Who Says The Federal Stimulus Package Isn't Working and Helping Small Business?

For those skeptics who really don't understand economics, here is a broad overview of the concept. I will keep the numbers small in my example, because reality is in hundreds of billions.

The government invests a hundred dollars in constructing or remodeling an existing building. It really doesn't matter which, and for the purpose of this article, I will call that a job. Will that help small business? Probably not, at this point. First of all, the small business doesn't have the technology or financial ability to compete for the job in question. Secondly, the small business can't process the tremendous amount of paperwork needed. So we need to rely on a larger, more sophisticated organization to package up the job for reallocation to the small business. So what does this mean?

The skeptic looks at the hundred dollars of hard earned tax dollars as going to a few select large companies, and that is the end of that. That is far from the case, however. The larger organization subcontracts pieces of the job to small businesses. What is really important here is that the distribution of the job creates economic impact. This is where the real difference is made, not on the initial award of the hundred dollar job.

The small business completes their portion of the job, receives the funds, and spends the money. To do a quick summary, the small business pays for labor and buys equipment and materials; the amount left over is profit to the small business owner. The process doesn't stop here. The small business owner pays house payments, buys groceries, pays for school clothes, etc. Those vendors receive the money, and they, in turn, spend it in the same fashion. The underlying economic impact is that the hundred dollar job has filtered through the system and created an estimated six times in economic impact. That's $600 in buying power, launched into the local community, where the job takes place. On a more realistic scale, $300 billion would convert to $1.8 trillion in spending nationwide.

It takes time for the federal stimulus package filtering process to happen, and chances are that the skeptic is realizing some of the impact, whether they know it or not. It is far better to see our tax dollars spent on internal construction projects and programs than it would be to see these dollars flow outside our borders. Keeping this type of spending will eventually help in these troubled times and benefit Americans in one form or another.

Author: Michael Katzenberger, Maid to Perfection Global, Inc.