Next step for economic stimulus? Shore up the infrastructure

×
Although die-hard conservative apologists sometimes argue that FDR actually prolonged the Great Depression, most historians and economists agree that the New Deal reduced both the severity and length of the country's economic doldrums.

In fact, while World War II generally gets the credit for pulling the United States out of its tailspin, one could easily make the case that it was federal expenditure -- both before and after Pearl Harbor -- that saved America. This battle is generally an academic argument, roughly comparable with the fight over whether or not LBJ should have sent troops to Vietnam or Truman should have dropped two nuclear bombs on Japan.

Recently, however, the New Deal has come under renewed discussion, as history seems to be rewriting itself. Ironically, the President who revitalized the idea of a federally-funded economic stimulus was a Republican. George Bush's 2001 tax rebate, by all standards, helped pull the country out of an economic downturn. It, combined with this year's stimulus package, demonstrated that a direct flow of money could stimulate considerable economic growth.This idea is particularly important given the fact that President-elect Obama seems ideologically inclined toward big-government involvement in the economy. Whether through big infrastructure projects, tax refunds, or other programs, it is likely that federal money will be working its way into your community (and possibly your wallet). With that in mind, it's worth considering which stimulus projects hold the greatest promise for the economy.

Moody's has analyzed some of the major proposals on the table to see which is likely to have the greatest effect on the economy. Not surprisingly, it determined that short-term handouts to the country's neediest citizens would result in a quick burst of spending with an immediate and impressive economic return. For example, it calculates that every dollar spent on a temporary increase in food stamps would yield an economic effect of $1.73. Similarly, a dollar given to extended unemployment benefits would yield $1.63.

By comparison, Moody's seems to argue that the current path of stimulus expenditure is not particularly productive. For example, every dollar that would be spent on making the Bush tax cuts permanent would generate a mere $0.31, while another corporate tax cut would yield $0.30 on the dollar. Even a non-refundable lump-sum tax rebate would only return $1.01 for every dollar spent.

While food stamps and unemployment benefits have the potential to boost the economy in the short term, they don't really offer much in the way of sustainable, long-term growth. With that in mind, Moody's seems to suggest more general aid to state governments, which would offer a return of $1.38 on the dollar. The big revenue creator, however, seems to be infrastructure spending, which would offer $1.59 for every dollar spent.

These numbers are grounded in a few key assumptions. For example, Moody's assumes that people with lower incomes funnel more directly into the economy, as their savings rates are lower. Similarly, it prioritizes government spending over tax cuts, based on the beliefs that tax cuts lead to increased savings or spending on imports, while government spending is poured directly into the economy. Regardless, these numbers offer an interesting glimpse into the future of government spending. Let's hear it for infrastructure!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. While he looks forward to infrastructure spending, another stimulus check would be nice...

Increase your money and finance knowledge from home

Introduction to ETFs

The basics of Exchange Traded Funds and why ETFs are hot.

View Course »

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Add a Comment

*0 / 3000 Character Maximum