Krauthammer repeats myths about economic recovery package

In his February 6 Washington Post column, Charles Krauthammer asserted that the economic recovery legislation supported by President Obama contains "hundreds of billions that have nothing to do with stimulus, that Congress's own budget office says won't be spent until 2011 and beyond," echoing myths about the legislation often repeated by media figures and conservatives. But economists, including Congressional Budget Office (CBO) director Douglas Elmendorf, have stated that all of the government spending in the recovery package "provides some stimulative effect." Elmendorf has also stated that fiscal stimulus in 2011 or later would be effective in the current economic situation, in which economic output is projected to remain below its potential even after the beginning of the recovery.

Contrary to Krauthammer's assertion, in his January 27 congressional testimony, Elmendorf explicitly refuted the suggestion that some of the spending provisions in the bill would not have a stimulative effect, stating: "[I]n our estimation -- and I think the estimation of most economists -- all of the increase in government spending and all of the reduction in tax revenue provides some stimulative effect. People are put to work, receive income, spend that on something else. That puts somebody else to work." Additionally, Dean Baker, co-director of the Center for Economic and Policy Research, has stated, "[S]pending is stimulus. Any spending will generate jobs. It is that simple."

Further, economists have argued that a stimulus package will be necessary even if the economy begins to turn around. In his January 27 testimony, Elmendorf said that unlike in ordinary "periods of economic weakness" that "are fairly short-lived," "CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate." From Elmendorf's testimony:

Timing. The economic effects of fiscal stimulus should occur during the period of economic weakness, all else being equal. When, as now, a recession is clearly already under way and aggregate demand is declining, it is better if stimulus affects spending quickly in order to mitigate further deterioration in the economy. Different types of policies may differ greatly in how quickly they can be implemented.

Because most periods of economic weakness are fairly short-lived, it is generally preferable that stimulus policies be short-lived. Currently, however, CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate. Indeed, a fiscal stimulus that ends before the economy has started to regain its footing runs the risk of exacerbating economic weakness when the stimulus ends.

Likewise, in a January 27 blog post, New York Times columnist and Nobel laureate Paul Krugman wrote:

It's not a problem if some or even most of the stimulus arrives after the official recession, as determined by the NBER [National Bureau of Economic Research], is over. Why? Because in modern recessions, unemployment keeps rising long after the NBER has determined, based on things like industrial production, that the recession proper is over. [emphasis in original]

From Krauthammer's February 6 Washington Post column:

It's the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus -- and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress's own budget office says won't be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish.