No Stimulus Here

This week I went to a presentation on Stimulus Opportunities for Small Business, one of a series around the country slated to run through next February. One might think that talking about stimulus opportunities a year after passage might be too late, but not to worry, the stimulus rollout will take years. In fact, we were told that the plan was not designed to have an immediate impact, but rather to accrue slowly over time.

Depending upon who is adding up the numbers, about 10% of the stimulus money has actual gone into the economy since it was passed this past February. I’m sure that you remember how it was an emergency that could not wait a day. A Congressman was rushed from Ohio on a stretcher to vote. There was no time to read the bill, let alone obey Obama’s campaign pledge to post it for public critique. That was was right before the two day delay in signing in necessitated by arranging a proper ceremony in Colorado for the occasion.

Of the money that has gone out so far, nearly all has been in tax cuts and aid to the states to bail out Medicaid. Very few of the shovel ready projects are yet ready to receive funding. Projections are that by year end, optimistically 24% of the money will be spent, including continuation of tax cuts and such. The tax cuts officially end at the end of the year; Obama having promised to cut middle class taxes, but not for very long.

The emergency pretense under which the bill was passed was based upon the assumption that the economy needed an immediate boost. No one argued that spending a week reading the bill would produce the disastrous effect of having the money hit in the third week of July next year rather than the second week. So the question is then whether Obama and Congress actually realized the Stimulus Bill was not going to provide stimulus, or whether they actually thought the shovel-ready projects were shovel-ready.

I’m inclined to think they knew well that the effects would be a year or more down the road. The life cycle of a government project comprises (1) decide what the government wants to do, (2) prepare detailed specifications and bid documents, (3) put the contract out to bid, (4) select and qualify a vendor, (5) sign a contract, (6) have the contractor assembly the people, equipment, and materials to do the job, (7) start work, and (8) receive payment for work accomplished. If (1) has been accomplished, then getting to (8), which when the money flows in quantity, takes 18 months if the skids are greased. If a contractor has been awarded a contract and awaiting funding to start work, it would only be through an accident of timing. No one stands poised above their shovel awaiting a go ahead. If there are Congressmen too poorly informed to know this, there is no shortage of experienced bureaucrats and Congressional staff who would surely tell them.

Moreover, Obama knew there was really no rush, hence his unnecessary delay in signing. Now, the word is at the Opportunities seminar is that it was designed to roll out in 18 to 24 months. The reason for the story of it being an emergency was to cut off debate on what the $755 billion would actually accomplish. On top of that, there is an unspoken belief that having government spent money is “doing something” and that “doing something” is the wand that delivers government magic.

The history of past recessions is that recovery is likely to start around now. Perhaps this recession is much worse, so it won’t be until the fourth quarter or even the first quarter next year. So the stimulus is not likely to arrive until well after it would be a useful element in recovery. At the time the money is spent, the government will be competing with private enterprise to borrow the funds, burdening the productive private sector with higher interest rates. The government may alternatively print the money, causing inflation and still higher interest rates.

One may counter that, never mind stimulus, investment in infrastructure is a good long term investment. If so, then the hodge podge of projects assembled in a panic without debate is the wrong way to go about it. Investments should be shown to make a positive return. No one has bothered with any such analysis.

So what are the opportunities for small business? Nothing special, just register and bid on government contracts as usually. Most of the stimulus money will end up in construction projects unsuitable for small business. We did learn that the demand for small business loans is exceeding the supply, because many of the banks are not making the loans. The Small Business Administration only guarantees the loans to the banks, it doesn’t originate loans.

The Stimulus Bill was not designed to provide stimulus, so it is not surprising that it has provided negligible stimulus effect. So now we are hearing that is a good reason to enact another Stimulus Bill.

Advertisements
Explore posts in the same categories: Economy, Uncategorized

Tags: , , ,

You can comment below, or link to this permanent URL from your own site.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: