Friday, March 25, 2011

Timing Issues

According to Kevin Drum (h/t Coyote Blog), the states are the reason why the 2009 stimulus didn't work.
[A]t the same time the feds were spending more money, state governments were cutting back… [The Center on Budget and Policy Priorities has] data for all but six states, and on average for 2012, "those 44 states plan to spend 9.4 percent less than their states spent before the recession, adjusted for inflation." That's not just less than last year, it's less than 2008. That wiped out nearly the entire effect of the federal stimulus pacakge.
Kevin Drum seems to have an interesting definition of the phrase "at the same time." The stimulus bill was passed in February 2009, and most of the money was spent in 2009 and 2010. States' initial budget proposals for 2012, three years after the stimulus' passage, hardly seem relevant for the stimulus' failure. Even though some 5-10% of the stimulus will still be unspent by 2012, most of it has already been spent. If Drum wants to talk about what states were doing "at the same time" as the feds, why not use data on actual state spending for 2009 and 2010?

According to data from the BEA, expenditures by state and local governments did fall shortly before the stimulus was passed, from a peak of $2,218.5 billion in the third quarter of 2008 to just $2,171.5 in the first quarter of 2009. That's a whopping $47 billion drop, or just 6% of the $787 billion stimulus. Even assuming that state and local expenditures continued to grow past the peak in 2008-III at the same rate as population (inflation was -0.4% from July 2008 to December 2010), and summing across the two-and-a-half years since that peak, the difference between actual expenditures and "expected" expenditures is less than $200 billion. That's about a quarter of the size of the stimulus. And this is supposed to be the reason why the stimulus failed?

Sorry Kevin, the story just doesn't add up.

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