The Long Lags of Fiscal Policy

The AP reports:

Much in Obama stimulus bill won't hit economy soon

WASHINGTON -- It will take years before an infrastructure spending program proposed by President-elect Barack Obama will boost the economy, according to congressional economists.

The findings, released to lawmakers Sunday, call into question the effectiveness of congressional Democrats' efforts to pump up the economy through old-fashioned public works projects like roads, bridges and repairs of public housing.

Less than half of the $30 billion in highway construction funds detailed by House Democrats would be released into the economy over the next four years, concludes the analysis by the Congressional Budget Office. Less than $4 billion in highway construction money would reach the economy by September 2010.

The economy has been in recession for more than a year, but many economists believe a recovery may begin by the end of 2009. That would mean that most of the infrastructure money wouldn't hit the economy until it's already on the mend.

The CBO analysis doesn't cover tax cuts or efforts by Democrats to provide relief to cash-strapped state governments to help with their Medicaid bills. But it illustrates just how difficult it can be to use public investment to rush money into the economy. It usually takes bids and contracts to announce such developments, which invariably take time.

Overall, only $26 billion out of $274 billion in infrastructure spending would be delivered into the economy by the Sept. 30 end of the budget year, just 7 percent. Just one in seven dollars of a huge $18.5 billion investment in energy efficiency and renewable energy programs would be spent within a year and a half.