During economic contractions where aggregate demand takes a serious negative shift, government spending can have a very positive impact (as you are seeing today).
Only to the extent that the money makes it's way into the hands of the consumer class, who then use that money to increase demand for production. When the money is just horded by the wealthy, it does absolutely nothing for our economy.
I suspect that the reason that the money that our gov pumped into our economy has not helped anymore than it has is because it was a top down distribution of money, not a bottom up distribution. Remember, money on "trickles" down. Our spendulous bill money was given to those at the top, who in turn basically just kept most of the money. Much of they money that was sent to the banks was either almost instantly repaid by the banks and never served it's purpose of being lent. The banks didn't want to make loans because with such a shakey economy every credit worthy customer was highly likely to become a non-credit worthy customer the next day. Companies didn't need to borrow the money to expand because with a lack on demand for their products they had no need to expand. Individuals didn't need to borrow the money because they didnt know if they would be able to pay it back.
The guys at the top hired very few consumer class type individuals and spent almost nothing on materials and services with that money. Companies that got money to develope althernate energy horded that money because they knew that their was no demand for alternate energy sources. Local and state governments that got spendulous money just used the money to fund projects that were already on the list to be funded. Demand continued to decline and thus, very few private sector jobs were created which is why we still have nearly 10% unemployment, 17% total unemployment or underemployment, and a 25% average reduction in work hours for those of us who are unemployed. I have not seen any specific figures on this, but based on the figures that I have seen, it is highly likely that well over 50% of families have experianced a reduction of income during the past two years. Go stand in front of the post office and ask the next 100 people who walk in if they are stuggling to pay their bills, I will bet that 80% or more would respond "yes". Then ask them if they have recieved any additional income or work opportunities due to the spendulous bill, I would bet that the vast majority would answer "no".
Now if we would have taken the same amount of money that was allocated to the spendulous bill, and distributed it equally to each individual each individual would have recieved a check for about $2,600. That's over $10k for a family of 4. It is also excluding all of the TARP money, individual corporate bail out funding, and all of the increases in misc government programs, etc. When you include all of that stuff the gov could have sent us all a check in excess of $5k - or over $20k for a family of 4. If each individual and family unit was allowed to directly spend our economic stimulous/bailout money in the manner that best suited them, we would have seen many more jobs created and in the same processess the banks and auto companies would not have needed a bailout. A family that was in foreclosure could have caught up their morgage. A family that was not yet in foreclosure could have paid off the credit cards and auto loan so that they would have the free income to pay their morgage. A family that needed a new car to get to work could have bought one. A family that needed a new washer and dryier could have bought one. A family that needed some cash to survive a few months out of work would have had that cash, without significantly decreasing consumption. A family that desired to purchase an electric car our a more fuel efficient HVAC system could have purchased one. Then we would have had more demand for All in all, a direct distribution of cash to the working consumer class would have done much more towards ending the banking crises, the auto manufacturing crises, and unemployment than the government distributing funds to big companies.
The sum of financial decisions made by individuals is much more important to the agregate of our economy that the sum of financial decisions made by a few large corporations and our government. Thus we would have had a much better result from the spendulous and bail outs if that money would have been distributed to individuals.
That kind of sounds like redistrubtion of wealth, a term that all conservitives have been taught to loath. And it is a redistrubtion of wealth. But direct redistrution to individuals would have been a better investment choice that redustribution to the wealthy - if the purpose of all that redistribution to improve our economy. Historically, wealth has always migrated to the powerful, and eventually it has always been redistributed through social uprising (typically violent) or a total breakdown of economic trade, and then it migrates again to the powerful. It is a never ending cycle. It may be a much better choice to redistribute a little at a time than to allow the situation to get to the point where it is redistibuted by violence and/or decline of aggregate wealth.
We are all hearing on the news how much money our gov has created, how much our money supply has increased in the last few years. I have to assume that the number are true. But the average person on the street will tell you that he is broke or struggling financially. So where is all of this money? If the poor and middle class don't have it, then obviously it is in the hands of the rich. If the rich are spending it, then all of that money is essentialy out of circulation, regardless of if it is in the stock market, or if it has been used to purchase gold, it is still out of circulation for the purpose of the trade of consumer goods and services. A zillion dollars sitting in a bank acount that is paying basically 0 interest is doing absolutley nothing for our economy.
In theory, the cause of inflation is too much money chasing too few goods. So theoritically, with all of that additional money that the government has created, and especially with the production of goods and services at such a low amount, we should have double digit inflation. But we dont. Over the past could of years we have had virtually no inflation. Until all that money that the government printed up gets out of the hands of the rich and into the hands of the consumer, and so far I have seen no great movement in congress or by our president to make that happen, thus we are not at risk of much inflation at all.
Until we start seeing some inflation, banks really don't have a lot of motivation to lend all that money that the gov has printed and distributed to the wealthy who put it in the bank. And until we start seeing more jobs being created, consumers dont really want to borrow. And unless consumers get some money into their pockets they are not going to purchase more goods. And without consumers purchasing goods jobs will not be created. And if jobs arn't being created, and if banks arent lending, and if consumers dont want to borrow, then there will be no increase in demand. With no increase in demand, then businesses dont want to borrow either.
It's a never ending cycle that can not be broken without our gov distributing money directly to the consumer class. Most conservatives will say that if the government started printing money and distributing it to the consumer class to encourage demand that we would then have too much money chasing too few goods and would have a high rate of inflation. What most conservatives ignore is that we have lots of unused capacity to make additional goods, thus we are not really at risk of inflation until our factories are operating at near 100% and until our unemployment rate drops down to it's historical normal.