Print
The economy is sluggish and unemployment is on the rise, but Republicans and their allies say they want nothing to do with President Obama’s agenda for job creation because it’ll be just another “failed stimulus." Here's John Boehner making that argument on his official blog. Here's Karl Rove doing the same on Fox News. And here's Richard Posner offering his version at TNR -- although, to be fair, he merely calls the stimulus "botched" and I'm not sure he qualifies as a Republican ally.
Of course, the argument isn't new. The phrase "failed stimulus" has been a staple of Republican rhetoric since the fall of 2009. But it was wrong then and it’s wrong now, at least according to the the people most qualified to judge it. As David Leonhardt wrote in the New York Times:
Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs.
That was in February of 2010. Fifteen months later, in May of this year, the nonpartisan Congressional Budget Office estimated that, as of the most recent quarter, the Recovery Act had
increased the number of people employed by between 1.2 million and 3.3 million and increased the number of full-time equivalent jobs by 1.6 million to 4.6 million compared with what would have occurred otherwise.
And just a month ago, the president's Council of Economic Advisers came up with similar estimates (2.4 to 3.6 million jobs) using its own forecasting models. You'll find a few critics on the right who dispute the reliability of these models, but they are a distinct minority and it's not as if they have a compelling alternative theory. Keep in mind, by the way, that the administration had predicted the Recovery Act would create 3.5 million jobs, which is on the high end but in the same ballpark as most other estimates.
Yes, the administration also predicted unemployment would peak at around 8 percent. That was obviously very wrong. The jobless rate hit 9 percent in the middle of 2009 and, except for a brief period this year, hasn’t dipped below since. Those are the figures critics always use to make their point. But few mainstream experts doubt that, if not for the Recovery Act, today’s unemployment rate would be significantly higher.
The administration's error, in other words, seems to have been in anticipating how bad things would get, not in figuring out what to do. That's particularly true when you consider not just the size but the shape of the Recovery Act. The initiative invested heavily in projects likely to strengthen the economy in the long-run while delivering relief to people who very much needed it. Via Time's Mike Grunwald:
Yes, the stimulus has cut taxes for 95% of working Americans, bailed out every state, hustled record amounts of unemployment benefits and other aid to struggling families and funded more than 100,000 projects to upgrade roads, subways, schools, airports, military bases and much more. ... The "fun stuff," about one-sixth of the total cost, is an all-out effort to exploit the crisis to make green energy, green building and green transportation real; launch green manufacturing industries; computerize a pen-and-paper health system; promote data-driven school reforms; and ramp up the research of the future.
Grunwald, who is writing a book on the subject, notes reports of serious fraud have been minimal, thanks to unprecedented transparency. (If anything, the safeguards against abuse have been too effective, because they slowed some of the spending.) ProPublica's Michael Grabell, who is also writing a book on the subject, seems to agree:
After Hurricane Katrina and the Iraq reconstruction, many analysts predicted that the federal stimulus program would be rife with fraud, waste and abuse. At least so far, it hasn't been.
Grabell goes on to note that, so far, legal prosecutions have produced convictions over just $1.9 million of fraud -- or less than 0.01 percent of the program -- although it's always possible more cases will appear later on.
Meanwhile, the least effective parts of the law were most likely the poorly targeted tax cuts that Republicans and conservatives insisted upon as a condition of enactment.
The most credible case against of the Recovery Act is the one from the left, by the likes of Paul Krugman: It wasn't large enough. But that’s an argument in favor of going "big, long, and global" on a second stimulus, as E.J. Dionne recently put it – and the very opposite of what Republicans are saying.
Update: Over at the Washington Post, Dylan Matthews has done an exhaustive and detailed survey of nine major studies on the stimulus, including both modeling and econometric studies. I can't do justice to the write-up here -- and I'm not sure I'm really qualified to judge it -- so I'll just quote his conclusion: "I’m inclined to believe that the preponderance of evidence indicates the stimulus worked."
"The jobless rate hit 9 percent in the middle of 2009 ": shouldn't that be 10 percent?
"The jobless rate hit 9 percent in the middle of 2009 ": shouldn't that be 10 percent?
"The administration's error, in other words, seems to have been in anticipating how bad things would get, not in figuring out what to do."
And a big error it was. If you say, "My program will get unemployment down to 8%" and in reality unemployment gets stuck at 9% and looks to be on the rise, it's pretty hard to turn around and say, "Well, without my program unemployment would have peaked at 12%." To use wkwami's favorite formulation, that alternative history is pure speculation.
"The administration's error, in other words, seems to have been in anticipating how bad things would get, not in figuring out what to do."
And a big error it was. If you say, "My program will get unemployment down to 8%" and in reality unemployment gets stuck at 9% and looks to be on the rise, it's pretty hard to turn around and say, "Well, without my program unemployment would have peaked at 12%." To use wkwami's favorite formulation, that alternative history is pure speculation.
In medicine you learn pretty quickly to hang the black crepe when making prognoses. If you predict that a patient is likely to die and they pull through, you're a miracle worker. If you predict they'll pull through and they die, you're a dog.
In medicine you learn pretty quickly to hang the black crepe when making prognoses. If you predict that a patient is likely to die and they pull through, you're a miracle worker. If you predict they'll pull through and they die, you're a dog.
Obama may suspect what many economists believe they know: that private enterprise alone is incapable of returning America to the 4%-5% unemployment rate of the past no matter the amount of the fiscal stimulus. That doeesn't mean fiscal stimulus won't do the job, but rather that it has to be more directed to unmet needs. And does America have unmet needs. In infrastructure. From roads to airports to schools to water and sewer systems. Of course, increased spending on infrastructure means overcoming the objections to both more government debt and government spending as a larger share of the economy. Not an easy task. I'd tackle it by looking at the way many states approach their budgets ... view full comment
Obama may suspect what many economists believe they know: that private enterprise alone is incapable of returning America to the 4%-5% unemployment rate of the past no matter the amount of the fiscal stimulus. That doeesn't mean fiscal stimulus won't do the job, but rather that it has to be more directed to unmet needs. And does America have unmet needs. In infrastructure. From roads to airports to schools to water and sewer systems. Of course, increased spending on infrastructure means overcoming the objections to both more government debt and government spending as a larger share of the economy. Not an easy task. I'd tackle it by looking at the way many states approach their budgets, states with constitutions that prohibit deficit spending. They do it by dividing the budget between current expenses and capital expenditures, the latter not counted in determining whether the budget is in deficit because capital expenditures are not recurring - a capital expenditure today means less spending tomorrow. Of course, this method of accouting is consistent with generally accepted accounting principles and used by most every major business. If it's good for the states and good for business, then it should be good for the federal government. What's baffling to me is why the federal government didn't adopt this method of accounting long ago.
We may very well have reached the point in our economy where the private sector cannot provide sustained and adequate demand, in which case we are going to have to have government spending as a much larger share of output permanently or see ourselves sliding behind other economies.
This is the exact opposite of the garbage claim by supply-side pseudo-economics True Believers that sustained recovery cannot be based on government spending and therefore requires cuts in government spending. These people are morons. They look at the existing situation, with inadequate private demand, and declare that the way to make it better is rapidly to increase the gap between private demand and output ca ... view full comment
We may very well have reached the point in our economy where the private sector cannot provide sustained and adequate demand, in which case we are going to have to have government spending as a much larger share of output permanently or see ourselves sliding behind other economies.
This is the exact opposite of the garbage claim by supply-side pseudo-economics True Believers that sustained recovery cannot be based on government spending and therefore requires cuts in government spending. These people are morons. They look at the existing situation, with inadequate private demand, and declare that the way to make it better is rapidly to increase the gap between private demand and output capacity by dumping more unemployed into the economy through government spending cuts. About lie the medieval practice of bleeding patients to cure them. No empirical basis whatsoever. Indeed, the shedding of state government jobs is offsetting a good chunk of the private sector growth we are experiencing. No matter. These nuts are as about devoted to reality as witchcraft. That is what they are, the equivalent of economic witches at a time when we have the foundations of economic science already under our feet. But the witches demand we apply poultices of goat dung to our wounds.
Faced with the inability to explain why the private sector is not rushing to soak up the idle resources we already have as their flat-earth theory says it should, they invent lack of confidence due to Obama -- FOO, Fear of Obama -- as the reason. Or uncertainty. Krugman published a chart showing that investment is well above the norm given the level of unemployment. So much for the FOO theory. Once again, the facts immediately show the supply-side to be a bunch of clowns (I am running out of pejoratives quickly). Then, because uncertainty is claimed to be a drag on the economy, they produce a completely unnecessary debt-ceiling hostage crisis.
It is all faith-based reality with these nuts, as if we were living in a time when people still believed in ghosts and humors. That is the time that they want to drag us back to, the Middle Ages, and will if they have the opportunity.
Withal, I am not convinced, yet, that we are doomed to secularly inadequate private demand. Yes, government spending does have to grow as a share of output, quickly in the short term if we are to get out of the recession, and slowly in the long-term as private demand in a modern market economy is not enough and is unstable. But I continue to believe the major problem we have in terms of private demand is income inequality. Too much money in the hands of the investor class relative to consumption demand, the thing that ultimately drives investment We have much to much skewness in the distribution of income.
The easy answer is a much more progressive tax system that relieves the lower 80% of much of its tax burden and shifts it onto the upper 20% that has more than 70% of total income and riaing. It may not be the entire answer, but it would make an enormous difference and it is not technically difficult to do. Politically? Impossible until we figure out how to beat the right decisively. I think Obama squandered a big opportunity to do that with his post-partisan bullshit. The wrong person at this time and place. As campaign rhetoric, I thought it was great. That he actually seems to have believed his own campaign rhetoric given the reality of the Republican party astonished me and still does.
Rayward, for the economy as a whole, accounting method does not answer the question whether we should finance with debt or taxes.
Rayward, for the economy as a whole, accounting method does not answer the question whether we should finance with debt or taxes.
The administration is clearly quite clever about politics, but their continued happy talk on the economy bewilders me. The recent statement by the White House press secretary that they see no chance of a double-dip, when there is a very clear danger of exactly that, is a case in point.
What I want to hear from the administration, and what I think the public wants to hear, is: "Things are worse than we thought they would be. We expected, as did most economists, a recovery by now. This was a mistake on our part. We thought we had done enough to fix the problem--clearly we haven't, and we intend to do more. We call on Congress to help us, because we do not accept the prospect of a lost decade in ... view full comment
The administration is clearly quite clever about politics, but their continued happy talk on the economy bewilders me. The recent statement by the White House press secretary that they see no chance of a double-dip, when there is a very clear danger of exactly that, is a case in point.
What I want to hear from the administration, and what I think the public wants to hear, is: "Things are worse than we thought they would be. We expected, as did most economists, a recovery by now. This was a mistake on our part. We thought we had done enough to fix the problem--clearly we haven't, and we intend to do more. We call on Congress to help us, because we do not accept the prospect of a lost decade in America. That is simply unacceptable. This country can do better than that and it will do better than that."
And then lay out a big, ambitious jobs plan. Really big, really ambitious, no holds barred. The Republicans will no doubt call it "more failed stimulus" and lay out their own plan to cut and deregulate everything. Let 'em. If the next election is about policy, with their agenda and our agenda laid out for the public to compare, I like our chances much better than if it's a referendum on the economy.
Obama's favorability ratings are pretty good. I think people are ready to forgive him an honest mistake--but only if he acknowledges he made a mistake and says what he plans to do to fix it.
I hope this will be the thrust of his Labor Day speech. I'm not too optimistic he can keep the message clear and avoid getting sucked into deficit issues, but here's hoping.
"And then lay out a big, ambitious jobs plan. Really big, really ambitious, no holds barred. The Republicans will no doubt call it "more failed stimulus" and lay out their own plan to cut and deregulate everything. Let 'em. If the next election is about policy, with their agenda and our agenda laid out for the public to compare, I like our chances much better than if it's a referendum on the economy."
I concur. More importantly, a modicum of activism from the American voters will go a long way. Imagine 2 million unemployed marching on Washington to demand that Congress pass such a jobs bill.
"And then lay out a big, ambitious jobs plan. Really big, really ambitious, no holds barred. The Republicans will no doubt call it "more failed stimulus" and lay out their own plan to cut and deregulate everything. Let 'em. If the next election is about policy, with their agenda and our agenda laid out for the public to compare, I like our chances much better than if it's a referendum on the economy."
I concur. More importantly, a modicum of activism from the American voters will go a long way. Imagine 2 million unemployed marching on Washington to demand that Congress pass such a jobs bill.
Borrowing for current consumption is the road to serfdom; borrowing to construct the plant and equipment needed to produce goods and services adds to a nation's wealth and its income capacity. Yet at the federal level, little or no distinction is made between the two. If I eat every meal at expensive restaurants and charge it to my Visa card, I am mortgaging my future for current gratification. If I borrow from a bank to build a new plant that will double my production, I am deferring current gratification in order to increase my future income. I borrow because the increase in my productive capacity not only allows me to repay the debt but provides extra income to boot. A nation borrows ... view full comment
Borrowing for current consumption is the road to serfdom; borrowing to construct the plant and equipment needed to produce goods and services adds to a nation's wealth and its income capacity. Yet at the federal level, little or no distinction is made between the two. If I eat every meal at expensive restaurants and charge it to my Visa card, I am mortgaging my future for current gratification. If I borrow from a bank to build a new plant that will double my production, I am deferring current gratification in order to increase my future income. I borrow because the increase in my productive capacity not only allows me to repay the debt but provides extra income to boot. A nation borrows to construct and improve infrastructure because the increase in the nation's productive capacity not only allows the government to repay the debt but provides extra income to boot. Of course, this is elementary. Yet, we talk about government borrowing as if it's all for current gratification.
I see nothing wrong with a president predicting 8% unemployment and ending up with 9.2%. What I have a problem with is Greenspan testifying under pressure from the Bush Adminstration that we could have the Bush Tax Cuts and everything would be fine. We ended up weak and conflicted over the National Debt. We won't do the things we need to do. And the wealth disparity is hurting consumption. A married couple can make $87,000 of capital gains and dividends and pay zero tax, while a wage earner family making $87,000.00 pays tax at 18% of that amount.
I see nothing wrong with a president predicting 8% unemployment and ending up with 9.2%. What I have a problem with is Greenspan testifying under pressure from the Bush Adminstration that we could have the Bush Tax Cuts and everything would be fine. We ended up weak and conflicted over the National Debt. We won't do the things we need to do. And the wealth disparity is hurting consumption. A married couple can make $87,000 of capital gains and dividends and pay zero tax, while a wage earner family making $87,000.00 pays tax at 18% of that amount.
Rayward. you need read a macro 101 text. in a liquidity crisis, all gov't spending helps-- albeit some helps more than others (multiplier effect). Building tanks and dumping them in the ocean helps (google WWII), but not as much as building bridges by CCC or WPA employees.
Others: Keynesian calculations show that about $1T in spending is needed.. pretty close to what more was needed when BHO touted $.8T as just right in a bill in which only about $0.4T had any decent multiplier effect. He could have got by with a bit less than $1T extra then, but not now. Had he done so then, unemployment would be 5-8% now... and we'd have significant Dem majorities in the House and Senate.
Rayward. you need read a macro 101 text. in a liquidity crisis, all gov't spending helps-- albeit some helps more than others (multiplier effect). Building tanks and dumping them in the ocean helps (google WWII), but not as much as building bridges by CCC or WPA employees.
Others: Keynesian calculations show that about $1T in spending is needed.. pretty close to what more was needed when BHO touted $.8T as just right in a bill in which only about $0.4T had any decent multiplier effect. He could have got by with a bit less than $1T extra then, but not now. Had he done so then, unemployment would be 5-8% now... and we'd have significant Dem majorities in the House and Senate.
I've made two points (in different comments). One, the productive capacity of our economy cannot sustain itself at full employment (roughly 4%-5%), so however much is spent on the stimulus, the end result will be back to unacceptably high unemployment. Two, the government can increase the nation's productive capacity by investing in infrastructure, the roads, schools, water and sewer systems, etc. that are essential to economic growth and efficiency, so the economy can sustain itself at full employment. One can argue (many do) that we have shortchanged investment in the future, and now find ourselves without the capacity to maintain anything near full employment. We can react in one of t ... view full comment
I've made two points (in different comments). One, the productive capacity of our economy cannot sustain itself at full employment (roughly 4%-5%), so however much is spent on the stimulus, the end result will be back to unacceptably high unemployment. Two, the government can increase the nation's productive capacity by investing in infrastructure, the roads, schools, water and sewer systems, etc. that are essential to economic growth and efficiency, so the economy can sustain itself at full employment. One can argue (many do) that we have shortchanged investment in the future, and now find ourselves without the capacity to maintain anything near full employment. We can react in one of three ways. One, do nothing and learn to live with high unemployment (and low output). Two, permanently increase the relative size of the federal government in order to maintain the semblance of full employment (with unemployment assistance, etc.). Three, invest in the nation's productive capacity so that the economy can eventually sustain itself at full employment.
@rayward, while I agree with you that we should be putting a ton of money into building up our infrastructure, I don't see what the state of our infrastructure has to do with our economy's capacity for full employment. If our roads suck, making transport slow and inefficient, how does this reduce employment? It could just as easily result in higher employment (more workers to compensate for reduced efficiency) as lower.
Infrastructure problems reduce our efficiency and thus our per capita income, but not necessarily our employment/population ratio.
@rayward, while I agree with you that we should be putting a ton of money into building up our infrastructure, I don't see what the state of our infrastructure has to do with our economy's capacity for full employment. If our roads suck, making transport slow and inefficient, how does this reduce employment? It could just as easily result in higher employment (more workers to compensate for reduced efficiency) as lower.
Infrastructure problems reduce our efficiency and thus our per capita income, but not necessarily our employment/population ratio.
Wrong,
The measure of success is not whether the Gov could go into debt and create temporary $50K jobs by spending $75K (any idiot could do this) ...
... it is whether the Gov spending created sustainable private sector jobs --- you know the basis of our economy.
And here the answer is a resounding NO.
Wrong,
The measure of success is not whether the Gov could go into debt and create temporary $50K jobs by spending $75K (any idiot could do this) ...
... it is whether the Gov spending created sustainable private sector jobs --- you know the basis of our economy.
And here the answer is a resounding NO.
I think the rat should state at the end of his fallacious arguments, "Mission Accomplished!"
I think the rat should state at the end of his fallacious arguments, "Mission Accomplished!"
"it is whether the Gov spending created sustainable private sector jobs --- you know the basis of our economy. And here the answer is a resounding NO."
mr. (ir)rationale can't see the forest for the tress when it comes to his denial of government's roll in private sector successes. Apparently all that Government spending on military toys never created sustainable private sector jobs. All those "incentives" for oil and gas production have created a very sustainable private sector 'rentier' class.
It's funny but I know a lot of private sector, small and large businesses that spend a lot of time going after government contracts because, you know, they're long term, sustainable income streams for ... view full comment
"it is whether the Gov spending created sustainable private sector jobs --- you know the basis of our economy. And here the answer is a resounding NO."
mr. (ir)rationale can't see the forest for the tress when it comes to his denial of government's roll in private sector successes. Apparently all that Government spending on military toys never created sustainable private sector jobs. All those "incentives" for oil and gas production have created a very sustainable private sector 'rentier' class.
It's funny but I know a lot of private sector, small and large businesses that spend a lot of time going after government contracts because, you know, they're long term, sustainable income streams for businesses. But then again...maybe those are not the types of private sector job mr. rat is referring to when he says they're the basis of our economy.