Where Did the Stimulus Go?
During the recent recession, the U.S. Congress passed two large economic stimulus programs. President Bush’s February 2008 program totaled $152 billion. President Obama’s bill, enacted a year later, was considerably larger at $862 billion. Neither worked. After more than three years since the crisis flared up, unemployment is still very high and economic growth is weak. Why have such large sums of money failed to stimulate the economy? To answer this question, we must look at where the billions of stimulus dollars went and how they were used.
Keynesian stimulus packages come in three basic types. In the first type, the federal government puts money directly into the hands of consumers. The hope is that consumers will use the money to increase their purchases of goods and services. In the second type, the federal government directly purchases goods and services, including infrastructure projects, equipment, software, law enforcement, and education. In the third type, the federal government sends grants to state and local governments in the hope that those governments will use the funds to purchase goods and services.
About the Authors
John F. Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a professor in the public policy program at Stanford University. He served as deputy director of the Office of Management and Budget in the Reagan administration. John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford and the George P. Shultz Senior Fellow in Economics at the Hoover Institution. He was undersecretary of the treasury in the George W. Bush administration.