The Speed of Spending Dilemma
Wednesday, December 24, 2008PAUL KANGAS: That pullback in spending was evident in the latest data out today from the Commerce Department. Personal spending fell in November for the sixth straight month, down 0.6 of a percent following a revised 1 percent drop in October. The decline came despite a continuing drop in energy prices, which fell sharply again today. In New York, February crude futures tumbled $3.63 or almost 10 percent to $35.35 a barrel. Spurring the slide, new government numbers showing a bigger than expected increase in oil supplies last week.
SUZANNE PRATT: Those declining oil prices are good news for consumers and could help relieve pressure on their budgets. More help could soon be on the way as President-Elect Barack Obama prepares a massive economic recovery plan. But as Darren Gersh reports, the incoming administration could run into an unusual problem: not being able to spend money fast enough.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you take out all the money the Federal government spends on the military, Social Security and medical care, you're left with what budget wonks call discretionary spending. That includes everything from test tubes in Federal research labs to plumbing for the space station. Last year, discretionary spending topped $500 billion. Now, Mike Ettlinger at the Center for American Progress says you have some idea of how hard it will be for President-Elect Obama to spend $800 billion or more to boost the economy.
MICHAEL ETTLINGER: So that kind of gives you a sense of the scale of things. So when you are talking about getting $500, $600, $700, $800 billion out the door, it's hard to do that responsibly.
GERSH: Being responsible often means being slow, and political economist Tom Gallagher says the Obama team may not have that option.
TOM GALLAGHER: For it to work, it has to be big enough and it has to be quick. And I'm not sure that political Washington is fully aware of just how badly the economy is collapsing right now. It's not just enough to have a big 2009 stimulus. There has to be money put into the economy early.
GERSH: The fastest ways to get money out the door are also some of the least glamorous. Give money to laid off workers who are likely to spend it right away. Those now-famous shovel-ready infrastructure projects qualify, but the projects that could begin by spring make up a fairly short list. Also, the Obama plan may help states pay their Medicaid bills. Washington analyst Stuart Sweet believes much of the early money in the recovery plan will be used to prevent state and local governments from slashing spending and canceling projects. Most will do that to meet requirements they balance their budgets.
STUART SWEET: It may not be that there's a surge of highway construction employment to the level that people imagine. It will go up, but without this, it would probably go down.
GERSH: Cutting taxes may get money to consumers as soon as March and the Obama team has signaled it will speed up the president-elect's plan to expand tax credits for working families. But even that might not help the economy much.
ETTLINGER: If it just ends up going into savings, it doesn't really give a kick to the economy that we need.
GERSH: When you look closely at the Obama recovery plan, two things become clear. First, the spending is so big that it will have to be spread out over two years or more. And second, the economy will probably be weak enough to need help for that long. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
