Just reading over the $42 billion stimulus package, it’s interesting to look at it’s composition by program.
But even more interesting is to look at it in terms of its tax breaks and transfer payments vs its infrastructure and construction components as a whole.
As we can see, the stimulus is front loaded for the rest of this financial year and all of the next, before slowly tapering in 2010/2011 and fading out in 2011/2012.
But the entire package is clearly not a “one off sugar hit”. $14.4 billion for the remainder of this financial year followed by $15.9 billion for 2009/10, then a further $9.9 billion for 2010/11 before washing out to $1.5 billion in 2011/12 is anything but.
The tax credits and transfer payments make up the bulk of this years stimulus because it’s the easiest way to inject cash into the economy instantly, probably the only practical way to inject cash into the economy instantly – but from the start of next financial year, the infrastructure and construction spending kicks in to take over from the cash payments as economic stimulus.
To further highlight the silliness of the “one off sugar hit” claim, we need to remember that the money provided in the cash payments wont actually be spent all at once. Some of it will be spent upfront, some of it will be deferred to be spent later and some of it will be saved and used to retire debt (which then flows through to the banking system) – and every time that some of the cash payments are spent, that cash then churns through the economy where some of it will be spent again, and again, and again after that in ever decreasing increments as the cycle goes on.
In terms of when the cash actually goes through the economy rather than when it leaves the government’s bank accounts, everything in the chart needs to be shifted partially to the right. Much of the cash payments that will be spent won’t actually be spent this financial year but next. Much of the payments given to school construction wont be spent in the year it’s provided by government, but in the following year as inputs like labour and materials are purchased once the projects are actually up and running.
All this stimulus then slowly churns through the economy again and again, in cycles of ever decreasing magnitude.
It’s only a “one off sugar hit” if you’re walking to the beat of a different dictionary.