Stimulus spending has been slow, but does that mean that it’s not working?  The Congressional Budget Office estimates on the amount of money that would be spent up to this point is very close to what the government is reporting to be spending on their website recovery.gov.  So currently, the rate of spending is in line with what was thought the rate of spending would be when the legislation was passed.

Many believe that most of the spending in the stimulus package was mostly Keynesian-type spending, which is not accurate.  Only $274 billion or around 35 percent of the $787 billion consists of the typical Keynesian-type spending on infrastructure and other projects that is typically associated with this type of spending.  Almost half of the money went toward tax cuts and in the form of reduction in taxes for workers directly to their pay checks.  Keynesian spending provides greater than a $1.5 gain in GDP for every dollar spent versus a $0.99 gain in GDP for every dollar of tax cuts in permanent gains to the economy.  Tax cuts can be implemented quicker and result in temporary increases in economic gains, but spending provides a greater long term boost to the economy.

The Congressional Budget Office estimates that unemployment would be between 10.5 and 11  percent without the stimulus spending and tax cuts that have already taken place.  That means there are currently between .5 and 1.5 million more people employed because of stimulus spending.  The Wall Street Journal predicted that the GDP growth in the third quarter this year would be 0.7 percent.  After the stimulus was passed the third quarter grew 2.9 percent.  The economy was only predicted to grow 1.9 percent in the fourth quarter, but the actual growth appears like it will be between 3.5 and 4 percent.

Spending boosts the economy and the government is able to receive their money back in the form of taxes by the greater number of people being employed and the greater amount of spending in the better economic environment being created.