Story here.
Of note:
Does this prove anything? Can Obama take any credit? Will anyone have crow for dinner tonight?
If you mean in the media, this will be covered the way all political stories are these days. The actual facts and what they mean will be discussed for about six hours. Then the squabbling of who reported it, how they reported it, what they said, what they really said, and what they really meant will last for six weeks. Or until the cycle starts again over something else.
If you miss those first six hours, it can be hell trying to figure out what everyone is talking about.
We won’t know if it “worked” until we actually start growing the economy again and adding jobs. The stimulus wasn’t just about pushing the full effects of the Great Recession out by 2 years. Many economist are predicting a “double dip” recession, which would mean all we did was delay the inevitable.
Or,… for $815B we got about 2.4M jobs. That’s about $340k per job. Maybe we should’ve saved some money by just giving 2.4M unemployed people $50k to get them through the tough times.
Also, the Stimulus was advertised as being necessary to make sure the unemployment rate didn’t go above, what was it, 8.5%? Well it went a lot higher than that, so it didn’t “work”.
You could be right, but I don’t remember that factoid. Can you give me a cite?
The Congressional budget office said no such thing.
Basically, what they said was, “Well, we actually don’t have any real evidence regarding what the stimulus did, but the Congress asked us to score it, so the best thing we could do was re-run the same models we ran the first time, suitably modified because the final stimulus plan was somewhat different than the original one.”
That’s ALL they did. They ran models that have pre-built assumptions in them about the value of multipliers, and which assume that Keynesian theory is essentially correct. The models don’t take into account any of the negative effects that many economists say are important. The CBO even admits that there are other models they could have used, and those models would have shown very different effects. But they didn’t use them.
Let me repeat - this study is not based on any measurable data regarding this stimulus. Had they not modified the parameters of the model to account for the slightly different composition of the stimulus from their 2009 run, it would have yielded exactly the same results as the first one did.
As the CBO says right in the report:
So to cover the fact that they’re using a model of unknown accuracy, they just assigned wide fudge factors to it. Specifically, they allowed for a range of ‘multipliers’ between 1 and 2.5. This ignores peer-reviewed research that finds real world multipliers may be as low as 0, and that measured past multipliers in one study never went above 0.8 (Robert Barro of Harvard did extensive research on fiscal multipliers from government spending).
In addition, the models are actually very simplistic, and do not even consider things like loss of confidence, uncertainty induced by fiscal stimulus spending, loss of multiplier effect though stimulus money being spent on imports, Ricardian Equivalences due to increased deficits, and a host of other potential issues.
samclem: Here is Paul Krugman from a year and a half ago, congratulating Romer and Bernstein for their detailed estimate of the impact the stimulus would have. He confirms their findings, saying that his own models showed a similar result.
If you don’t want to click the link, here’s what Romer predicted:
WITH the stimulus plan, unemployment would peak at 8%, and today would be at about 7%.
WITHOUT the stimulus plan, unemployment would peak at just over 9%, and today would be around 8.7%.
So, if we go by the actual stated claim for the stimulus, it was a complete failure. The actual economic situation with the stimulus is worse than the projected economic situation without it.
By the way, the model the CBO is using is essentially the same as the model Romer used to get her highly inaccurate estimates. These models simply have no track record of accuracy.
They had plenty of disclaimers. And the conditions were worse than anyone knew.
The economy is growing - the recession ended a couple of quarters ago, and the job loss acceleration in the private sector turned around in March of 2009 and turned positive at the beginning of this year. 600,000 jobs have been added in 2010.
The 8.5% unemployment projections were just based on bad information - things were much worse in January of 2009 than anyone thought, and the projections were based on bad data.
Well of course the Congressional Budget Office says Stimulus Plan Worked. If they had said otherwise we would have a new Congressional Budget Office in short order. These people take criticizm very seriously.
Tris
Define “worked”.
Really.
Did the stimulus help avoid a deeper recession? Almost certainly.
But by how much and was it money well spent is another question.
There are indications of a double-dip recession looming.
Too soon to tell.
Personally I think the stimulus avoided a complete implosion of the economy but only just. Basically we spent a fortune to barely limp along. Money well spent? Hard to say.
Bottom-line this and the rest of your post for me.
Is the CBO fudging numbers?
Is the CBO using a discredited model? If so what should they be using?
If we discredit the CBO who do you think we should listen to? Please be specific on that one?
Or are you saying the answer to the question is unknowable? No one can provide a reasonable assessment of the situation and we will just have to ride it out and see what happens?
Find me one example of a member of the CBO being fired/replaced for disagreeing with an existing administration and I might take this as a serious comment. The CBO isn’t perfect, but it’s one of the best referees Congress has.
As far as the OP, from what I’ve read I don’t think you’ll find a consensus answer no matter how hard you try. As Sam Stone mentioned, there is more than one possible economic model and they all yield slightly (sometimes drastically) different results, like predicting the path of a hurricane.
This is a bit of heavy reading that claims the stimulus worked, by Keynesian economist Mark Zandi (it’s a PDF):
Here is a counter-argument by Robert Barro as to why demand-side economics aren’t all they’re cracked up to be:
Finally, a related article from Politifact that does a pretty decent job explaining why it’s hard to say definitively who is right and who is wrong:
Krugman was talking about the effect the stimulus would have in affecting the output gap and the resulting changes in unemployment and GDP growth. He doesn’t mention thinking the U3 would top out at 8% anywhere in that article. Krugman actually says the opposite.
The criticism I saw was that Romer underestimated how bad the job losses would be in 2009, and how slow new jobs would be added.
http://stevensonblog.blogs.tuscaloosanews.com/files/2010/04/docpage-recoverystats11.jpg
But that doesn’t affect the goal of the stimulus of increasing employment and GDP growth by creating demand. It just means the unemployment rate was higher when that was happening.
From CBS:
Keep in mind, only slightly more than half of the stim money has actually been spent. And remember, 1/3 of the stim was tax cuts, including the ‘Making Work Pay’ tax credit.
The fact that it takes gov so long to actually spend the money IAW the FAR and procurement process is a good argument for why spending-based stimuli plans are almost never worth the long term damage to the budget.
We should keep in mind that we will never know if the stimulus “worked”, but I think we can safely say that throwing $800B at the US economy is going to have some effect. If we avodd a double dip, then maybe it did the main thing it was supposed to-- keep the pump primed. But if we do go into a second recession, I would hope we’d give serious pause before we throw more money at the problem.
Not quite. All they are doing is re-running the questionable models that they used to estimate that the ARRA would create jobs. They are emphatically not empirically measuring the actual impact based on new job creation; they’re simply playing with the same old numbers. Even the CBO head agrees:
However good or bad the economy is, that this “new” estimate would always result in the same outcome - it is entirely meaningless as an indication of how the ARRA is really doing.
That’s not entirely true, since we also got a bunch of infrastructure spending, etc. That’s like saying since a bridge project costs $10 million dollars and provides 50 jobs that each job cost $200,000. You also get a bridge at the end.
It looks like someone in the CBO might of added an extra 0 by mistake.
http://news.yahoo.com/s/ap/20100827/ap_on_bi_go_ec_fi/us_economy
“The government is about to confirm what many people have felt for some time: The economy barely has a pulse.”
You know that the 815 billion dollars didn’t all go to malt liquor and lap dances right?
Thats because the CBO uses the best model available to them.
Please cite this peer reviewed research.
Those numbers presumed a much rosier picture of the economy than the facts supported. We were literally on the brink of economic collapse. Grain shipments were rotting in ports because banks couldn’t move money; there were runs on perfectly healthy banks based on unfounded rumors; municipal bond auctions were failing; assets that are trading at premiums today couldn’t find buyers at any price; etc. The market system was on the verge of collapse and I don’t remember too many free marketeers beating the drums about non-interference back then, nope, back then it was “WTF are you guys going to do to fix this mess you inherited. You wanted thsi job now do it and fix keep our economy from collapsing entirely”
I don’t want to sound hysterical but we were one oil shock and perhaps a terrorist bombing away from Mad Max world. And now in the comfort of a relatively stable and recovering economiy, it is very very easy to criticize the cost of averting the disaster that we were heading for but its pretty disingenuous.