have hundreds of billions of dollars to go, many people, including Paul Krugman, are already recommending a second stimulus plan. A second stimulus plan seems premature at this stage. Hundreds of billions of dollars have yet to be distributed. Haven't these second-stimulus people heard the (sarcastic) remark, “A billion here, a billion there, and pretty soon you're talking about real money”? Sarcasm aside, shouldn't we wait a little longer for the current stimulus money to work its way through the system before devising a Plan B?

Comments

[Seng:]

Any way you cut it, stimulus won't work. Any monies used to 'stimulate' the economy has to be taken out of the productive economy first, through taxation, borrowing, or devaluation. Of that amount, there is a bureaucratic cost in the disbursment of the funds, and you are generally engaging in negative NPV projects (ones the private sector does not see benefit to completing). Based on those factors alone, you can pretty much guarantee that the stimulus will be a net destroyer of wealth. Anyone who seriously believes that destroying wealth will help bring more wealth should start sending me their savings immediately.

Jul 13 09:35 AM

[Ray Winter:]

Don't worry, if the current stimulus does not work. The US Government will resort to the underhand ways of the UK.

When the UK Government eventually recognised that HBOS was in seriously financial trouble they forced LLOYDS Bank to take them over, ruining Lloyds 800,000, mostly retirees, shareholders in the process by causing a disasterous 66% drop in the companies stock valuation and a reduction to only 43% ownership.

Lloyds, previously one of the safest of UK banks, with an enviable high dividends payment record, is now a basket case and unlikely to pay any dividends for the foreseeable future. No wonder the retirees are on the warpath, robbed of both their savings and income. Apart from the fact that the UK Government now owns a huge amount of Lloyds Bank and on which it is likely to get back its money back.

Lloyds 800,000, mostly elderly, retired, investors quite rightly feel they were robbed by the UK Goverment because the Government's FSA [Financial Services Authority] had a total inability to undertake the role of monitoring and overseeing the Banks risk profiles.

Maybe AIG stockholders will find themselves in exactly the same position.

Jul 13 10:33 AM

[Old Trader:]

Ray,

Sorry to burst your bubble, but the UK followed the US down that particular path, via the "forced" take-over of WM by JPM, although it seems that thus far, at least JPM has been fairing much better than poor Lloyd's (and yes, I owned some LYG, too, much to my dismay).


On Jul 13 10:33 AM Ray Winter wrote:

> Don't worry, if the current stimulus does not work. The US Government
> will resort to the underhand ways of the UK.
>
> When the UK Government eventually recognised that HBOS was in seriously
> financial trouble they forced LLOYDS Bank to take them over, ruining
> Lloyds 800,000, mostly retirees, shareholders in the process by causing
> a disasterous 66% drop in the companies stock valuation and a reduction
> to only 43% ownership.
>
> Lloyds, previously one of the safest of UK banks, with an enviable
> high dividends payment record, is now a basket case and unlikely
> to pay any dividends for the foreseeable future. No wonder the retirees
> are on the warpath, robbed of both their savings and income. Apart
> from the fact that the UK Government now owns a huge amount of Lloyds
> Bank and on which it is likely to get back its money back.
>
> Lloyds 800,000, mostly elderly, retired, investors quite rightly
> feel they were robbed by the UK Goverment because the Government's
> FSA [Financial Services Authority] had a total inability to undertake
> the role of monitoring and overseeing the Banks risk profiles.<br/>
>
> Maybe AIG stockholders will find themselves in exactly the same position.

Jul 13 08:02 PM