Add conservative economist Douglas Holtz-Eakin to the ranks of experts whose work shows that the American Recovery and Reinvestment Act of 2009 operated exactly as intended, growing the economy and creating millions of jobs. It may seem surprising that Holtz-Eakin, the former Congressional Budget Office director, former chief economic advisor to Sen. John McCain’s 2008 presidential campaign, and current president of the conservative American Action Forum, would throw his support behind the stimulus bill. But that’s what he’s done—whether he likes it or not.
Why? Because the very methodology he repeatedly used to discredit the stimulus actually shows it was a remarkable success.
You see, for much of last summer, Holtz-Eakin had a favorite graph that he used whenever he got the chance. The graph purported to show that the American Recovery and Reinvestment Act was utterly ineffective at spurring economic growth. He loved this graph so much that he used it in no less than three different columns during the course of just two months, and even included it as part of his testimony before the Senate Finance Committee.
The chart … shows actual GDP during 2009. It also shows what would have happened if the trajectory at the start of 2009 had continued the entire year (labeled “Continued Decline”)—that is, the graphical version of “the economy was falling off a cliff.” The shaded area is the difference—the additional GDP from not continuing to decline—and totals $268 billion.
Stimulus tax cuts and spending in 2009 were roughly $260 billion. Thus, if one attributes all improvement in GDP to the stimulus—no role for the Fed, no role for mortgage relief programs, no role for worldwide economic improvement—then stimulus essentially broke even and provided no multiplier effects.
In other words, Holtz-Eakin argued that the dollar value difference between what would have happened to U.S. gross domestic product without the stimulus spending and what did happen was almost exactly equal to the cost of the stimulus itself—meaning the stimulus did not stimulate.
Of course, if an economy is really falling off a cliff, as it was in late 2008, one could be forgiven for pursuing policies that avoid such a disaster, even if they don’t produce any larger ripple effects. But guess what? Even Holtz-Eakin, using this same methodology, would be forced to admit that the Recovery Act did have larger ripple effects.
http://www.americanprogress.org/issu...ltz_eakin.html
over your head
Keynesian counter-cyclical spending proven, again, to have positive effects, even if the spending, in this case, was badly undermatched with the depth of economic trough (thank you, Repugs, for crippling responsible govt).
and now we will see how pro-cyclical govt spending cuts deepen and prolong the historically severe economic trough.
We'd all be dead now if not for the stimulus.
GM would also be a Big 3
I think Obama should hail the stimulus as one of the key accomplishments of his administration. Would be a great campaign strategy.
I love how the OP leads with " growing the economy and creating millions of jobs. "
It hasn't been shown to have done either. Lots of guesswork projections predicated on hopefull assessments. Even the CBO's analysis of the job claim is subject to strong caveats as to the veracity of the data and underlying assumptions.
Swing and a miss, again, bot. But, keep mining your RSS feeds...beats original thought.
Should've taken our lumps.
"Should've taken our lumps."
25M un/mal-employed, and most new jobs $15/hr or less, millions are still taking huge lumps.
This is an old, good article on general Keynes economics. It explains in fairly layman terms what Keynes proposed in his 'The General Theory...' book. You can also spot right away that one of the things he thought were fundamental for a stimulus to work was creating market confidence, and I really think that was sorely lacking that time, especially after the Wall Street bust. I actually think that's more important than whether the size of the stimulus was big enough.
Despite the wing-nut rhetoric, there is little doubt that the stimulus has worked...on the other hand, the Bush tax cuts were much bigger, added much more to the debt, and produced much fewer private sector jobs...
Can't blame Obama because the world financial house-of-cards is shaky because of the Euro situation...it is capitalism, or in the U.S.'s case, Corpoiligarcy that is failing us here....not Obama
Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.
And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.
That said, this is where I have a duty to be intellectually honest.
The assumption that all the growth was due to the stimulus was a generous one for the stimulus. NOT ALL GROWTH CAN OR SHOULD BE ASSIGNED TO THE STIMULUS.
It is fair though, given that the trend line was reversed pretty sharply, to attribute a number greater than one to the stimulus.
It may not have been $4 for each $1 of stimulus, but it was almost certainly more than $1. That $1 bounced out of the government, into companies, and then into individuals pockets, then back into the economy.
Given this, and the fact that the US government is paying historically low interest rates on its borrowing, that would suggest that a second stimulus, especially one aimed at our long-term infrastructure deficit would be exactly the thing we need.
Yeah, I went there. We need more debt, and need it right now.
There will be time enough to raise taxes and cut back when the economy gets back on its feet.
Of course we do. Unfortunately, that's politically impossible because the tea party has effectively shifted the debate to austerity which is only going to compound the problem. I think we're going to have to learn this age old lesson the hard way, again. Frustrating.
"time enough to raise taxes"
I'm for allowing all of the 2001, 2003, 2005 dubya tax cuts to expire, and killing Medicare Advantage and Part D, but a huge hole in tax revenues is due to the drop in tax revenue from 25M underemployed, and drop in property valuations due to residential/commercial foreclosures, and drop in sales taxes with drop in consumption.
"NOT ALL GROWTH CAN OR SHOULD BE ASSIGNED TO THE STIMULUS"
is somebody saying that? since the growth curve is flat and perhaps down again, where else would growth come from?
another "stimulus" is that about 20% of total household income today comes directly from the federal govt. that keeps people eating and sheltered, but doesn't pay for St Ronnie's Welfare Queen Cadillacs.
Pretty much. It is a bit like watching someone suffering from hallucinations waving around a loaded weapon, and being powerless to prevent the inevitable wild shot or two at imagined enemies.
They have completely mis-diagnosed the problem, and have applied a solution that is completely an hetical to what is actually needed.
"Gee, you are on fire. You must have done that because you are obviously too cold, here, let me pour some gasoline on you, that will surely help."
Some growth would be natural from a bounce-back after the credit markets got moderately un-frozen.
The timing of the bounce back though strongly suggests it was due in no small part to the stimulus, IMO.
I think the ol' Keynsian model is going to end up looking fairly good when this is studied in a bit more detail.
RandomGuy has no business calling anyone a "denier".
Purple penguins?
Consumers gonna come to their own rescue:
U.S. consumer confidence hits three-decade low
US consumer confidence plunged to the lowest level in more than three decades in early August, according to data published Friday by Reuters and the University of Michigan.
Their index of consumer sentiment tumbled to 54.9, its lowest reading since May 1980, when the index sank to 51.7.
The decline was much sharper than expected, and followed an equally sharp fall in July, to 63.7 from 71.5 in June.
The average analyst forecast for the August number had been 62.5.
http://www.rawstory.com/rs/2011/08/1...e+Raw+Story%29
Only 34 Percent Of Americans Could Find $1,000 In Their Savings Accounts
When asked where they would turn if they needed $1,000 in cash fast, only 34 percent of Americans would look to their savings accounts for the money, according to a recent online poll by the National Foundation for Credit Counseling. The other 64 percent would be forced to go elsewhere, from taking out a loan to borrowing from a family member. In a study released in June, Bankrate reported that only 24 percent of the nation has access to six-months of emergency savings, the majority of whom come from high-income households. In contrast, corporations today are sitting on close to $1.12 trillion in cash, a 59 percent increase from 2008.
http://thinkprogress.org/economy/201...vings-account/
This. It's gonna happen eventually. It's only a longer fall with bigger deficits tbh.
I'm not saying a free fall was the answer, but a smaller more measured response.
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