Christina Romer, in her speech that I have been blogging critically about, said that the government had by the end of the second quarter of this year (June 30) "spent" more than $100 billion in stimulus money. The official stimulus web site, recovery.gov, has $61 billion, and one of my critics says "about $60 billion." Other critics say that the official figure is too low, because it omits "tax reductions," which one critic calls "tax rebates." These critics say that the missing figure for tax relief is $40 billion, so gets Romer up to at least the $100 billion of her "more than $100 billion."
The figure of $60 billion of $61 billion is too high. According to recovery.gov, the $61 billion figure is as of last week--seven weeks after the end of the second quarter. Since the rate of stimulus expenditures is said to be accelerating, the number for the second quarter is undoubtedly significantly lower. This makes the $40 billion in tax relief all the more important to Romer's argumente And if that figure consisted of actual rebate checks, or reductions in current withholding, then of course it should be included in the total outlays of the stimulus program. But in fact very little of it consists of rebates, which is why it is not recorded on the government's website as stimulus money spent and is why Romer should not have said that by the end of the second quarter the government had "spent" "more than $100 billion" in stimulus money. Almost all the tax relief provided for in the stimulus bill consists of reductions in taxes by individuals and businesses. The question is how many of those reductions have resulted in increased cash flow to taxpayers. If, for example, the reduction is reflected in reduced withholding, or a reduced payment of estimated tax by people who filed estimated returns on April 15, it should be counted as stimulus spending; it puts money in people's pockets. If it merely reduces their future tax liability, it does not. All that is certain is that not all that $40 billion in tax relief is stimulus money; not all, and, at a guess, not most, put money in people's pockets before the second quarter ended.
That is a surprising oversight of Romer and her allied macroeconomists, and I am guessing that they will regroup and argue that just the prospect of greater after-tax income in the future can have a stimulus effect. And I agree! As I have said repeatedly, I support the stimulus. My criticism of Romer's speech, and of her defenders (apart from their incivility, surprising in those of my critics who are university professors), is that it and they exaggerate the probable effect on the economy of the limited amount of stimulus spending as of the end of the second quarter. To me, the significance of the stimulus is its effect on the confidence of business and consumers (that is a Keynesian point, and I am an "old Keynesian," which is to say a fan of the General Theory), and that effect is to a considerable degree, I should think, independent of the schedule of stimulus spending. So yes, if businesses and consumers know that they are getting tax reductions, this may well affect their current spending, because they know their after-tax income will rise. The effect, however, cannot be quantified.
So what would be the most accurate statement about the effect of the stimulus is as follows: since the financial collapse of last September, the government has taken a number of steps to arrest the economic decline. The joint effect of these steps (credit easing, bank bailouts, auto bailouts, stimulus package, mortgage relief, etc.) has almost certainly been positive, and I would guess strongly positive. But the separate effect of each of the components cannot be quantified. The stimulus package is a major component of the government's overall recovery program, and there are theoretical reasons for believing that it had a signficant effect in advance of actual expenditures of stimulus funds by the recipients. Our inability to quantify its effect should not be a ground of criticism.