It has been nearly two and a half years since President Obama's stimulus package was signed into law. On July 1st, the White House Council of Economic Advisers (CEA) released the 7th quarterly report assessing the economic impact of the American Recovery and Reinvestment Act of 2009 (ARRA). All such reports are political in nature—Democrats must tout their presumed "success".
Still, on the heels of two dismal BLS jobs reports, and with unemployment claims holding steady well above 400,000 per week, and at a time when it is perfectly clear that neither political party has the first clue about how to spur jobs growth, it is astonishing that anyone in the Imperial capital would have the balls to tell us how effective their policies have been.
- Following implementation of the ARRA, the trajectory of the economy changed significantly. Real GDP began to grow steadily starting in the third quarter of 2009 and private payroll employment increased on net by 1.7 million from the start of 2010 to the end of the first quarter of 2011. (From the employment trough in February 2010 to May 2011 private payroll employment increased by 2.1 million.)
- The two established CEA methods of estimating the impact of the fiscal stimulus suggest that the ARRA has raised the level of GDP as of the first quarter of 2011, relative to what it otherwise would have been, by between 2.3 and 3.2 percent. These estimates are very similar to those of a wide range of other analysts, including the non-partisan Congressional Budget Office.
- CEA estimates that as of the first quarter of 2011, the ARRA has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million.
The website E21 (economic policies for the 21st century) thinks it is time to revisit the unemployment predictions made when the ARRA was first put in place. Some of you probably remember the updated graph below.
Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan. The estimates, along with real unemployment rates, are posted below:
The E21 note continues—
The stark unreality of the Administration’s estimates is actually not that surprising in retrospect given the nature of the estimates. Romer and Bernstein simply assumed that a dollar of spending would increase GDP by $1.55. If this assumption proved to be wrong, then all of the knock-on effects of the stimulus would simply not follow.
Romer and Bernstein defend their estimates with the argument that the economic situation turned out worse than they had anticipated; and so the economy would have done even worse without a stimulus. That may or may not be the case — but at this point, a more thorough explanation is certainly warranted...
For example, there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.
Larry Lindsey offered his own review of the stimulus this week, arguing that it failed what’s colloquially known as the Sharp Pencil Test. As he explains, “if you sit down and do a back of the envelope calculation of the [stimulus] program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense.” Here is more on how Lindsey applies this test to the stimulus:
[E]ven if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.
At minimum, the public now deserves a response from policymakers about what they have learned from 2009 and 2010 — about what actually does and does not help get the economy growing and producing more jobs.
Where's the shame? Where's the contrition? Where's the urgent sense of inadequacy economists like Romer and Bernstein should feel in the face of a situation they simply did not (and do not) understand? E21 says that the public deserves an honest response from policymakers. At a minimum. That's the least they can do. Instead, Romer and Bernstein defend their estimates with the argument that the economic situation turned out worse than they had anticipated. Say what? Wasn't it your job to fully understand the gravity of the situation?
I am not so naive as to believe that we will get an honest accounting from Washington politicians. Shame, contrition and a healthy sense of inadequacy (which might foster learning) don't exist in American politics. They don't exist in a world where every word spoken publically, where every act carried out in the open or behind closed doors, is self-serving. I am merely pointing out that ordinary Americans deserve an acknowledgement that policies like the ARRA failed. Instead, Washington serves up a hefty portion of the usual propaganda.
Finally, I want to point out that this disgraceful episode we are now witnessing concerning the debt ceiling, future taxes and spending cuts is all about failure. I don't think this all-important point has been sufficiently appreciated.
If the American Recovery And Reconstruction Act of 2009 hadn't been such a miserable failure, those in Washington wouldn't be having these abject negotiations about the debt ceiling. But the failure of the ARRA is merely one episode in a long string of miserable failures. Useless, destructive wars. Giving predatory Big Banks free rein. The history of dereliction of duty, of ignoring the public interest, is very long indeed.
Will politicians acknowledge their failures? Not this week, not this month, not this year, not ever. But that's what the public deserves. After all, it's the least they can do.