Congressional Budget Office says Stimulus Plan Worked

[John_Mace]

@Damuri_Ajashi

@John_Mace

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 know that the 815 billion dollars didn’t all go to malt liquor and lap dances right?

Right. Some of it went for hookers and blow!

[athelas]

@Damuri_Ajashi

I don’t want to sound hysterical but we were one oil shock and perhaps a terrorist bombing away from Mad Max world.

Cite, and cite for the fact that disaster was averted? The tone and lack of evidence here reminds me of the neocons just after the Iraq invasion when a preliminary search found no WMDs.

[Sinisterniik]

@Damuri_Ajashi

Please cite this peer reviewed research.

This isn’t peer reviewed, but this is from the Wall Street Journal article I linked to earlier, penned by Barro (my emphasis added):

A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP – consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one.

I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports – personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses – there was a dampener, rather than a multiplier.

This comes from one of his peer reviewed papers, but unfortunately I can’t find a definitive link to it. I believe however, that this is the paper these findings are taken from: Macroeconomic Effects from Government Purchases and Taxes | NBER

And correct me if I’m wrong, but I think that the zero multiplier model is in Barro’s textbook Macroeconomics.

I know that there are others who agree with Barro, but I’ll leave that to somebody else to find.

[PunkyPoo]

Lots of good comments and insights here.

CBO at the time said that there would ultimately be no NET gain in jobs with the stimulus. I’d have to go back and look, but I believe that they said that by 2011, with or without the stimulus, that employment numbers would be the same. So we spent hundreds of billions to keep a few employed till 2011. (If CBO was / is correct.)

Others predicted that the stimulus would make things worse, and shouldn’t be implemented in the form that existed in Congress.

So what happened? Things got MUCH worse. Were the critics of the bill correct? That’s hard to know, but their prediction came true. Not the CBO’s prediction. Or Congress’ prediction. Or the White House prediction.

[Sinisterniik]

@PunkyPoo

CBO at the time said that there would ultimately be no NET gain in jobs with the stimulus. I’d have to go back and look, but I believe that they said that by 2011, with or without the stimulus, that employment numbers would be the same. So we spent hundreds of billions to keep a few employed till 2011. (If CBO was / is correct.)

I’m looking on the CBO’s website; I can find this assessment of economic conditions up through 2011 (warning, it’s a PDF): http://www.cbo.gov/doc.cfm?index=10803&type=1

I can also find several short term projections of the budget, including this one from November 2009: http://www.cbo.gov/ftpdocs/106xx/doc10682/Frontmatter.2.2.shtml

And here is their first (I think) budget assessment of the Stimulus, including the original 800 billion dollar estimate (also a PDF): http://www.cbo.gov/ftpdocs/99xx/doc9968/hr1.pdf

But I can’t find a single long term projection of the Stimulus’ effect on employment. I could be overlooking the pertinent report, but it appears that the CBO never weighed in directly on that aspect of the bill.

So what happened? Things got MUCH worse. Were the critics of the bill correct? That’s hard to know, but their prediction came true. Not the CBO’s prediction. Or Congress’ prediction. Or the White House prediction.

I can’t argue with that (so I won’t), but it still doesn’t directly address the OP, which is whether or not the Stimulus “worked”. I’ll use the valid Democratic talking point: Just because the estimates did not take into account the true severity of the recession doesn’t mean that the government’s response didn’t positively affect the country’s economic outlook.

And as several people have said, there are benefits that can’t be measured with numbers. Unemployment benefits (arguably) have a multiplier of 1 or more, but they also keep Americans from getting kicked out of their residence and starving to death. Even if the multiplier is less than one, it’s easy to argue in favor of extending benefits from a moral point of view.

I think I’ll go back into my corner again -this is turning out to be a more interesting discussion than I first thought!

[XT]

@Sinisterniik

Unemployment benefits (arguably) have a multiplier of 1 or more, but they also keep Americans from getting kicked out of their residence and starving to death

Is this hyperbole, or do you seriously have some expectation that American’s would be starving to death without unemployment benefits?? And if so, what evidence do you have that this would be the case? How many American’s starved to death in, say, the past 50 years?

As to the CBO claiming that the stimulus plan ‘worked’, seems a bit early to tell to me. Looks like their models PREDICT that it might have ‘worked’, but I’d be a bit wary of claiming victory just yet, were I the Dems…

-XT

[Sinisterniik]

@xtisme

Is this hyperbole, or do you seriously have some expectation that American’s would be starving to death without unemployment benefits??
-XT

Well, to be honest I can’t say with certainty that Americans would starve as a result of cutting unemployment benefits. I do know that as many as 1 in 8 Americans face the possibility of hunger and malnutrition everyday: http://www.everydaycitizen.com/2009/05/hunger_in_america_35_million_u.html

Many of these individuals work, but those relying on unemployment benefits could face a very real chance of death or serious illness due to malnutrition.

My specific argument may be flawed, but I stand by the idea that unemployment benefits (and other effects of Stimulus dollars) yield more than just a positive effect on GDP.