Stimulus Math: Many Multiples of Nothing is Still Nothing

In an article in tomorrow’s Wall Street Journal, John Cogan and I review our research showing why the 2009 stimulus package did little to stimulate the economy, despite its large size. The reserch continues our earlier work showing why the temporary increases in transfers and tax rebates in the 2008 and 2009 stimulus packages did not work to stimulate the economy. Tomorrow's article reports data showing that state and local governments did not increase their purchases of goods and services—including infrastructure—even though they received large grants in aid from the federal government. Instead they used the grants largely to reduce the amount of their borrowing as the following graph dramatically shows. As American Recovery and Reconstruction Act (ARRA) grants from the federal government rose, the amount of net borrowing by state and local governments declined. The data come from the Bureau of Economic Analysis, Department of Commerce. The level of purchases is much less than government officials predicted when ARRA was passed in early 2009.