Network News

X My Profile
View More Activity

Why I hate the stimulus -- just a little

No, it’s not because I think Congress should have rejected it. It’s that its passage led to a lot of distorted, ideological hyperventilaton. Take, for example, this misleading dispatch from the Senate Republican Conference today:

So, About Those ‘Stimulus’ Claims…

Democrats’ economic recovery predictions:

“Vice President Biden predicted Friday at a Pennsylvania fundraiser that the U.S. economy would be adding up to 500,000 jobs each month ‘some time in the next couple of months.’ ” (Garance Franke-Ruta and Frank Ahrens, “Biden predicts economy will create up to 500,000 jobs a month soon,” Washington Post 04/23/10)

Speaker Nancy Pelosi, D-Calif.: “Five hundred thousand Americans will lose their jobs each month until we have a recovery package.” (Transcript, “Fox News Sunday,” 01/18/09)

Turns out to be exact opposite of reality:

“Last week, the number of first-time filers for unemployment insurance rose for the third time in a row, to 500,000, according to a Labor Department report released Thursday.” (Julianne Pepitone, “‘Just a bad trend’ - 500,000 jobless claims,” CNNMoney.com, 08/19/10)

“New applications for unemployment insurance reached a half-million last week for the first time since November, a sign that employers are cutting jobs again as the recovery slows.” ("Jobless Filings at Highest Point Since November,” Associated Press, 08/19/10)

This news release, of course, is misleading because the number of new unemployment claims doesn’t account for the number of people who were also hired during the same period. So, while it’s not a good sign, it doesn’t give us a full picture of net employment during that time, no matter how over-optimistic the Democrats were at one point about the stimulus.

But the bigger problem is that the argument about the stimulus is basically unwinnable, for now. That’s because, when you look past the gotcha quotes, much of the Obama administration’s justification for the Recovery Act relies on a difficult-to-prove counterfactual -- that it created or saved jobs.

So, unemployment could even be going up, and the president could still claim the stimulus was a success, since it could have been worse. Here, the GOP conference ignores this argument entirely, as it so often does, by pointing to negative raw data and ignoring the Democrats’ argument that you have to compare them to a far more catastrophic baseline. Obama’s critics on the left often do the same to conclude that the stimulus was much too small.

I tend to sympathize with the administration on this. It’s shocking how quickly people have forgotten the rank fear that pervaded the country in late 2008 and early 2009. As with the Troubled Assets Relief Program, approving the stimulus was important if only to prove that the government would not let the economy fall off a cliff. At the same time, policymakers had to pay attention to folks worried -- without much reason in the short-term, it turned out, but it was hard to know that then -- about inflation and the willingness of private capital to finance American government debt at low interest rates. How do you quantify the number of jobs saved from ministering to such psychological preoccupations? It’s hard, but it doesn’t mean they weren’t saved.

By Stephen Stromberg  | August 19, 2010; 12:55 PM ET
Categories:  Stromberg  | Tags:  Stephen Stromberg  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Ted Olson's conservative argument for gay marriage
Next: The smarts and strength of Antoine Dodson

Comments

If the stimulus bought us nothing then we wasted the money.

If the war in Iraq bought us nothing
and killed 4,415 US military and wounded 31,911, as of Tuesday 08/17/2010, how do we explain the loss of life and a future for many of the wounded and their families?

The cost of the war in dollars since 2003 is $742,307,000,000 as of five minutes ago.

I believe that we will recieve a 0 (zero) return on the financial investment and a net negative draw until all of the wounded and their displaced families return to fulfilling lives.

Place this cost at the feet of those that started the war.

The US will be deployed there forever , so the costs continue...

I remember seeing the footage of planes flying into the towers and the immediate reaction could be measured in the American flags flying on everything for months afterwards as we prepared to take down Afghanistan so the acts could not be rehearsed and prepared ever again from that country. Everyone was for an invasion there. It was done and soon after we abandoned that effort for other pursuits and goals.

We now find ourselves mired in an old war with support waining, a tired military waining, but expirienced.

The result is not a mystery, we do not produce anything here other than weapons and service. We cannot artificially provide jobs to those out of work since our attention has been devoted to nation building elsewhere(Iraq & Afghanistan) and nation sustaining with our resources and manufacturing jobs elsewhere (China and the pacific rim).

Game over, we lose. Someone else is winning but iit is not the middle, or lower classes and the poor. We lose. Since the days of the Reagan recession and jobless recoveries gone by, we have lost. Some neighborhoods have not had meaningful employment since the seventies. we lose again.

We need to dig deep, we need to invest in the USA. We need to tax the funds setting in banks and coffers that are "waiting for investment" like we tax unused inventories!

We will continue to lose until someone puts full employment back on the gameplan.

we will continue to lose as long as the few control the many.

we lose.

Posted by: mtstewart1 | August 19, 2010 1:30 PM | Report abuse

Government stimulus wastes money. Most of what went to jobs went to preserve Public Sector Union jobs, a voting block of the Democrats. Get out of the way of small business. Cut the taxes to them and remove alot of the red tape. Small business will get the economy moving again. But it can't with the big foot of Government firmly planted on it's neck.

Posted by: bobbo2 | August 19, 2010 1:37 PM | Report abuse

How does small business get the economy going when consumers are out of work?

Posted by: sr31 | August 19, 2010 1:46 PM | Report abuse

The chief analyst at Moody's came out with a study showing that, without TARP and the stimulus, we would've lost another 8 million jobs.

It's difficult to comprehend how bad things would've gotten.

But the administration gets nothing but scorn and ridicule.

And Republicans, who opposed TARP and the stimulus, are rising.

This country may be too stupid to survive.

Posted by: PhyloSeFiser | August 19, 2010 2:13 PM | Report abuse

Its amazing how the WP is so out of touch...Clinton was the master of weazel words and now the present administration uses the same ruse...the unemployed are suffering and the administration policies have failed to improve the lives of
Americans, when is Obama going to take responsibility for anything but playing a very large number of rounds of golf...and the press was critical of Eisenhower for this.

Posted by: AUGS42 | August 19, 2010 2:25 PM | Report abuse

Problem is that Obama never provides a theme or framework for understanding his policies. Republican argument is simple: lower taxes = growth. What is Obama's argument? he doesn't even bother to make one. I think the media needs to realize he actually isn't a very a good politician.

Posted by: aksunder | August 19, 2010 2:30 PM | Report abuse

Americans of today are like the Jews led across the desert- when saved from starving to death, they complained about the lack of pleasure from the monotonous diet of manna.

Spoiled, ungrateful and deserving of another 40 years in the desert.

Posted by: interactidiomas | August 19, 2010 2:56 PM | Report abuse

to all those opposed to the TARP funds ... i suppose that a second GREAT DEPRESSION would be prefered ... there may be no avoiding it anyway after trillions of tax dollars have been squandered looking for the WMDs in Iraq that bush and his buddies goaded us into believing, but hey, keep voting republican

Posted by: scratchycactus | August 19, 2010 2:56 PM | Report abuse

Very simply, Obama says number of jobs "created or saved" = f($ spent). For every $1.4 trillion they spend, they "save or create" one million jobs.

Read Dr. Romer's jobs impact analysis of the stimulus bill.

Posted by: kitchendragon50 | August 19, 2010 2:58 PM | Report abuse

The stimulus along with all the other deficit spending of the Democrats has brought us nothing but the pain and suffering of the OBAMA DEPRESSION.

Posted by: Jerzy | August 19, 2010 3:04 PM | Report abuse

it was pretty obvious when the recession started that it would take years to claw out of it. why do people think we can just snap our fingers and have everything be right again??? seriously, give it a chance!
Obama's doing just as good as anyone would be.

Posted by: bdubdc | August 19, 2010 3:17 PM | Report abuse

This "topic" hardly bears discussion.
It can be summed up in one word..."failure".

And for America, the issue can be advanced in two words..."now what"?

Posted by: wcmillionairre | August 19, 2010 3:33 PM | Report abuse

So, basically, you're saying that we should have gone ahead with TARP and the stimulus, but we should attach absolutely zero expectations to those unprecedented and gargantuan expenditures.

Right. Got it.

Don't question anything. Just give our money to the government and forget about it, maintaining unconditional trust in them.

Good argument.

Yutz.

Posted by: etpietro | August 19, 2010 3:38 PM | Report abuse

etpietro is right.

The argument of "it could have been worse" doesn't fly for long.

Also, I can't believe you were able to write this piece without mentioning the 8% unemployment benchmark that was set by the POTUS?

Posted by: Holla26 | August 19, 2010 3:57 PM | Report abuse

Another fundamental problem with the stimulus is that it displaces the focus on private sector job creation, which is really the only thing that can lead to sustained economic growth and prosperity.

So neither side appears willing to ask the tough questions of why the private sector is not hiring and investing. What we will find is that it is a question of availability of human skills, which are in demand, but not available. We will also find that our public infrastructure is crumbling, having been neglected for decades. And finally, the wages in the USA are not competitive, because living costs have gotten so high, partially as a result of the housing bubble and our out-of-control health care system, despite all the talk of low inflation. In short, we are digging our own hole and are still too cowardly to accept the facts and wisely invest in our future. Stimulus spending can rightly be criticized when it does not achieve long-term goals. Doing nothing is equally a destructive policy.

So, what we are really trapped in is a form of governance that is incapable of making the best decisions for the long-term, at the expense of short-term pain. In fact, we have arrived at the nadir that such a political system provides.

Posted by: AgentG | August 19, 2010 3:58 PM | Report abuse

TARP was a good program since they were loans, the majority of which have been repaid.

The stimulus (and each extension) are give aways. Expect nothing in return.

Posted by: kitchendragon50 | August 19, 2010 4:26 PM | Report abuse

It didn't do what the president claimed it would.

Not only did things not improve, they have continually gotten worse.

What liberal shrill! of course it's unwinnable....

it's an abject failure.

We borrowed 40cents on the dollar for this trillion dollar failure.

Posted by: docwhocuts | August 19, 2010 4:39 PM | Report abuse

I Own a Small Business. 25 employees. If my Business taxes were cut even 100% that would not cause me to hire a single new person. That would make me personally richer, but the only thing that causes me to hire new people is new work. If I get a tax cut, but no new contracts come in, Im not going to hire someone to sit around. By the way, Im in the Green Building consulting business and have grown 70% each of the past 2 years, during the worst recession in history, because of the focus on green buildings. THATS where the money should go to make ME hire more people,

Posted by: emoenergy1 | August 19, 2010 4:44 PM | Report abuse

Shill writes "people have forgotten the rank fear that pervaded the country in late 2008 and early 2009."

Dude: It's been replaced by a pervasive, looming dread, as of certain impending doom. Like the fear of a man with a morning appointment with the gallows. Being shill guy, you probably haven't noticed.

Posted by: pyellman | August 19, 2010 5:02 PM | Report abuse

The economy pretty much rolls the same way as consumer confidence, I'd argue. And the democrats were so anxious to get the stimulus passed - a package that, for all intents and purposes, was a grab bag of all things liberals have had on their "to-do" list for twenty years - that they HAD to knock down the economy as swiftly as possible, to justify passage of the bill. Heck, they were verbally reeking havoc with the economy long before Obama was even elected!

As perceptions go, so goes reality. It was a self-fulfilling prophecy that cannot now be argued.

Posted by: boosterprez | August 19, 2010 5:06 PM | Report abuse

The problem with government stimulus spending is that it delays the structural adjustments the economy requires by devoting resources to activities that by definition will only last a short time.

Posted by: bruce18 | August 19, 2010 5:11 PM | Report abuse

What we will find is that it is a question of availability of human skills, which are in demand, but not available.
_________________

No, what we will find is that there is NO DEMAND for goods that are for sale. Without demand, you will get no hiring of human capital.

People, scared at the loss of equity in their homes, value in their 401K's, and fearful of future job loss, are SAVING, not SPENDING.

While this is a good thing, intellectually, it is not good for our economy.

Posted by: boosterprez | August 19, 2010 5:12 PM | Report abuse

Posted by: kitchendragon50

Very simply, Obama says number of jobs "created or saved" = f($ spent). For every $1.4 trillion they spend, they "save or create" one million jobs.

Read Dr. Romer's jobs impact analysis of the stimulus bill.
----------------
$1.4 million a job, most cost effective. Of course that does NOT account for the same jobs that will be saved again this year with the latest jobs bill. I think that it is okay for the Government to double count (but not for us citizens when we are reporting it to the Government - as in IRS).
|

Posted by: notamullethead | August 19, 2010 5:18 PM | Report abuse

You're right, the stimulus didn't save any jobs. We should've done nothing like McSuck and his dimwitted little sidekick suggested. Sometimes I wish we had, just so things were opposite and us liberals could've screamed at you Right Wing idiots for two years. It must be nice just being able to scream and do nothing for America.

Posted by: FormerRepublicant | August 19, 2010 5:20 PM | Report abuse

I don't know what was in the stimulus. Some of it was simply giving money out not creating or saving jobs.

As I am retired and my money was in General Motors banks what do I get. Well the company is trying to pay back the government but not the holders of there bonds. The banks that had loans got 100% of there money back.

By the time they do pay back on the bonds I will be dead. Now how do I support a recovery? Well I don't in which case you keep having more unemployment until you have.....guess what?

General Motors has no interest in paying me back or does it have the money to pay everyone back. Further the stock market is going nowhere, so the IPO price of stocks is not going in the right direction. According to economists all you had to do is take debt and turn it into stock. If only we could take economists and turn them into stock because they do no have any brains. Besides the government seem to create new bankruptcy law with how it did things. Who give banks the right to get back 100% of there debt.

How people want a recovery. Well the rich did get a recovery. Don't know if that was part of the stimulus package. If it was than one can say the stimulus was a great success. Did I forget anyone? Oh, the little people, but they are the one's that will endup paying taxes because the rich placed there money in the Cayman islands. No point in having money in the United States as it will be needed for investments in asia. It should be noted that Wal-mart has had no growth in United States which is where there is need for jobs but not likely to happen. Maybe we could ship our unemployed to Mexico there they can deal in drugs and weapons. That is the new stimulus plan.

Posted by: artg | August 19, 2010 5:26 PM | Report abuse

Agree with your post, but honestly, whether it's a good idea for government to stimulate the economy in the midst of a terrible recession is not really still open for discussion. No, you can't 'test' it in a laboratory but it's been done all over the world for many decades and the opposite policies have also been tried, and the evidence is very clear. For a major American political party to deny that it can be effective and to universally oppose it is a sign of how the Republican party has deteriorated. No one who opposed the stimulus deserves to be returned to office. Period.

Posted by: rocks11 | August 19, 2010 7:14 PM | Report abuse

rocks11 is absolutely correct. Anyone who argues differently is proving that he or she knows very little about macroeconomics.

Posted by: jns-alex99 | August 19, 2010 7:30 PM | Report abuse

"Republican argument is simple: lower taxes = growth."


Hummm ... tried trickle-down and lost 8.5 million jobs .... NEXT!

Posted by: knjincvc | August 19, 2010 7:47 PM | Report abuse

This is the dumbest article ever.

Most of the money went to financial organizations who promptly payed off overseas debt meaning one trillion of our dollars went to foreign countries. It didn't help here one bit.

As to the people claiming we would be in a depression right now, the government is now claiming it won't be until 2014 that jobs recover. Unemployment continues to go up...we're *in* a great depression, and it's the same medicine that caused the first great depression.

The silliest part of the Obama administration is in the midst of trying to figure out why private companies won't add workers, they're busily raising taxes on businesses, in particular, they're making it much more expensive to hire new workers because of the new mandates.

They they have enacted a huge hidden tax for 2011...that's right. You know that nice health insurance plan? The one your employer pays for you. Guess what the IRS will do next year... they're going to tax you on the value of the plan. *GREAT PLAN*. So if you have a nice health care plan for your family of 4 or 5, you'd better on coming up with another $3000-5000 for taxes on that swell plan because it will help pay for somebody else's plan. What.... you thought somebody else would pay for free health care?

And then they're going to raise taxes by letting the current tax rates expire and go up... but don't worry, it's only for the rich, and don't pay attention to those new taxes, and if you complain, you're rich and are part of the problem.

But then Obama will propose a VAT tax, because "every country has them". So middle class, just when you think it couldn't get worse, Obama will try to make your taxes even higher, because, well, somebody has to pay for the huge deficit spending that Obama started because of the ill conceived TARP bailout.

What a great plan our president has!

Posted by: Ombudsman1 | August 19, 2010 8:45 PM | Report abuse

"It’s shocking how quickly people have forgotten the rank fear that pervaded the country in late 2008 and early 2009."

People most certainly have not forgotten. In fact, the average person is more afraid today than they were back then. The longer this tough slog continues, the worse things are going to get.

Posted by: magellan1 | August 19, 2010 9:47 PM | Report abuse

Stromnberg's incredibly contrived, attempted justification for the stimulus was so far-fetched as to be hilarious, but also an insult to the intelligence of his readers, and a measure of ultraliberals' abject panic regarding the upcoming mid-term elections!

Posted by: kevinrodden | August 19, 2010 10:21 PM | Report abuse

So Mr. Stromberg, you are *shocked* or *surprised* (ala Capt Renault in Casablanca) that an administration makes pronouncements to which they cannot attain and then spins their announced accomplishments with enough wiggle room to Jabba the Hutt could wiggle through without being noticed. The administration then spends a full year (+) blaming the prior office holders.

How about speaking with a few experts in the field (Economics, job creation, business start ups, etc.) and getting various opinions (from both sides) as to what would *stimulate* the economy on a micro and a macro level.

Then report/comment on how well the stimulus dollars are spent to achieve those goals.

I may agree that a Federal stimulus spending bill would reinvigorate the economy but I protest when it takes spending more than $100,000 per job created or worse *saved.* Why should LOTS of taxpayer dollars be used to save an existing job when the taxpayer earning much less has to curtail spending to pay the taxes - now or in the future? This sounds a lot more like redistribution than stimulus.

* * * *
To those of you in strong support of the stimulus spending, why not institute a PERPETUAL stimulus. Any month when the unemployment rate is above 1%, automatically authorize spending to rehire these unemployed workers (they can always dig holes and refill them)? And also spend even more to make sure no one else loses his/her job. Why not?

Posted by: onehanded | August 19, 2010 10:29 PM | Report abuse

"...unemployment could even be going up, and the president could still claim the stimulus was a success, since it could have been worse."

I question this comment by Mr. Stromberg because I've never heard the Administration (or Democrats) phrase it this way. It is always phrased that that without the stimulus things WOULD have been worse. It is stated with absoulte surety, even though there's no way of proving it.

Now I agree that things would have been worse, in the short term. But if the Federal Government had actually cut spending (and possibly cut taxes on those making between 200-1M/year) we'd be well on our way toward recovery right now.

I don't KNOW for sure, but that's as valid a guess as Mr. Stromberg's or the Administration's.

Posted by: MDLaxer | August 19, 2010 10:33 PM | Report abuse

I remember several serious recessions since 1932. None of them brought such rapid appropriations of huge sums to stimulate the economy. It was impossible to prove number of jobs saved or lost but you could feel increased public optimism as conditions improved. Public optimism has not improved in the past 18 months. It got worse. This is very serious. People are going to end this recession not the government. The political speeches and the programs that were passed have only frightened us. If public optimism is not restored I won't live long enough to see American prosperity again.

Posted by: 86yroldObserver | August 19, 2010 11:34 PM | Report abuse

One of the difficulties in conducting economic research is that economists rarely, if ever, have a control group. We cannot make equivalent group to group comparisons. For example, we cannot compare what the unemployment rate would be today if we did not have the TARP legislation passed at the beginning of the recession. We simply cannot push back time and rerun history.

The best we can do is look to our history and see what seem to be the laws of nature. When it comes to the ups and downs of the economy there seem to be some consistent trends as follows:

1. All societies experience variation in growth each year; this includes capitalist, agricultural, industrial and communist countries. This variation has gone on throughout all recorded history.

2. Government stimulus spending is helpful in bad times and counterproductive in good times. The last two times major Federal tax cuts were made during reasonably good times, 1983 and 2001 resulted in slower growth. Timing is critical.

3. Beyond the timing issues the magnitude issue is critically important. Too little tends to not be maximally effective. Too much can case steeper cycles.

4. Stimulus spending is not costless. It increased the base cost of government due to debt service until it is paid back. Ergo, a well managed political system will seek to pay down the debt as soon as possible after the economy cycles up.

5. Countries that pay their debt down or create a surplus during good times are much better prepared to react to the next downturn. Stimulus spending seems to have more “bang for the buck” when the government is not already highly indebted.
6. Ideally, governments should run at least at break even in the long run. Since WWII neither party has been successful. However, the empirical evidence shows that Democratic presidents have come closer with an average deficit of less than 1% of GDP. Republican presidents have averaged almost 3% of GDP.
7. How the stimulus money is spent has varying impacts. Tax cuts during downtimes are the fastest, but fade quickly; usually in about six months to a year. Subsidizing state and local payrolls helps to buffer downward trends by minimizing panic, but has a limited effect in overall growth. Loaning money to businesses to expand during downturns has little upward effect since expanding makes no microeconomic sense when there is not adequate demand. Infrastructure improvement helps with jobs in the short term and generally has a positive net present value since much of it will be used by future business activity to generate taxable income. However, it is slow to start up and if pushed too quickly can be ill-conceived.
Both the Bush and Obama Administrations attempted to throw together a quick plan since we, unfortunately, were not as well prepared as we could have been. Did they save us from the second Great Depression or did they just run up the bills? We will never know for sure since we cannot rewind time

Posted by: DrS1 | August 20, 2010 12:25 AM | Report abuse

Best place to find quality quality bankruptcy info online is http://bit.ly/cpmRHo

Posted by: luisjustin20 | August 20, 2010 4:24 AM | Report abuse

I still wonder ,what would have happened if the government HADN'T pumped money in stimulus ,GM, and bank-saving measures..just hypothetically, what would have happened? Would it be '33 allover again, with some giant world-war to boot? Mass poverty and people dying of true hunger in the US?

I confess, I have no idea ,but it wouldn't have been pretty..

Posted by: diakrite | August 20, 2010 4:37 AM | Report abuse

DrS1,

Just wanted to thank you for a quality post... probably more informative than any of the entries from WaPo columnists on the subject.

Posted by: ablum1 | August 20, 2010 8:36 AM | Report abuse

@mtstewart1

"We need to dig deep, we need to invest in the USA. We need to tax the funds setting in banks and coffers that are "waiting for investment" like we tax unused inventories!"

So what you are saying is we need to save less and spend more? In otherwords, we need to do the exact same thing we were doing that got us into this mess? What sense does that make?

Posted by: BradG | August 20, 2010 1:55 PM | Report abuse

"to all those opposed to the TARP funds ... i suppose that a second GREAT DEPRESSION would be prefered"

What about the recession of 1920 which looks as bas as the Great Depression did at the start. Want to know how we got out of that one? By lowering taxes and leaving the economy alone. Took about 2 years before the economy righted itself and then started one of the affluent decades in this countries history.

Then what happened? Lets see... Hoover the FDR started interfering with the economy and we get over a decade of depression.

Coincidence?

Posted by: BradG | August 20, 2010 2:00 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company