Barack Obama’s stimulus package finally passed through legislation last week, and there are many question as to whether this will bring praises of joy or pain in regards to the ailing US economy. Rattled by the shock of the credit-bubble bust, the United States [and the rest of the world alike] is striving to boost commerce at a time when there is minimal activity. Although the intentions of the plan are aligned with rebuilding the economy, it is important to consider the possible effects or lack of effects that such a package can have. Sadly the overall plan is reminiscent of failed recovery methods used by countries [the US included] to shoot themselves out of major recessions in the past.
It is very optimistic to think that pumping money into a national economy will automatically fix every problem under that red white and blue banner. An exploration of three very important variables that could make or break this package should be helpful in its analysis. The variables may seem quite simple and obvious, but hopefully the American Government thinks so too.
If a government decides that a stimulus package is absolutely necessary the three major controls that should be accounted for are timing, allocation, and external effects. The first measure, timing, means that a government needs to respond quickly with their spending if they hope to effectively achieve their goals. Although this stimulus package was recently passed by congress and signed by Obama, it will be months before schools, companies, and other state facilities are funded by the package. In many cases, the funding will have to meet approval through federal then state then local municipalities before schools receive aid or public workers are hired. Since timing is such an important factor in federal aid, it may be too late for much of the money to complete its intended task. [Cont'd - click 'Read More']
The second measure is allocation, and it may be the most important factor. Where the funds are actually allocated will be a crucial determinant in the effectiveness of the package. If the funds are not properly allocated within appropriate areas of education, public infrastructure, and companies then the package may fail to stimulate growth for the economy. Just one example of where the funding could be misappropriated is in the educational sector. Arne Duncan, the recently appointed secretary of education, will be held accountable for dispensing $100 billion to America’s public schools and universities. Until now, the department of education was not responsible for funding schools with anything close to this amount. Former Secretary of Education Margaret Spellings was quoted on the issue as saying, “The point is, it’s never been done before, and as much confidence as I have in Arne Duncan, there’s an awesome opportunity for slippage with that much money moving through the meat grinder." Also, until last month Arne Duncan was only responsible for public schools in the city of Chicago. This is a major responsibility to fulfil, and it is possible that neither the department of education nor Duncan, who up until now oversaw one school district, will be able to handle such a responsibility in due time.
The third measure of the package deals with external effects, and this means the effects that it will have on our international relations. Much to the rest of the world’s dismay, some “Buy American" policies will surely be included in the stimulus package. This upsets the rest of the world [especially developing countries] at a time when they are dependent on foreign countries [particularly the United States] for trade to jump-start their economies. The negative effects include future reduced trade for America with areas such as the European Union, who even threatened to retaliate against such protectionist measures. Reduced trade in the future will stunt the growth of American industry in the long run, causing the recession to linger for longer than it should.
Overall, it is quite important for this stimulus package to adhere to such criteria in order to stimulate growth for the American economy. The world has seen failed stimulus packages before. Just for comparison, one can look at Japan’s response to economic crisis in the 1990s. Ten major stimulus packages totalling more than 100 trillion yen (or 1.1 trillion dollars) were implemented in the 1990s, and it is generally accepted that these packages were ineffective due to poor timing and allocation. All America can do is hope that their government is carefully administering this plan, from the federal to local levels, being mindful of the egg they are carrying on a spoon.