Looks like we're in for another round of fiscal stimulus. (Does stimulus come in rounds? Just asking...) Anyway, Menzie Chinn at the venerable Econobrowser blog revisits Mark Z.'s Congressional testimony from last summer, wherein he rated the relative oomph of various legislative stimuli. (Also available in this Dismal Scientist article .)
Chinn avers:
Onebig caveat to the argument for infrastructure spending is that it usually takes a long time to plan such projects. Hence, it is not clear when the spending for such projects would actually occur, and hence the stimulus to the economy (this is called an outside policy lag, in the jargon). The "one-year horizon" shown in the table is for the horizon of one year from beginning of spending, not the beginning of planning and appropriation.
I have two observations here. First, if the spending could be directed to the states which had construction about to start, but hindered by financing or state revenue issues, then the problem of timing could be partly mitigated. I admit that it is unlikely that there are a tremendous number of such projects (although I am happy to be corrected). That leads me to my second observation.
The CBO study Options for Responding to Short-Term Economic Weakness (January 2008) laid out three principles for effective stimulus, loosely characterized as "timely, targetted, and temporary". Spending on infrastructure is problematic on this first count if one believes the recession will be short. If one believes that it will be prolonged (in the now outdated lingo, "L-shaped" instead of "V-shaped"), then this drawback is not so significant.
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