The stimulus could have been better, but…

it most certainly was not the failure Republicans wish to paint it as:

The notion that the stimulus failed has hardened into Republican orthodoxy, but it doesn’t hold up. A study released last week by the nonpartisan Congressional Budget Office confirmed that as of June, between 1 million and 2.9 million people are working who wouldn’t otherwise have been, thanks to the stimulus. That study wasn’t an outlier. Several others came to similar conclusions, including one by the economists Alan Blinder and Mark Zandi. As Jared Bernstein notes, the analysis by Blinder and Zandi found that the stimulus was responsible for roughly 2.7 million jobs and increased the GDP in 2010 by a healthy 3.4 percent.

I recall everyone praising Senator Snowe for pushing so hard to keep the stimulus below $800 billion. She was wrong. She was certainly better than the traditional Republican, yes, but being wrong by a lesser degree is still being wrong. (Her next re-election campaign will be yet another which does not feature a vote from me.)

I hate to take the tactic in saying that Republicans want to see bad things happen to the economy, but I’m hard pressed to say otherwise. What we obviously need right now is for the government to keep up its spending – even in the recent debt reduction deal the government will hardly cut spending over the next several years; everyone knows that would hurt growth even further. I just wish President Obama would stop listening to the other side and start pushing through what is right.

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7 Responses

  1. Assume that 2.9 million people are working because of the stimulus.

    That’s around $275,000 per job. What a bargain. Great idea. Effective use of funds!!!!11!!

    Not really.

    Just to clear up one thing here, GDP growth in 2010 was not 3.7%. The first 4 months it averaged 3.7, it was much less than that the rest of the year.

    I still see no evidence of the stimulus being anything more than a wasteful spending spree. However it did build a nice 4 lane border crossing in Vermont. The 2 cars per hour will appreciate the extra lanes to weave in. I’m sure lots of jobs were “created.”

  2. I would rather there be 2.9 million people working instead of 0.

    I would hazard the 3.4% comes from a calculation that takes into account the loss of growth that would have occurred otherwise, not actual overall growth.

  3. We don’t know what would have happened without the stimulus. It’s not accurate to make claims as to “what would have happened”. We can look at the cost per job and say it was a waste of money though.

    It would have been cheaper to simply replace the incomes of all those people and let them sit at home for a year. Actually, something like 5 years if you over-assume their incomes at 50,000 a year.

  4. Your mother is a stimulus.

  5. Here is the general problem with these claims: they’re not as steadfast as you think.

    You seem to have come down with Krugmanitis – which is to support a plan, but say its too small. If it pans out, you say it worked. If it fails, you say it would have worked if it was bigger.

    The assumptions you have made are:

    1) The CBO is a reliable source of economic information
    2) Blinders study is definitive
    3) A Keynesian A.D. increase is the silver bullet the world believed.
    4) Macroecnomics is simple and reducable.

    The most recent anti-stimulus arguments I’ve encountered are that labor is not as fungibile as you think it is (guys who built houses during the bubble do not know how to build bridges) and that there are not enough specialists to go around for these projects AND the existing projects.

    These are some good, readable stimulus criticisms that are not from Republican sources:

    http://www.coordinationproblem.org/2011/08/sorry-jonathan-chait-but-labor-is-not-fungible-or-best-blog-comment-i-read-today.html

    And Tyler Cown brings up a point I will translate for you: Labor polarization is when workers diverge further and further as the rich and poor.

    >>Labor market polarization. This is a very popular idea among the Progressive Left and rightly so; it seems to be true and increasing in importance. Yet it gets dropped like a hot potato when discussions of stimulus come up. A simple interpretation of the data, consistent with labor market polarization, is that we have a larger sum of money chasing the same set of well-qualified, easily-employable workers. Polarization also means not so much substitutability and there is plenty of evidence in the Jones-Rothschild paper of employers finding labor markets β€” for what they want β€” somewhat tight.<<

    http://marginalrevolution.com/marginalrevolution/2011/08/how-ineffective-was-the-stimulus-really.html

  6. I am curious about one thing related to the recession, and since you’ve embraced Keynsian so fully, I’d like to here your thoughts:

    What impact did labor unions and the minumum wage have on unemployment during the recession by imposing stickier wages?

    Here’s some background:

    Basic Keynesian economics says that without government to increase spending during a recession, aggregate demand will fall, people will become unemployed, and the lack of production will cause the price of resources to fall. Eventually, these resources (including labor) will become cheap enough for people to consider buying, and empoloyment will rise and bring up aggregate demand with it.

    The Keynesian recommendation is to increase aggregate demand with government spending, theoretically creating a faster recovery than the market would have.

    Since you’re saying that not enough aggregate demand was created, thus preventing the intervention recovery, would you agree that sticky wages thwarted the natural tendency for labor prices to fall, thus prolonging the recession by undermining the natural recovery as well?

  7. In one sense the price of labor has fallen. Companies are getting more production out of fewer people, thereby getting more bang for the same buck. However, in more direct terms, I see how the minimum wage would have an effect (and it probably has), but its impact cannot be terribly high given the disparity between it and the average hourly wage.

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