Why Stimulus Lags

In Fiscal Stimulus - Unlikely To Work in the Real World I argued that fiscal stimulus operates with too much of a lag to be of any use in 'real world' applications. Bruce Bartlett discusses one such source of lag:

One reason may be that corporate consultants are giving this advice to their clients about accepting stimulus funds. From a recent Deloitte report:

"Stimulus projects are likely to come with a thick string of transparency and accountability requirements, along with potentially severe financial penalties and, in some cases, possible prison time. These conditions may be extended not only to U.S. government contractors, but to companies undertaking federally funded projects for state and local governments."

The difficulty is, if you do not have controls in place, particularly on the side distributing money, you get situation similar to the following which happened in my home town of London, Ontario:

For nearly two months, London's hospital chief didn't tell regulators about an internal audit that found one of his vice- presidents approved paying the company of a former colleague $3 million without competitive bidding or authorization.