Broad economic consensus: economy better off due to federal stimulus funds

Nonpartisan analyses agree: current GDP, total employment figures would be worse without Recovery Act. According to impartial, nonpartisan analyses of key economic indicators since the first quarter of 2009 conducted by several companies specializing in macroeconomic forecasting, the stimulus package boosted both the gross domestic product (GDP) and total employment figures relative to how those metrics would have fared in the absence of that legislation. According to The New York Times, such “dispassionate analysts” have produced a “consensus that the stimulus package, messy as it is, is working.” [The New York Times, 11/21/09]

[The New York Times, 11/21/09]

CBO projected economic recovery due in part to the Recovery Act. In an August report on the economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that “economic activity will begin to rebound in the second half of 2009, largely the result of fiscal stimulus provided under ARRA, improving conditions in the financial markets, slower declines in both residential and business investment, and a slowing in the rate at which inventories are being drawn down.” [CBO's The Budget and Economic Outlook: An Update, August 2009]

CBO estimated GDP increase of 1.2 percent to 3.2 percent, additional 600,000 to 1.6 million people employed due to Recovery Act. In a November report, the CBO stated:

CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA (see Table 1). Those ranges are intended to reflect the uncertainty of such estimates and to encompass most economists' views on the effects of fiscal stimulus. [CBO's Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009, November 2009]

Former McCain adviser Zandi: Stimulus working to “short-circuit the recession and spur recovery.” Chief economist of Moody's Economy.com Mark Zandi, who advised 2008 Republican presidential candidate Sen. John McCain, testified October 29 before the Joint Economic Committee during a hearing assessing the “impact of the Recovery Act on economic growth” that "[t]he fiscal stimulus is working to ensure that the recent dark economic times will soon be relegated to the history books." From his testimony:

The fiscal stimulus is also working. The American Recovery and Reinvestment Act passed early this year has reduced payroll tax withholding, sent checks to Social Security recipients, and provided financial help to unemployed workers whose normal benefits have run out. The cash for clunkers program revved up vehicle sales, and the housing tax credit has boosted home purchases.iii It is no coincidence that the Great Recession ended just as the stimulus began providing its maximum economic benefit (see Chart 1).iv The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.

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It is a tragedy that the nation has been forced to spend so much to tame the financial crisis and end the Great Recession. Yet it has been money well spent. The fiscal stimulus is working to ensure that the recent dark economic times will soon be relegated to the history books. [Zandi's testimony, 10/29/09]

Additionally, in an interview, Zandi reportedly said that " 'the stimulus is doing what it was supposed to do -- it is contributing to ending the recession,' ... citing the economy's third-quarter expansion by a 3.5 percent seasonally adjusted annual rate. 'In my view, without the stimulus, G.D.P. would still be negative and unemployment would be firmly over 11 percent. And there are a little over 1.1 million more jobs out there as of October than would have been out there without the stimulus.' " [The New York Times, 11/21/09]

Economists link third quarter 2009 growth to stimulus. According to an October 25 Bloomberg News report, "[t]he economy in the U.S. probably grew in the third quarter at the fastest pace in two years as government stimulus helped bring an end to the worst recession since the 1930s, economists said." The report also stated that "[t]he economy will likely grow at a 2.4 percent annual rate from October through December, according to a Bloomberg survey earlier this month. GDP will also expand 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades." [Bloomberg News, 10/25/09]

Range of economists credited stimulus for economic growth in the second quarter of 2009. Citing several economists, The Wall Street Journal reported on September 2 that economic growth in the second and third quarters of 2009 was “fuel[ed]” by the stimulus “above where it would have been without any government action.” From the Journal:

Many forecasters say stimulus spending is adding two to three percentage points to economic growth in the second and third quarters, when measured at an annual rate. The impact in the second quarter, calculated by analyzing how the extra funds flowing into the economy boost consumption, investment and spending, helped slow the rate of decline and will lay the groundwork for positive growth in the third quarter -- something that seemed almost implausible just a few months ago. Some economists say the 1% contraction in the second quarter would have been far worse, possibly as much as 3.2%, if not for the stimulus.

For the third quarter, economists at Goldman Sachs & Co. predict the U.S. economy will grow by 3.3%. “Without that extra stimulus, we would be somewhere around zero,” said Jan Hatzius, chief U.S. economist for Goldman.

Dave Anderson, chief financial officer of Honeywell International Inc., said the stimulus package actually froze business activity at first as firms tried to figure out how they could benefit from the government spending. The $787 billion package “created actually a slowdown in order activity in terms of the flow that we would normally have anticipated,” Mr. Anderson said at a conference sponsored by Morgan Stanley. “We anticipate that that's going to actually pick up in the second half of the year. I think it's not unreasonable to see several hundred million dollars of orders.” [The Wall Street Journal, 9/2/09]

Similarly, the progressive Economic Policy Institute (EPI) explained that the economy's improved performance in the second quarter of 2009 as compared to the prior quarter is due in large part to the stimulus, writing that "[t]he consensus of macroeconomic forecasters is that ARRA contributed roughly 3% to annualized growth rates in the second quarter. This means that absent its effects, economic performance would have resembled that of the previous three quarters, when the economy contracted at an average annual rate of 4.9%." From EPI's post:

The Commerce Department reported today that gross domestic product (GDP) contracted at a 1% annual rate in the second quarter of 2009, following a 6.4% decline in the previous quarter. GDP is the total market value of goods and services produced in the U.S. economy; it is generally considered the most comprehensive measure of economic activity.

The marked improvement in this quarter relative to last is largely due to the American Recovery and Reinvestment Act (ARRA). Despite the needed boost from the ARRA (up to 3 full percentage points of annualized growth in the quarter), the U.S. economy has still contracted over the past year by 3.9%, the largest annual contraction since 1947.

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The consensus of macroeconomic forecasters is that ARRA contributed roughly 3% to annualized growth rates in the second quarter. This means that absent its effects, economic performance would have resembled that of the previous three quarters, when the economy contracted at an average annual rate of 4.9%. In short, the recovery act turned this quarter's economic performance from disastrous to merely bad. This is no small achievement, but with even more public relief and investments, the U.S. economy could do much better. [EPI, 7/31/09]

Numerous economists have said Recovery Act was too small or have called for additional stimulus

Zandi: “Congress must provide more resources.” In October 29 testimony to the Joint Economic Committee, Zandi advised that “Congress must provide more resources to unemployed workers whose benefits are running out, to state governments unable to balance their budgets, and to households and businesses looking to buy homes and invest.” [Zandi's testimony, 10/29/09]

NYU's Roubini: “There's really just one hope” to improve economy: “a bold prescription that increases the fiscal stimulus.” In a New York Daily News op-ed, Nouriel Roubini, professor of economics at the Stern School of Business at New York University, wrote: “There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.” [New York Daily News, 11/15/09]

Nobel Laureate Krugman: Recovery Act is working, but was “far too small.” Princeton University professor and Nobel Laureate in Economics Paul Krugman wrote in a November 2 column:

The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that's also the bad news -- because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we're looking at many years of high unemployment.

And the really bad news is that “centrists” in Congress aren't able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.

About that good news: not that long ago the U.S. economy was in free fall. Without the recovery act, the free fall would probably have continued, as unemployed workers slashed their spending, cash-strapped state and local governments engaged in mass layoffs, and more.

The stimulus didn't completely eliminate these effects, but it was enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. If you want to see the recovery act in action, visit a classroom: your local school probably would have had to fire a lot of teachers if the stimulus hadn't been enacted.

And the free fall has ended. Last week's G.D.P. report showed the economy growing again, at a better-than-expected annual rate of 3.5 percent. As Mark Zandi of Moody's Economy.com put it in recent testimony, “The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.”

But it's not doing enough.

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What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn't do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don't need to do any more. The truth, which is that the stimulus was too little of a good thing -- that it helped, but it wasn't big enough -- seems to be too complicated for an era of sound-bite politics.

But can we afford to do more? We can't afford not to. [New York Times column, 11/02/09]

Nobel Laureate Stiglitz: "[W]hat is needed now is another dose of fiscal stimulus." In a piece for the United Kingdom's Guardian, Columbia University professor and Nobel Laureate in Economics Joseph Stiglitz wrote that “The problem is that the shock to the economy from the financial crisis was so bad that even Obama's seemingly huge fiscal stimulus has not been enough” and concluded that “what is needed now is another dose of fiscal stimulus. If that does not happen, we can look forward to an even longer period in which the economy operates below capacity, with high unemployment.” [Guardian article, 8/10/09]

Macroeconomic Advisers' Prakken: "[W]e could have used a little bit more" stimulus. Joel Prakken, chairman of the financial analysis group Macroeconomic Advisers, reportedly stated of the stimulus: “The economy was weaker than we thought at the time, so maybe in retrospect we could have used a little bit more and little bit more front-loaded.” [New York Times article, 11/21/09]

UC Berkeley's DeLong: Recovery Act “significantly helped the economy,” “valid complaint” is “that we ought to have done more.” In a post to his blog, University of California-Berkeley professor Brad DeLong wrote:

• The Obama administration's fiscal boost program has also significantly helped the economy: aid to impacted states has been a big win, the jury is still out on the effect of the tax cuts in the stimulus, and the flow of government spending on a whole variety of relatively useful causes is in train and is boosting production and employment in the same way that everyone's boost to spending boosts production and employment. And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes would be enough to finance the fiscal boost program at current interest rates, and for that cost American taxpayers will get an extra $1 trillion of produced goods and services and employment will be higher by about ten million job-years.

The big valid complaints about policy over the past fourteen months are not that it has run up the national debt and not that it has rewarded the princes of Wall Street, but rather that it has, if anything, been on too small a scale--that we ought to have done more.

Yet these policies appear, somehow, to be political losers in Washington right now: nobody is proposing to do more along the same lines. This is strange: usually when something works the natural impulse is to do it again. [J. Bradford DeLong's Grasping Reality with All Eight Tentacles post, 11/28/09]

CEPR's Baker: Recovery Act ended economic “free fall,” but we need “another, much bigger round of stimulus.” Dean Baker, co-director of the Center for Economic and Policy Research (CEPR) wrote:

The GDP data released on Friday showed that the economy was sinking at a 1.0 percent annual rate in the second quarter. This would not ordinarily be good news, except that the economy was contracting at a 6.4 percent rate in the first quarter of 2009 and at a 5.4 percent rate in the fourth quarter of 2008. The second quarter GDP numbers indicate that the economy is still contracting, but the free fall of the prior six months is over.

President Obama can take credit for ending this free fall with his stimulus package. The government sector directly added 1.1 percentage points to the growth rate in the second quarter. This was due partly to additional federal spending (much of it defense-related), but also due to a modest increase in state and local spending. In the prior two quarters, state and local government spending had been contracting, as state and local governments were forced to make cuts in response to budget deficits. The stimulus package allowed them to sustain existing programs and even expand them in some areas.

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The only way to prevent double-digit unemployment will be another, much bigger round of stimulus. The Obama stimulus threw out around $700 billion to counteract a $2.6 trillion two-year shortfall in demand.

The stimulus helped, but you can't put out a forest fire with a few buckets of water. We need much more spending. The alternative is a much poorer country today and a poorer country for our children. If we could just teach Congress and the punditry a bit of economics, they would stop whining about the budget deficit and start thinking about how they can get 15 million people back to work. [CEPR op-ed, 8/3/09]

EPI's Mishel: Additional federal action needed to promote “large-scale job creation.” In testimony before a House subcommittee, Economic Policy Institute (EPI) president Lawrence Mishel stated: “The Administration's and Congress' effort to offset the recession was bold and effective, and given the extreme situation, needed to be the largest policy intervention in the economy in several generations. It has undoubtedly slowed the economy's free fall and made recovery possible, but much more must be done to generate robust job growth, restore incomes, create consumer demand, and generate sustained economic growth.” He went on to propose a number of federal steps to promote “large-scale job creation,” including renewing "[a]ll of the Recovery Act provisions to improve and extend benefits to the unemployed," providing additional federal relief to states, and engaging in additional spending on infrastructure and direct job creation. [Mishel testimony, 10/8/09]

Oregon University's Thoma: "[W]e need to put additional stimulus in place to maintain the growth we are seeing." In a contribution to a New York Times blog posted by the editorial board, University of Oregon professor Mark Thoma wrote, “I believe that we need to put additional stimulus in place to maintain the growth we are seeing, particularly given that the lagging recovery in employment.” He further stated: “The fact is, the stimulus programs in place now are probably too small. At some point the private sector will have to sustain growth on its own, but we're not there yet and we must maintain the stimulus effort in the interim.” [Times' Room for Debate blog post, 11/1/09]

Washington University's Fazzari: Additional stimulus package “would be desirable right now.” Washington University in St. Louis professor Steve Fazzari reportedly said: “Another stimulus package of some kind would be desirable right now. I'm concerned that the jobs situation is -- it's clearly very bad. It's clear that we have the worst job situation since the great recession, er, the great depression.” [KTVI article, 11/17/09]

UT's Galbraith: "[W]e need more recovery bills." Nieman Watchdog reported of University of Texas professor James K. Galbraith:

Economist James Galbraith says there are “a lot of things that drive me not to read the press,” because of “the confused and ignorant positions of most of the news media” on the issues of deficits and fiscal policy. The worst offender in this regard, Galbraith said in an interview with Nieman Watchdog, is The Washington Post editorial page.

“Their editorials reveal a lack of understanding of the structure of the economy ... and an indifference to basic accounting,” Galbraith said. “To put the point firmly, they say that the economy is recovering but the deficits are a problem. But the economy is recovering because of the budget deficits. Without these budget deficits, there would be no recovery, because it is the deficits that are helping to put more money into households' pockets. To talk of recovery but to criticize the deficits is ridiculous. The whole point of this thing [stimulus spending] is to add to the deficit. The patient is recovering from a deadly illness and yet the press is attacking the medicine.”

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Galbraith said that instead of holding the line on spending following the passage of the $780 billion stimulus measure earlier this year, “we need more recovery bills” that are larger and reflect “the true scale of the emergency.” [Nieman Watchdog article, 10/12/09]

Moody's Faucher: “I think it makes sense to look at more aid from the federal government.” Business Week quoted Moody's Economy.com director of macroeconomics Gus Faucher as saying: “I think it makes sense to look at more aid from the federal government, whether they call it stimulus or not.” Business Week further reported:

Still, many economists say something will have to be done to buoy the U.S. economy as the stimulus fades in the second half of 2010. In Oct. 30 interviews, Faucher of Moody's Economy.com and Nigel Gault, chief U.S. economist of IHS Global Insight, both mentioned further extensions of unemployment benefits and aid to state and local governments. Because most state and local governments are required by law to balance their budgets each year, their declining tax revenues require draconian spending cuts and layoffs, which become their own drag on U.S. economic growth, the economists said.

If the U.S. piles on too much debt from new spending programs, of course, that's a big problem in the long run. But in the short run, says Faucher, “it's more important to make sure the economy gets going again. Once we have a self-sustaining economy under way, then we can worry about reducing the deficit.” [Business Week, 10/30/09]

During stimulus debate, media rarely raised issue of whether package was too small

A Media Matters for America review of the ABC, CBS, and NBC evening news programs from January 25 through February 15 found that of the 59 broadcasts that addressed the economic stimulus package and debate in Congress during the three-week period leading up to and immediately following its passage, only three of those broadcasts -- one on each network -- included discussion of whether that package was big enough, despite statements from many economists that it would not be and would have to be followed by additional measures. Although the size of the stimulus package was referenced during at least 48 of the broadcasts that addressed it -- with anchors and reporters, in many cases, characterizing the bill as “massive,” “enormous,” or “giant” -- rarely was the concern raised that the package's size may not have been adequate.

Fox personalities use jobs summit to baselessly declare stimulus has failed

Beck asks how government “can even be pondering another stimulus package” given the “failure of the first and the second” ones. From the November 30 edition of Fox News host Glenn Beck's show:

BECK: History has shown us over and over again, and so has the post office, that the government is not the answer. What do you do? You unleash the people, the entrepreneurs. If you're wondering how it is that the government can't see that, that they're not going to be able to control -- create new jobs on this new summit that they're doing this week, how they can even be pondering another stimulus package as they stare at the failure of the first and the second stimulus package right in the face. [Glenn Beck, 11/30/09]

Rove: “It's clear the stimulus package has not worked” and the jobs summit is “a PR offensive to sort of say look we really are on top of jobs.” From Fox News contributor Karl Rove's November 30 discussion of the jobs summit with Fox News host Neil Cavuto:

CAVUTO: Thursday, he's got this big jobs summit with the who's who of the financial world, some of the economic world. What comes of these things?

ROVE: Well, look, what comes of it is this is the kickoff for the next day when he goes to Allentown, Pennsylvania, in order to demonstrate empathy about jobs. This is a PR exercise. If the president was seriously concerned about this, he wouldn't be having one big gigantic meeting and using it as the launching point for a nationwide tour he's going to be conducting on a regular basis. He has -- he's trying to make up for the fact that when he came into office, people thought the number one domestic responsibility he had was jobs. He sort of made a feint towards that by doing the stimulus package. It's clear the stimulus package has not worked and unemployment is 20 percent higher than he said it would be if we if we didn't do anything, and people are asking, “What the heck are you doing?” And so, between the torrent of red ink and the lack of concrete results on the economy that he promised us, that he raised the expectations about, they're now involved in a PR agenda, a PR offensive to sort of say, “Look, we really are on top of jobs.” Nothing serious is going to come out of this meeting on Thursday. [Your World with Neil Cavuto, 11/30/09]