The Stimulus, One Year In
On the one year anniversary of the American Recovery and Reinvestment Act, David Leonhardt assesses it as an objective success. Despite the political hits the act has taken, there’s no way that, when all is said and done, the stimulus doesn’t put the President on the right side of economic history.
From the Leonhardt piece:
Of course, no one can be certain about what would have happened in an alternate universe without a $787 billion stimulus. But there are two main reasons to think the hard-core skeptics are misguided — above and beyond those complicated, independent economic analyses.
The first is the basic narrative that the data offer. Pick just about any area of the economy and you come across the stimulus bill’s footprints.
In the early months of last year, spending by state and local governments was falling rapidly, as was tax revenue. In the spring, tax revenue continued to drop, yet spending jumped — during the very time when state and local officials were finding out roughly how much stimulus money they would be receiving. This is the money that has kept teachers, police officers, health care workers and firefighters employed.
Then there is corporate spending. It surged in the final months of last year. Mark Zandi of Economy.com (who has advised the McCain campaign and Congressional Democrats) says that the Dec. 31 expiration of a tax credit for corporate investment, which was part of the stimulus, is a big reason.
The story isn’t quite as clear-cut with consumer spending, as skeptics note. Its sharp plunge stopped before President Obama signed the stimulus into law exactly one year ago. But the billions of dollars in tax cuts, food stamps and jobless benefits in the stimulus have still made a difference. Since February, aggregate wages and salaries have fallen, while consumer spending has risen. The difference between the two — some $100 billion — has essentially come from stimulus checks.
The second argument in the bill’s favor is the history of financial crises. They have wreaked terrible damage on economies. Indeed, the damage tended to be even worse than what we have suffered.
Around the world over the last century, the typical financial crisis caused the jobless rate to rise for almost five years, according to work by the economists Carmen Reinhart and Kenneth Rogoff. On that timeline, our rate would still be rising in early 2012. Even that may be optimistic, given that the recent crisis was so bad. As Ben Bernanke, Henry Paulson (Republicans both) and many others warned in 2008, this recession had the potential to become a depression.
Yet the jobless rate is now expected to begin falling consistently by the end of this year.
For that, the stimulus package, flaws and all, deserves a big heaping of credit. “It prevented things from getting much worse than they otherwise would have been,”Nariman Behravesh, Global Insight’s chief economist, says. “I think everyone would have to acknowledge that’s a good thing.”
Vice President Biden also has an op-ed in the USA Today arguing that “The Best is Yet to Come.”
And the Obama team has been pushing this graph, which basically says "we didn't break it, and we're doing a pretty good job fixing it."
Update: Sometimes Greg Mankiw's blog is filled with the wisdom of a superb Harvard economist. Other days, it includes the thoughts of a conservative political operative. This blog, which argues that stimulus opponents are not hypocrites for holding political events touting stimulus projects, is an example of the latter.
I don't know the facts of the case, but the logic of the Democratic position baffles me. It seems perfectly reasonable to believe (1) that increasing government spending is not the best way to promote economic growth in a depressed economy, and (2) that if the government is going to spend gobs of money, those on whom it is spent will benefit. In this case, the right thing for a congressman to do is to oppose the spending plans, but once the spending is inevitable, to try to ensure that the constituents he represents get their share. So what exactly is the problem?
Here's a fact: stimulus opponents did not say, "this bill might not be the best way to increase GDP in a catastrophic recession, let me propose an economically literate alternative." Instead, they argued that the recession might not be that bad and that Obama was some sort of socialist. But now, a year later, these same elected officials are trying to take political credit for something they have and continue to decry.
I give you the words of Senator Jim DeMint, who led the effort to craft what he called a "stimulus," but was actually a series of permanent tax cuts (a stimulus, by definition, is temporary):
This bill is not a stimulus, ladies and gentlemen; it is a mugging. It is a fraud. Conservatives who fear proponents of this bill want to inch our economy closer to European-style socialism are kidding themselves. The proponents of this bill want to strap a big rocket on the back of our economy and launch it all the way to Brussels!
This massive spending bill is fatally flawed. It will not rescue our economy; it will strangle it. That is why this bill must be stopped dead in its tracks. It cannot be fixed in he Senate by adding a few tax cuts or taking away a little spending. It must be scrapped entirely.
I have yet to see DeMint trying to take credit for stimulus projects, but Rep. Paul Ryan, who claimed he had a stimulus proposal to create "twice as many jobs at half the cost" and often partners with DeMint on such proposals, has been asking for economy strangling stimulus dollars. If I were an elected official, I'd never show up at an event to tout something that I thought would "strangle" the economy. But that's just me.