Stimulus program is the clunker

Several million dollars worth of trees, sidewalks and traffic lights. That’s what the federal stimulus package, our tax money, means for the Fairlie-Poplar area of downtown Atlanta.

These sprucing-up efforts will begin in coming weeks. But some economic indicators suggest that we will have already exited the recession by the time these “shovel-ready” projects break ground. No laborers have received paychecks, nor suppliers payment for materials, from this money.

The same is no doubt true elsewhere. Half a year after the stimulus bill became law, amid warnings of impending catastrophe if Washington didn’t act, only 10 percent of the $787 billion in funds have been spent, according to the government’s stimulus Web site. Three-quarters of the money has yet to be even allocated, much less hit the economy.

Put another way, about $3 billion in stimulus money is disbursed every seven days. That’s hardly a tide-turning amount in a $270 billion-a-week economy.

So, if the economy has stopped its free fall, it’s most likely in spite of the stimulus and its claims on workers’ and companies’ future earnings (in the form of higher future taxes), not because of it.

At town hall meetings across the country, Americans are having necessary conversations about whether, as a matter of principle, the government ought to become even more involved in running health care, not to mention automakers and banks. But the slow, stumbling stimulus reminds us that we can’t avoid the related and more practical question of whether government is any good at doing such things.

Government is not good at deploying large sums of money across the vast reaches of our nation with efficiency and accountability. In an economic emergency, it is an EMT who shows up bearing flowers (i.e. downtown Atlanta beautification projects) instead of a defibrillator.

What government can do fairly effectively is create incentives for people to change their economic behavior. Witness the “cash for clunkers” program, which subsidizes the purchase of new cars for people who trade in older, less fuel-efficient vehicles.

Now, there are any number of flaws in the clunkers deal. Among them: Consumers might have simply shifted their car-buying from the future to the present; the government’s subsidy of up to $4,500 might have been too generous and thus wasteful; the program might have unintended negative consequences on businesses ranging from auto parts to steel; and Congress might have expanded the program to $3 billion from $1 billion just as clunker owners’ demand for new cars was drying up.

But if the goal was merely to entice Americans to buy more cars in the short term, it has achieved that. In meeting its stated purpose, it has clearly outperformed the stimulus.

The point is that incentives (even perverse ones) matter, and that the fastest way for government to aid the economy is to let consumers make decisions.

If Congress just had to spend some money, then instead of a $787 billion stimulus and $3 billion for clunkers, it could have given all households a $4,500 refundable tax credit on their 2008 returns, which weren’t due until two months after the stimulus bill was passed, at a cost closer to $500 billion. If that would take too long, or if there were concerns that too much of the cash would be saved instead of spent, the government could have issued debit cards.

It would have been imperfect, and to some degree it still would have involved “spreading the wealth.” But it would have put money back into the economy closer to the point of entry rather than after the cash had worked its way through the government’s plumbing. More Americans would be making more decisions with more of their own money.

At this late date, that’s not an option. Congress is unlikely to cancel the unspent stimulus funds, even if doing so would give Democrats fiscal cover on health care and immediately change the tenor of that debate.

So just tuck away the lesson of the stimulus for the next time Washington comes up with a not-so-stimulating idea.

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