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The Congressional Budget Office has released its estimate of the economic effects of the American Recovery and Reinvestment Act, (aka the stimulus plan). CBO director Douglas Elmendorf points out that any efforts to provide helpful estimates are hamstrung by the fact that "large fiscal stimulus is rarely attempted." The CBO's estimates show some short run benefits, but little effect in the long run. The above chart shows a small negative effect in the long run, as the CBO estimates "legislation will reduce output slightly in the long run." Elmendorf explains in his report: The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will "crowd out" private investment. (Crowding out is unlikely to occur in the short run under current conditions, because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.) CBO's basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollar's worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital). Because of uncertainty about the degree of crowding out, however, CBO has incorporated both more and less crowding out into its range of estimates of the long-run effects of the stimulus legislation. Read the full report here .

The Congressional Budget Office (CBO) has released a report that says that House Resoultion 1, a.k.a. the Obama Administration's stimulus package, will inject only $526 billion into the economy by the start of 2011 . That amounts to 64% of the $825 billion plan, and short of the 75% that White House Budget Director Peter Orszag promised lawmakers last week. Both parties are using the report to back their positions on the bill. GOP leaders say the CBO's figures show the Obama Administration is exaggerating the speed and effectiveness of the plan. House Speaker Nancy Pelosi responds by saying it confirms what her party had been saying: "T he Congressional Budget Office's first analysis of the entire House recovery bill makes clear that which experts have been saying all along: the American Renewal and Reinvestment Act provides immediate stimulus to help create jobs and makes long-term, targeted, and responsible investments to keep our nation's economy growing for years to come." The sticking point of the moment appears to be about timing, and just how much the plan accomplishes in the first year and a half. CBO Director Douglas Elmendorf explained that the predictions in the report are based on anticipted delays between when federal agencies receive money and when they are able to pay the funds out. Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources. The seasonal nature of some spending also affects the speed at which activities can be conducted; for example, major school repairs are generally scheduled during the summer to avoid disrupting classes. You can read the CBO report here , and Elmendorf's comments here .