Here is the full report on the House version of the American Recovery and Reinvestment Act, which should shed some light on the debate that has been raging over the leaked version last week. Overall the CBO estimates that more than two-thirds, 64%, of the bill will be disbursed into the economy over the next 18 months. Breaking it down, the CBO estimates that $318 billion would be spent and the government would lose $207 billion in revenues by the end of fiscal 2010 for a total of $525 billion or 64% of the $816 billion bill. The difference comes from a holistic look at the bill – adding in the money that would be spent helping the states, shoring up Medicaid, expanding unemployment insurance and Cobra and, of course, tax cuts: another $248 billion in spending over the next decade and a total of $212 billion in lost revenues for the same time period.
This figure, 64%, is more in line with the 75% OMB director Peter Orszag said would be spent over then next 18 months in a letter to Congress. But in looking at discretionary spending – the three-page portion that was leaked to the press, myself included, last week — things look very similar. Only 41% — up from the 38% in last week’s version – of these funds, which involve the bulk of the infrastructure spending, will make it into the economy by the end of fiscal 2010, or $145 billion out of $356 billion. The stagnancy of these numbers shows that the CBO didn’t redefine “shovel ready,” and their definition is based on a narrow historical view as Scott Lilly explains.
At any rate, Paul Krugman perhaps made the best argument about why this whole debate is academic on ABC’s “ This Week,” and again in Monday’s New York Times, when he argued that spending money in 2011 and 2012 will be needed as much as spending right now. “One person’s pork barrel is another person’s necessary infrastructure investment. And there actually is a lot of necessary infrastructure investment. I think the theme that is particularly striking right now is, everybody’s forecast calls for an extended slump in the economy. We are not looking for something what people call a V-shaped recession,” Krugman told George Stephanopoulos. “When some of these people say the spending won’t take place till 2011, the CBO’s baseline forecast is for 8% unemployment in 2011… So we’re looking at a situation where even if some of the projects are continuing to add spending two years out, two-and-a half, even three years out, that’s not such a bad thing. Because we are looking at an L-shaped recovery, which is hardly a recovery at all.”
P.S. For those interested, here is the CBO’s score of the Senate Finance Committee’s portion of their version. Still awaiting the other half from the Appropriations Committee, which I assume will come tomorrow as they are due to mark it up.