Be the First on Your Block to Know This: The Business Case for Federal Stimulus Spending

It is within the power of the US Federal Government to increase the growth of the nation's economy through the use of selected governmental spending programs.  This was the goal of the American Recovery and Reinvestment Act (ARRA) of 2009, and there is ample evidence that this was achieved.  The evidence is available for all to see by visiting the web site of the Congressional Budget Office at http://www.cbo.gov/ .

The Congressional Budget Office (CBO) has a well-earned and much-deserved reputation for accuracy and bipartisanship.  During the period leading up to the agreement to increase the nation's "debt ceiling" that was enacted early last week, the CBO analyzed the competing budget proposals and identified errors as appropriate.  Both the Republican and Democratic sides of Congress, and the Obama Administration, accepted the CBO's critiques and reissued their proposals with the errors corrected.

Since November 2009 the CBO has issued a series of reports on the results of the stimulus program known as the ARRA.  Each report is entitled "Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output . . ."  The most recent report was issued in May of this year.  As indicated by the title, the reports provide the CBO's analysis of the effects on GDP and employment due to the stimulus spending of the ARRA.  The figures provided in the reports are all positive.



The most compelling evidence appears towards the end of each report in a section with the somewhat wonky title of "Table 2.  Estimated Output Multipliers of Major Provisions of the American Recovery and Reinvestment Act of 2009."  A quick glance at that Table reveals that the CBO feels that two of the major activity types of the ARRA have consistently produced measurable economic benefits that likely exceed the associated costs to the government.

The two major activities being cited here are "Purchases of Goods and Services by the Federal Government" and "Transfer Payments to State and Local Governments for Infrastructure."  For both of these types of activity, the report shows a "multiplier" that is in the range of 1.0 to 2.5.  To me, this means that the worst case seen by the CBO is that the economic benefits of these expenditures were break-even with the expenditures; the best case is that the benefits were two and one-half times the costs of making them happen.

In my local and interstate travels over the last couple of years I have consistently seen big signs near the locations of road and highway improvement projects that say "Funded by the American Recovery and Reinvestment Act of 2009."  These are the types of projects that are funded through the two types of activities described above.

Projects such as these can yield benefits far into the future, too, since infrastructure improvements are long-lasting, and they contribute to improving the flow of commerce.

At the heart of any business case is the calculation of expected return on investment.  The CBO is telling us that it has identified portions of the Federal stimulus program with great returns on the investments, and the calculations include nothing additional for the future benefits to the nation's economy that result from the continued, multi-year use of the projects' improvements!

That sounds like a pretty good reason to do it again.

If there's a better case to be made for another type of investment program, then we need to hear about it real soon, as in the next month.  But if that does not happen, and if we have no evidence of an improving employment and economic picture, then Congress and the Administration had better get their acts together and immediately begin work on "ARRA 2.0."