American Enterprise Institute: Stimulus Worked!
Republican politician have been running around bashing Obama’s stimulus plan for a while now. Meanwhile, the economy has slowly been recovering from Bush’s FUBAR economic policies. Even the conservative American Enterprise Institute agrees that the stimulus worked:
AEI has its economic outlook, by John Makin. Notice anything strange here?
We can expect 2010 to be a volatile year. This likelihood is underscored by looking back at 2008 and 2009. Two thousand eight was a highly volatile year leading up to the collapse of Lehman Brothers in September, which was followed by the risk of a total systemic meltdown. That sharp and obvious risk spike prompted massive policy responses that were simply the largest that central banks, with rate cuts and liquidity provision, and governments, with tax cuts and spending increases, could manage. The result–beginning in March 2009–was a linear rise in the prices of risky assets, the result of massive relief once the slip into a global depression had been averted and the acute phase of the crisis in the financial sector had passed.
The real economy also responded to the massive stimulus but remained heavily dependent on it. In the United States, growth during the second half of 2009 probably averaged about 3 percent. Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S. growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.
Will the teabaggers force the AEI to retract?
This gets my vote for “Underplayed Story of 2009”. What the administration did for the economy should be their prize accomplishment for the first year. A year ago, we were sitting here with credible economists convinced that we had a very good chance for a major depression. Now, thanks mostly to ARRA, we may very well be on the back end of a decent, but relatively short recession. Unfortunately, it’s hard to get credit for “We stopped it from getting really bad” when people don’t know/don’t care/don’t remember how bad we thought it was going to be. All the while, they’re getting hit for things being a 5 on the Bad-o-Meter, when it was a 7 when they got here and looked to be heading toward 10.
I think the administration will start getting credit when the economy really starts turning around, which should be soon.
I think the administration will start getting credit when the economy really starts turning around, which should be soon.
Like Reagan, who dropped to 37% approval in his first term. His approval ratings recovered with the economy.
Interesting graphs on Presidential approval ratings:
http://online.wsj.com/public/resources/documents/info-presapp0605-31.html
and more myths on Reagan popularity:
http://www.fair.org/index.php?page=1192
Reagan’s first term approval averaged 50%. I think Obama is beating him slightly so far.
That AEI piece also seems to show that the stimulus was not as big as it should have been.
The felt economic recovery is going to be if people think that the employment situation is getting better. That is going to be the tougher recovery no matter how you look at it. I hope that employment will recover quickly, but the credit-fueled consumption fired up the last shopping spree and that isn’t in the cards (I hope) any time soon.
I’d also like to see them admit that the stimulus was too small, instead of pretending that what came out of Congress was exactly what they wanted and what was needed. I think they (and BO specifically) need to make this fact central in the argument for another stimulus, which seems like will be needed. Say, “The facts show that the first one worked, for the size that it was. Now, we need a second stimulus to finish the job.”
I’d like to see a second stimulus directed at infrastructure. I really don’t see a downside to this, and, lord knows, it’s desperately needed.
I agree. My impression was that more of the first one was suppossed to be for infrastructure, but some of that got swapped out for tax cuts. You know, the stuff that won all those Republican votes.
I’d like to see recovery efforts separated into “relief” and “stimulus” like it was in the 1930s. There needs to be specific jobs programs. It seems like too much of the stimulus is just additional funding sent to the states for existing programs.
For example, things like unemployment extensions, COBRA subsidies, and additional Medicaid funding could all be considered “relief” that is not necessarily expected to supply stimulus.
unemployment extensions absolutely provide stimulus. government spending in the past year did exactly as intended, it provided fuel for an economy that corporations and individuals did not expend, it prevented the US economy from falling further. federal government spending, whether for relief or stimulus, accomplished both.
Adding 1% to GDP growth, whether from an otherwise +2% growth rate (stimulus) or a -2% growth rate (relief), is still adding 1% to GDP growth.
Sending money to states to help with medicaid prevents them from further cutting their state employee workforce (folks at DMV and parks and libraries and police stations etc), and thus does relieve/stimulate jobs.
A job loss avoided is equivalent to a new job.
We’re all in this together.
unemployment extensions absolutely provide stimulus
You are technically correct, under the “moosh it all together” theory. In a recession any spending that results in a check to individuals is stimulus.
But I was trying to highlight the difference between supplemental relief payments, and investment in durable infrastructure. I think there is political advantage in listing them separately. When people are hurting it is hard to argue against “relief.” And for opponents of stimulus spending, at least with infrastructure investments you can point to tangible results.
Any responsible discussion of the stimulus must include the downstream consequences of borrowing that much money. Also, direct government spending automatically raises GDP, being that it is a component of GDP.
Nothing resulting from the stimulus even hints at sustainable growth.
Any responsible discussion of the stimulus must include the downstream consequences of borrowing that much money.
… which must itself be weighed against the consequences of NOT borrowing and spending the money.
Also, direct government spending automatically raises GDP
Yes. That is how stimulus works.
Stimulus is not supposed to provide sustainable growth — it just is supposed to fill a GDP gap when the economy is in freefall until the economy is growing on its own engines. The amount of money borrowed for the stimulus is quite small in relation to the total hole left by unpaid for tax cuts, unpaid for Medicare Part D, unpaid for wars and other BushCo era unpaidfor programs. Programs where it was indeed clearly not responsible to deal with the downstream consequences, since that is in part what we are trying to live through now.