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Stimulus agonistes

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I was talking with the Economic Policy Institute's Larry Mishel earlier today and he offhandedly made a good point about the politics of the stimulus. Economists and the politicians who love them have concluded that stimulus is better when it's less direct. Rather than having the government hire a couple of million people to dig ditches and help kids cross the street, the government instead gives aid money to state and local governments and sends out checks to the unemployed and cuts taxes and so on. That way the magic of the market and of local governments, rather than the inadequacies of central planners, can take over.

That creates a lot of jobs, but it doesn't create grateful political constituencies in the way that directly employing people does. Unemployment insurance may compare favorably to the Works Progress Administration on grounds of efficiency, but it's a lot less concrete to people: You save a floor manager's job because someone with an unemployment check can still afford to go to CVS and buy deodorant, not because President Obama gave the guy a hard hat and told him to get to work.

The Obama administration's hope was that the recession wouldn't be that bad and that the stimulus would be enough to keep things pretty normal and folks would simply be happy about that. But as you can see in the graph atop this post, the recession proved substantially worse than the administration projected. Unemployment now is worse than the projections for unemployment without any stimulus at all -- which was, remember, their nightmare scenario. So though the stimulus may have worked well to make unemployment less bad than it would otherwise have been, it's indirect nature has been a liability in a world where it was not enough, on its own, to ensure a quasi-normal employment situation.

By Ezra Klein  |  June 14, 2010; 4:55 PM ET
Categories:  Stimulus  
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Comments

...and speaking as a non-economist, this census situation sure makes them look wrong. We see the temporary census hiring makes a big difference in the employment numbers, and the census does not cost a trillion dollars. The government should have hired people directly.

Posted by: Hopeful9 | June 14, 2010 6:23 PM | Report abuse

Obama oversold the stimulus and is now reaping the bad press for the stimulus being oversold.

When it passed, he should have said that it was a good start, but without more stimulus, it will not be effective in reducing unemployment to the 5-7% range.

Posted by: srw3 | June 14, 2010 7:04 PM | Report abuse

Chirstina Romer - did you talk with her? (I am leaving Summers and Geithner out because they got the 'bank nationalization' call right; though they got so many other things wrong.)

Does she still need to be in White House? Do you think we will have any hope when we get such experts?

You see, it is much easier to 'ridicule and even criminally prosecute' engineers who botched the BP well. What about the Economists?

They are like 'Slam Dunk' CIA Chief, Wolfowitz and Bremer - they can get all things wrong in this world (Iraq) and still walk out with nothing damn happening to them.

Posted by: umesh409 | June 14, 2010 7:48 PM | Report abuse

It's worth mentioning that the economic projections shown were based on the current GDP and employment figures at the time. These numbers were subsequently revised to show that the economy was actually doing much worse than was thought when the stimulus was passed.

Posted by: SteveCA1 | June 14, 2010 7:49 PM | Report abuse

You say "which was, remember, their nightmare scenario." That leaves open the question as to why that qualified as their nightmare scenario when others knew the nightmare could be significantly worse. It's not just ignoring the long tail risk, it's lopping the risk off the chart in the middle of the rump. And for what? What did Obama et al gain by lowballing the risk?

Posted by: JonathanTE | June 14, 2010 8:40 PM | Report abuse

--"What did Obama et al gain by lowballing the risk?"--

A trillion dollars of other people's money for his union cronies. And all it did was postpone the inevitable while increasing the drag on everyone.

Posted by: msoja | June 14, 2010 10:03 PM | Report abuse

The less tortured explanation is that the stimulus simply failed. There's no multiplier effect in funding unneeded road projects or paying state debts. The fact that the administration also failed to understand the depth of the recession is not an excuse, as Ezra seems to think, but simply a compounding of one incompetence upon another. Many of us predicted precisely this outcome at the time, noting that the administration's assumptions were overly rosy, and that its spending priorities were hopelessly misguided even if one supports a stimulus in theory.

Posted by: tomtildrum | June 15, 2010 3:53 PM | Report abuse

The less tortured explanation is that the stimulus simply failed. There's no multiplier effect in funding unneeded road projects or paying state debts. The fact that the administration also failed to understand the depth of the recession is not an excuse, as Ezra seems to think, but simply a compounding of one incompetence upon another. Many of us predicted precisely this outcome at the time, noting that the administration's assumptions were overly rosy, and that its spending priorities were hopelessly misguided even if one supports a stimulus in theory.

Posted by: tomtildrum | June 15, 2010 3:53 PM | Report abuse

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