As I’ve been saying for a while, one major factor hampering the design of effective fiscal stimulus programs has been the perceived political need to be hyper-vigilant about avoiding “waste.” As an example, check out Jonathan Karl and Gregory Simmons slamming the “The American Reinvestment and Recovery Act” signs that accompany some ARRA funded projects. The article is kind of triply-dumb. For one thing, the quantity of funds involved here is tiny so it’s not clear why anyone’s even bothering. For another thing, stimulus works in part through expectations, so informing people about its existence is important. And last, government purchases of paint and metal have a legitimate stimulative impact.
As Alec MacGillis wrote last spring it’s totally unclear that “wasting” money is a real problem as long as the “waste” mobilizes otherwise unmobilized economic resources. But politically all this is a hard sell, and rather than try to sell it the Obama administration has sold the idea that they’re being vigilant against waste. The reality, however, is that it’s difficult to push money out the door quickly and get good projects up and running if you’re obsessed with absolutely eliminating waste. If you look at any well-run private business, you’ll find a certain amount of waste simply because waste can be less-costly than waste-elimination measures.
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