What if Stimulus Works, But Government Can’t Get the Timing Right?

As of September 3, 2010, about $154.8 billion of the approximately $282 billion of total funds made available by the Recovery Act in 2009 for programs administered by states and localities had been paid out by the federal government.

That’s the conclusion of a new GAO report, out this week. Similarly, the Wall Street Journal reports this morning that:

[S]pending stimulus dollars fast has turned out to be surprisingly hard.

This reminds me of a point that Megan McArdle raised a few weeks back:

[W]hat if Keynesian stimulus works, but no one can ever actually afford to do it, short of something like World War II, where the government can tap into a patriotic outpouring of national savings by issuing bonds with negative real yields.

She was talking about the sheer size of the stimulus. But we could ask a similar question: What if Keynesian stimulus works, but the machinery of government is so slow and inept, that it is impossible to effectively implement it in time to be effective?

This, of course, was the (near) consensus view among macroeconomists just a little over a decade ago. Writing in the American Economic Review in 1997, Martin Eichenbaum wrote:

[T]here is now widespread agreement that counter cyclical discretionary fiscal policy is neither desirable nor politically feasible.

Perhaps the current struggles to effectively administer stimulus will one day cause that consensus to re-emerge.