NYT Looses Econ Writer on the Stimulus.

[SirNitram]

Link

Imagine if, one year ago, Congress had passed a stimulus bill that really worked.

Let’s say this bill had started spending money within a matter of weeks and had rapidly helped the economy. Let’s also imagine it was large enough to have had a huge impact on jobs — employing something like two million people who would otherwise be unemployed right now.

If that had happened, what would the economy look like today?

Well, it would look almost exactly as it does now. Because those nice descriptions of the stimulus that I just gave aren’t hypothetical. They are descriptions of the actual bill.

Just look at the outside evaluations of the stimulus. 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. The Congressional Budget Office, an independent agency, considers these estimates to be conservative.

Yet I’m guessing you don’t think of the stimulus bill as a big success. You’ve read columns (by me, for example) complaining that it should have spent money more quickly. Or you’ve heard about the phantom ZIP code scandal: the fact that a government Web site mistakenly reported money being spent in nonexistent ZIP codes.

And many of the criticisms are valid. The program has had its flaws. But the attention they have received is wildly disproportionate to their importance. To hark back to another big government program, it’s almost as if the lasting image of the lunar space program was Apollo 6, an unmanned 1968 mission that had engine problems, and not Apollo 11, the moon landing.

The reasons for the stimulus’s middling popularity aren’t a mystery. The unemployment rate remains near 10 percent, and many families are struggling. Saying that things could have been even worse doesn’t exactly inspire. Liberals don’t like the stimulus because they wish it were bigger. Republicans don’t like it because it’s a Democratic program. The Obama administration hurt the bill’s popularity by making too rosy an economic forecast upon taking office.

Moreover, the introduction of the most visible parts of the program — spending on roads, buildings and the like — has been a bit sluggish. Aid to states, unemployment benefits and some tax provisions have been more successful and account for far more of the bill. But their successes are not obvious.

Even if the conventional wisdom is understandable, however, it has consequences. Because the economy is still a long way from being healthy, members of Congress are now debating another, smaller stimulus bill. (They’re calling it a “jobs bill,” seeing stimulus as a dirty word.) The logical thing to do would be to examine what worked and what didn’t in last year’s bill.

But that’s not what is happening. Instead, the debate is largely disconnected from the huge stimulus experiment we just ran. Why? As Senator Scott Brown of Massachusetts, the newest member of Congress, said, in a nice summary of the misperceptions, the stimulus might have saved some jobs, but it “didn’t create one new job.”

•

The case against the stimulus revolves around the idea that the economy would be no worse off without it. As a Wall Street Journal opinion piece put it last year, “The resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion’s share of the credit for the impressive growth improvement.” In a touch of unintended irony, two of article’s three authors were listed as working at a research institution named for Herbert Hoover.

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.”

So what now?

The last year has shown — just as economists have long said — that aid to states and cities may be the single most effective form of stimulus. Unlike road- or bridge-building, it can happen in a matter of weeks. And unlike tax cuts, state and local aid never languishes in a household’s savings account.

The ideal follow-up stimulus would start with that aid. It would then add on extended jobless benefits, which also tend to be spent, as well as tax credits carefully drafted to get businesses to hire and households to spend, like the cash-for-clunkers program.

By this yardstick, the $154 billion bill that the House passed in December is decent. It includes $27 billion in state and local aid, $79 billion for jobless benefits and other safety nets, and $48 billion in infrastructure spending.

The smaller bills being considered by the Senate are worse. They may end up with no state aid at all, and their tax credits sound better — with promises to help the long-term unemployed and small businesses — than they are. “The economic impact of the Senate bill, at this point, is starting to look very small,” Mr. Behravesh says.

Given what people have been saying about a successful stimulus bill, just imagine what they’ll say about one that doesn’t accomplish much.

I'm shocked. A media writer who writes about what the Stimulus did, instead of it as a political football? Who let this man out of Journalism without telling him he's a stenographer?

[MKSheppard]

In my area, the stimulus seems to have been spent on repaving a road that really didn't need to be repaved (there was even a sign saying STIMULUS FUNDED with the logo of STIMULUS); or other quick make work projects which basically use already existing jobs (e.g. road contractors).

[Broomstick]

Around here a bunch of the stimulus money went to repaving roads - but those actually needed repaving. The big concern (aside from wondering who the hell got these jobs because they never seemed to be advertised anywhere - nepotism, probably, big surprise) is that the technique and speed with which it was done was different than usual so there is much concern as to how long the improvement will actually last.

Regardless, my car's suspension is happier for the smoother roads.

In another area, which many people are not aware of, food stamp recipients were given up to an additional $42 a month over prior monthly grants as part of the stimulus. Yes, it is in a sense a means to support agri-business, but the fact is that extra $42 per person IS going into the economy, and with more families on food stamps it not only keeps those folks better fed it also helps to support local stores, which are also struggling in these times. Perhaps poor people eating adequate diets and local stores hanging on isn't sexy enough for the news. Perhaps it should be. On the other hand, knowing some of my fellow countrymen the way I do, if this were widely made known they'd probably call for a total end to the program as a way of giving people "incentive" to find work when there is none to be had in some areas.

Maybe I just never had the illusion a stimulus bill of any sort was going to be a magic bullet. The effect was going to be incremental, not orders of magnitude.

[Simon_Jester]

Yeah. As far as I'm concerned, five seconds' thought shows it can't be a magic bullet: if we already knew how to cure recessions, we wouldn't have them. No one has ever taken a dangerous recession and stopped it dead in its tracks with one spending bill, so far as I know; why should we expect this time to be different?

Which is frustrating, when you consider how many people didn't bother to put in those five seconds...

[UnderAGreySky]

Let’s say this bill had started spending money within a matter of weeks and had rapidly helped the economy. Let’s also imagine it was large enough to have had a huge impact on jobs — employing something like two million people who would otherwise be unemployed right now.

If that had happened, what would the economy look like today?

Well, it would look almost exactly as it does now. Because those nice descriptions of the stimulus that I just gave aren’t hypothetical. They are descriptions of the actual bill.

Not if you ask Paul Krugman. He was vehemently stating that the stimulus bill was not nearly good enough to drag unemployment back throughout the process which led to whittling down the bill to make it more tax-cutting and less spending. He called it as early as February last year when he said "We're gonna need a bigger stimulus".

On a similar note... the road between my university and the village I live in (this is the UK) magically has started to get new pavements. Something tells me it is not a coincidence

[Lonestar]

In my area, the stimulus seems to have been spent on repaving a road that really didn't need to be repaved (there was even a sign saying STIMULUS FUNDED with the logo of STIMULUS); or other quick make work projects which basically use already existing jobs (e.g. road contractors).

Fuck you, the Beltway between the AL Bridge and the 270 Spur certainly did need to be repaved.

[MKSheppard]

Fuck you, the Beltway between the AL Bridge and the 270 Spur certainly did need to be repaved.

You just want that sweet sweet stimulus money to go to redoing I-66.

[Alyrium Denryle]

On the other hand, knowing some of my fellow countrymen the way I do, if this were widely made known they'd probably call for a total end to the program as a way of giving people "incentive" to find work when there is none to be had in some areas.

This has always gotten me. When we had systemic unemployment of ~5% ie. full employment, all this would do is increase job turnover (even if the incentive idea worked) someone would have to lose a job for every one gained, with most of that 5% being comprised of people who were simply between jobs.

Most people on programs like food stamps are underemployed. They have a job, but do not make enough to meet their basic needs at the local cost of living.

That argument literally makes no sense, even under ideal conditions.

[Broomstick]

It is actually selfish greed disguised as "helping" people who are down on their luck.

[KlavoHunter]

The government should issue an EBT card to everyone - all people should be guaranteed access to a steady supply of food, regardless of what their income situation is.

[Broomstick]

No, I think those who can afford to pay out of their own pocket for food should do so. What I do think should change are the bureaucratic barriers to obtaining EBT when you do qualify. Even so, it's less hassle for that than most other public aid.

[Surlethe]

On the jobs, here is a graph of the unemployment rate:
http://4.bp.blogspot.com/_djgssszshgM/S ... r-dots.gif
Note two things (a) the extremely optimistic projections of both cases by the Obama team and (b) the obvious break in trend in 2009Q2. I know some people like J would prefer to use a different set of unemployment numbers; feel free to overlay those onto the graph and see if the stimulus broke trend in them, too.

[Liberty]

On the topic of things we've seen the stimulus do, it helped fund the research project Surlethe did last sumer through the National Science Foundation. Which was nice for us, of course...

Now if you want to talk about roads that need repaving, you should see ours after this tough winter. You could bathe a baby in any of a number of holes within sight of my apartment, or anywhere else in town. Now I'm off to bathe my baby...in her bathtub, though, not in a pothole.