Two key attributes of a well-designed stimulus plan are that money gets into the hands of those who are most likely to spend it and that private investment isn't crowded out by public monies. Does the current $787 billion stimulus, which was passed into law in February, accomplish these goals?
The answer appears to be mostly in the affirmative, says San Francisco Fed economist Daniel Wilson. States with big expected budget gaps, i.e. those that are more likely to spend stimulus dollars, will receive a larger share of the $90 billion in fiscal relief funds set aside for states.
But $70 billion in transportation funds aren’t distributed based on economic needs, says Wilson. States will receive these funds based on formulas used by the Dept. of Transportation that take into account things like a state’s total highway miles and the amount of road repairs needed – not a state’s current economic condition.
Still, Wilson has an optimistic view of the stimulus’ potential effect: “While [The American Recovery and Reinvestment Act of 2009]'s state allocations do not represent the absolute optimal stimulus, they are on the whole well directed. Overall, that means that the economic impact of this support for state governments is more likely to exceed than to fall short of forecasts.”
Who said Keynesianism was dead?