My take is that very little that Obama proposes will be effective. At Forbes, Bruce Bartlett agrees:
…Finally, the impact of increased public works spending on state and local governments cannot be ignored. Most federal transportation spending goes for projects initiated by them. When they think there is a chance that the federal government will increase its funding, they tend to cut back on their own spending in hopes that the feds will foot the bill. A study by economist Edward Gramlich found that the $2 billion appropriated by the Local Public Works Act of 1976 postponed $22 billion in total spending as state and local governments competed for federal funds and actually reduced GDP by $30 billion ($225 billion today).
There are reports that California and other states are halting highway, school and bridge construction already underway. While it may be that they are simply reacting to a shortfall in tax revenue, it would be naive to think that the prospect of stimulus spending from Washington isn’t a factor as well. As The New York Times recently reported, states “are clearly holding out hope that President-elect Barack Obama will pump some federal money into the stalled infrastructure projects, and some may even be delaying work until they have a chance to make the case for federal spending.”
In the end, it’s harder to stimulate the economy in the short-run than the public and policymakers believe. As economist Paul Krugman has noted, “By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past–and the fiscal stimulus arrives just when it is least needed.” I couldn’t have put it better myself.
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