May 26, 2009, 12:02 a.m. EST
Show me the money
Commentary: Little of the federal stimulus funds are making it into the economy
Irwin Kellner, MarketWatch
PORT WASHINGTON, N.Y. (MarketWatch) -- Three months after the passage of a much ballyhooed stimulus package aimed at resuscitating the economy and creating jobs, precious little federal money has actually been paid out.
Recently, the Congressional Budget Office estimated that only 15% of the $787 billion bill that President Obama signed into law in February would reach the economy this year.
In and of itself, this is too little money to handle the massive job of turning the economy around this year, as Washington had hoped. But it looks as though the amount of federal cash actually reaching state and local governments and the private sector this year may well be even smaller than this measly sum.
Something less than 6%, or $50 billion, in federal funds has hit the economy so far. It appears to be mainly in the form of assistance to states to cover the cost of Medicaid, as well as the one-time checks for $250 that were sent this month to recipients of Social Security benefits.
Even less can be said about the administration's efforts to help troubled homeowners.
February's stimulus package called for the government to spend enough in incentives for mortgage lenders to spare as many as four million homeowners from foreclosure. But the Treasury admits that so far this year, fewer than 55,000 home loans have been modified.
The Obama administration says it will spend 70% of the stimulus money, or $550 billion, not more than two years after passage of the law. But, hopefully, the economy won't need these funds by early 2011 the way it does now.
Although politicians agreed that the intent of the stimulus program was to pump money into the economy as fast as possible, the way this package was constructed makes it virtually impossible to achieve this objective.
This is because the stimulus package as conceived and passed tried to do too many things at the same time.
For example, it relied on states and local governments to use these funds to upgrade the nation's infrastructure, while both the public and the private sectors tried to develop alternate sources of energy that are "clean." And let's not forget fixing the country's health-care system.
As you can imagine, the amount of paperwork at the federal level alone is daunting. Add in the documents needed from state and local governments, as well as from the private sector, and you can see why little federal money has gone out the door at a time when it is really needed.
And while many locales say that they have "shovel ready" projects that they can implement once they get federal funds, the fact remains that you can't spend what you don't have -- even if the federal checks are in the mail.
A better solution would have been my idea of sending everyone over the age of 16 a federal gift card loaded with $3,000. It would have gone to 235 million people, putting the cost at $705 billion, which had to be spent, not saved or used to pay off debt. ( See my Jan. 19 column.)
Had this been implemented, lots more federal money would be in circulation by now, buying goods and services that the private sector needs, without endless paperwork and layers of bureaucrats telling people what to do.
And the end of the recession would be more than a hope.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.