Jonathan Cohn

About That 'Failed' Stimulus...

By

The economy is sluggish and unemployment is on the rise, but Republicans and their allies say they want nothing to do with President Obama’s agenda for job creation because it’ll be just another “failed stimulus." Here's John Boehner making that argument on his official blog. Here's Karl Rove doing the same on Fox News. And here's Richard Posner offering his version at TNR -- although, to be fair, he merely calls the stimulus "botched" and I'm not sure he qualifies as a Republican ally. 

Of course, the argument isn't new. The phrase "failed stimulus" has been a staple of Republican rhetoric since the fall of 2009. But it was wrong then and it’s wrong now, at least according to the the people most qualified to judge it. As David Leonhardt wrote in the New York Times:

Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs.

That was in February of 2010. Fifteen months later, in May of this year, the nonpartisan Congressional Budget Office estimated that, as of the most recent quarter, the Recovery Act had

increased the number of people employed by between 1.2 million and 3.3 million and increased the number of full-time equivalent jobs by 1.6 million to 4.6 million compared with what would have occurred otherwise.

And just a month ago, the president's Council of Economic Advisers came up with similar estimates (2.4 to 3.6 million jobs) using its own forecasting models. You'll find a few critics on the right who dispute the reliability of these models, but they are a distinct minority and it's not as if they have a compelling alternative theory. Keep in mind, by the way, that the administration had predicted the Recovery Act would create 3.5 million jobs, which is on the high end but in the same ballpark as most other estimates.

Yes, the administration also predicted unemployment would peak at around 8 percent. That was obviously very wrong. The jobless rate hit 9 percent in the middle of 2009 and, except for a brief period this year, hasn’t dipped below since. Those are the figures critics always use to make their point. But few mainstream experts doubt that, if not for the Recovery Act, today’s unemployment rate would be significantly higher

The administration's error, in other words, seems to have been in anticipating how bad things would get, not in figuring out what to do. That's particularly true when you consider not just the size but the shape of the Recovery Act. The initiative invested heavily in projects likely to strengthen the economy in the long-run while delivering relief to people who very much needed it. Via Time's Mike Grunwald:

Yes, the stimulus has cut taxes for 95% of working Americans, bailed out every state, hustled record amounts of unemployment benefits and other aid to struggling families and funded more than 100,000 projects to upgrade roads, subways, schools, airports, military bases and much more. ... The "fun stuff," about one-sixth of the total cost, is an all-out effort to exploit the crisis to make green energy, green building and green transportation real; launch green manufacturing industries; computerize a pen-and-paper health system; promote data-driven school reforms; and ramp up the research of the future. 

Grunwald, who is writing a book on the subject, notes reports of serious fraud have been minimal, thanks to unprecedented transparency. (If anything, the safeguards against abuse have been too effective, because they slowed some of the spending.) ProPublica's Michael Grabell, who is also writing a book on the subject, seems to agree:

After Hurricane Katrina and the Iraq reconstruction, many analysts predicted that the federal stimulus program would be rife with fraud, waste and abuse. At least so far, it hasn't been.

Grabell goes on to note that, so far, legal prosecutions have produced convictions over just $1.9 million of fraud -- or less than 0.01 percent of the program -- although it's always possible more cases will appear later on.

Meanwhile, the least effective parts of the law were most likely the poorly targeted tax cuts that Republicans and conservatives insisted upon as a condition of enactment.

The most credible case against of the Recovery Act is the one from the left, by the likes of Paul Krugman: It wasn't large enough. But that’s an argument in favor of going "big, long, and global" on a second stimulus, as E.J. Dionne recently put it – and the very opposite of what Republicans are saying.

Update: Over at the Washington Post, Dylan Matthews has done an exhaustive and detailed survey of nine major studies on the stimulus, including both modeling and econometric studies. I can't do justice to the write-up here -- and I'm not sure I'm really qualified to judge it -- so I'll just quote his conclusion: "I’m inclined to believe that the preponderance of evidence indicates the stimulus worked."

Loading Related Articles...
Politics
Article Tools
SHARE YOUR THOUGHTS

Show all 16 comments

You must be a subscriber to post comments. Subscribe today.