Bruce Bartlett looks at the composition of stimulus spending and is ultimately unsurprised that it did little for economic growth. The stimulus spent too little on actual consumption or investment:
According to the federal Web site that tracks stimulus programs, $763.1 billion of the original $840 billion program has been disbursed. Of this, $297.8 billion, or 39 percent, went to tax cuts, like the Making Work Pay tax credit. Another $236.7 billion, or 31 percent, went for various contracts, grants and loans. And $228.6 billion, or 30 percent, went for transfer payments.
Thus we see that most of the stimulus was unlikely to ever have had much impact on growth. Transfers and tax credits only raise growth if they cause individuals and businesses to increase their consumption or investment spending. Undoubtedly they did to some extent.
But studies have long shown that people’s spending is largely a function of what they view as their “permanent income.” Temporary increases tend to be saved and thus do not add to spending or growth.
The Bureau of Economic Analysis has put stimulus outlays into a NIPA framework. As of March 31, $452.6 billion of net stimulus funds had been disbursed in ways that show up in the national income accounts. Of this, the vast bulk, $399.7 billion, went for transfer payments. Another $9.6 billion went for subsidies and $68.1 billion for capital transfers to state and local governments. Only $37.8 billion went for consumption and $11.8 billion for investment – the only two categories of outlays that we know add to growth.