THE STASH AUGUST 2, 2009
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I think David Gregory is one of the smarter public-affairs show hosts around, but his exchange this morning with Larry Summers over the impact of the stimulus was extremely frustrating. Gregory was simply unwilling or unable to see that the point of the stimulus was to boost employment relative to where it would have been without the stimulus. So if the administration promised to save or create 3-4 million new jobs, and we ended up losing several million more jobs than anyone expected back when the stimulus was enacted, then obviously the overall unemployment rate is going to be higher than anticipated even with the stimulus. But that doesn't mean the stimulus didn't work.* And it certainly doesn't mean we should repeal portions of it, as Gregory periodically suggested. It just means we were operating from a different baseline than anyone realized at the time. (And, if anything, it means we should be talking about adding more stimulus, not repealing portions of it.)
Think about it this way: Suppose you're a cotton farmer and the government says it will give you a flat $5,000 subsidy this year, and that at the time the policy is announced, you expect to sell 10,000 bushels of cotton worth $5 a piece, generating $55,000 in income. (I'm pretty much pulling these numbers out of the air.) If you only end up selling 8,000 bushels at $5 a piece, netting you $45,000 with the subsidy, did the subsidy not have its desired effect? Of course it did, it just came on top of a lower level of income than anticipated.
Anyway, here's a truncated version the exchange if you're interested. Summers tried repeatedly to get this point across, to little effect:
MR. GREGORY: The criticism of this administration is that it has misread the impact of the stimulus on the economy, and here are the raw numbers when it comes to the unemployment rate. As of February 17th of 2009, the day that the stimulus plan was signed, unemployment was at 7.6 percent, it's now at 9.5 percent. Experts like yourself believe it's going to go up over 10 percent. Roughly two million jobs have been lost since the stimulus came on line, after this administration said in a report that if you pass a stimulus plan, we'll hold unemployment steady at 8 percent. What went wrong?
DR. SUMMERS: David, I, I think that's really very, with great respect, I think that's really a very misleading way of putting it. The administration's report was very clear that the stimulus would build over time, that less than 10 percent of the job creation would take place during 2009, that the largest impacts would be felt as the program took effect, as all of those projects got started. So we forecast that there would be a meaningful impact felt right away, but that that effect would increase very substantially. ...and that's what's happened. Now, it's true that unemployment is higher. It's higher than almost anyone forecast at the beginning of the year; and it's higher because, frankly, what we inherited was much worse. Most of the surprise increase had already taken place by March, and you can hardly hold the administration accountable for that. It turned out that businesses were even more scared than we realized; and, therefore, relative to past recessions, as demand for their products declined, they were much quicker to lay people off than they, than they have been. And so there was a surprise in the employment statistics, but that didn't have to do with the impact of the stimulus. That had to do with the baseline that we were dealing with. You saw that. You see evidence for that also, David, in this last economic report. In addition to giving us the data for the second quarter, which is what everybody's talked about, the negative 1 percent, it also gave us data on revisions of the whole history of GDP. And what those revisions showed us is that last winter the economy was much weaker than we thought it was at the time. ...
MR. GREGORY: But, Dr. Summers, wait a minute. You say it was misleading to bring up the 8 percent. The reality is that you wanted near-term economic impact from the stimulus. You gave a speech within the last two weeks during which you said unemployment is a real problem, that it was a surprise. My question is if you didn't get the near-term economic benefit that you wanted, you were surprised by that, does it have an impact on whether or not the president would consider repealing any of the long-term spending, given the deficit problem?
DR. SUMMERS: The president is very focused and will come to this, I hope, on the long-term deficit problem; but he is very committed to carrying through on the Recovery and Reinvestment Act, which is really a program over the next two years. Let me say, let me say it again, because this is an important point for your viewers, the economy surprised on the downside. We didn't know how bad it was last winter. That's what we've learned from the data revision. Because we didn't know how bad it was, unemployment is high. That does not speak to the efficacy, the extra impact that we've gotten from the administration's program. That's right on track. ...
MR. GREGORY: So you stand by your claim that this stimulus act will create three to four million jobs when it's all said and done.
DR. SUMMERS: This stimulus, this stimulus program will create more jobs. We were always very careful, very, very careful to say we'll save or create. What that was intended to say very clearly is relative to what would have taken place in its absence. We recognize nobody can know where the economy is going to be with any precision, but what we can know is that if we prevent cops and teachers from being laid off, if we enable consumers to spend more, if we put people to work investing in weatherizing 75 percent of federal buildings, then more people are going to be working than if we don't do any of those, any of those things.
MR. GREGORY: So you can't predict those three to four million jobs.
DR. SUMMERS: No. We can predict that there will be three to four million more jobs than there otherwise would've been, but we can't predict what the baseline is with great precision. We were always clear in saying that.
MR. GREGORY: I--you bring up near-term economic interests. This is a big, a big factor, and I want to get to that in just a minute. But, actually, I don't want to let one point go, which is this long-term spending picture, the investment part of the stimulus plan, which the president and you have said "very, very important." I just want to go back to that point. If the near-term impact is not as great, do you consider repealing any of the longer-term spending given the deficit problem?
Ugh.
*Of course, it's possible both that the baseline was far lower than we realized and that the stimulus didn't have its desired effect--i.e., that it didn't raise unemployment by 3-4 million even relative to the lower baseline. But that wasn't the claim Gregory was making.
--Noam Scheiber
11 comments
Does anybody watch Sunday morning tv anymore? As for Gregory, I cannot forget him describing GWB as a "great" president on one of the gabfests five, six years ago. You know, up there with Washington, Lincoln, Roosevelt, those guys. No penalty for those, like Gregory, who know absolutely nothing about, well, much of anything. Indeed, it appears to be a requirement for the job.
- raylward
August 2, 2009 at 6:13pm
Regardless of what one thinks about Gregory's presentation style, the core content of his questions were clear and Summers was, as per usual, quite disingenuous. First, Summers repeats the canard that he and his colleagues were unaware of the nature and severity of the USA's deteriorating economy "last winter." Moreover, Summers ineffectively attempts to defuse Gregory's point that the one of the purposes of stimulus program was to ensure that people were employed, Furthermore, Summers now hedges on the number of jobs that the stimulus program was supposed to create. Obama previously used numbers like 2 - 3 million. Additionally, now they're claiming that they didn't know the "baseline," so that can't predict the effect of the stimulus. The last statement by Summers is categorically untrue. He has as much access to economic data as anyone in the world as well as the resources to analyze those data. If Summers can't determine the baseline, then who can?
My read of this blog is that Gregory actually called Summers out. Gregory should be commended for doing this, particularly given that he was forced to take on an individual with greater expertise than himself. Gregory's approach is a stark contrast to that of his sycophantic predecessor.
- Ari111
August 2, 2009 at 8:09pm
True, Summers is not the most appealing spokesman for the Administration. On the other hand, as the economy was falling faster than during the Great Depression, does one argue about "baselines" or do something. I may have preferred that we do "something" else, but I wasn't elected President. Not perfect. But it's still our way of determining the direction of the country. I can't help myself but to comment on today's article in the NYT about the country baker (BB&T) who liked to pepper hsi employees with Randisms. Of course, it doesn't occur to him that banks prosper because of government deposit insurance. Or for that matter, that railroads prospered because government gave the railroads the pathways necessary for their business. My business: esssential for the survivor of the human race. Yours? Sucking the blood of the real "producers".
- raylward
August 2, 2009 at 8:36pm
Economics is an inexact science. I think that Gregory's questions are legitimate, but Summers' answers are not bad and contain an essential truth -- the new administration made an informed calculation on how bad the recession was going to bite, and misjudged on the optimistic side. Now, perhaps they should be hauled up before the Star Chamber for that -- I'm all for accountability -- but they had just taken over from an administration that combined blasé inaction over years topped off with a squirt of directionless panic at the last minute. I think some perspective is needed here, and a recognition of the choices available to Obama rather than assuming that he has a magic wand.
I agree with raylward -- baselines can be argued out later.
- ironyroad
August 2, 2009 at 9:14pm
Raylward and Ironyward:
All sciences are inexact; nonetheless, rigorous, thoughtful scientists can generally make accurate predictions and appraisals. Furthermore, and I think that most people would agree on this point, the Bush administration contributed mightily to this economic calamity, with help from the Clinton administration.
Here is my point: Gregory nailed Summers for trotting out the bogus "no one knew that it would be this bad" assertion. The economic downturn over the past years was publicly predicted in 2006 and 2007 by many exceptional economists, including, but not limited to Nouriel Roubini and Joseph Stiglitz. Summers. who was one of the catalysts for this economic malfeasance, is pretending that he couldn't have known, which is complete and utter nonsense. Furthermore, Summers attempted to gloss over the fact that he had made certain predictions about the downstream effects of the stimulus, such as the creation of new jobs. When Gregory sought a concrete answer from Summers regarding the anticipated number of jobs created, Summers punted. This punt was in direct contrast to the specific predictions that Summers made at the time that he promoted the implementation of the stimulus program.
With respect to the point about baselines, that argument is fallacious. It is impossible to state that there exists a decline without having a baseline for comparison. Stated another way, if one does not have baseline for the economy, whether it be unemployment or some other indicator, then one cannot make informed statements about some of change related to that indicator.
As for Obama's "magic wand," well, his economic team largely consists of the same individuals that oversaw the creation of this mess (e.g., Rubin, Summers, Geithner). The one person who has actually implemented a successful plan to remedy the current situation, Paul Volcker, has effectively been marginalized.
Good lord, just writing about these matters causes my blood pressure to spike.
Look forward to your comments.
- Ari111
August 2, 2009 at 9:40pm
"let me say it again, because this is an important point for your viewers, the economy surprised on the downside." I gotta agree with ari111, they pushed the optimistic view to get the stimulus passed, not because they were surprised. This was all politics, pure and simple. How the hell can you be saying we are on the verge of a depression and then say they are surprised that unemployment surged? I knew they were feeding a line of bullshit back then and I knew why, and I knew they expected to take some lumps now, but with health care coming up I think that was a bad strategy, they should have been upfront then.
- blackton
August 2, 2009 at 10:17pm
In Perry country, TN, the state has taken part of the stimulus assistance and is creating jobs to counteract a massive 27% unemployment rate (story recently on NPR). They haven't created only state or country jobs, but are subsidizing private employers who need extra staff but can't make the leap to regular hiring at this moment.
It can't be the only place where the stimulus funds are making a difference between disaster and some kind of temporary bridge that give people a hand up until things improve.
That's my comment.
- ironyroad
August 2, 2009 at 11:10pm
Sorry guys, in the above read "county" where I typed "country"!
- ironyroad
August 2, 2009 at 11:36pm
What is going to haunt them if the unemployment rate remains at 9,5 or 10% as next year's election approaches is 1) the widespread perception that the stimulus package was a pork-laden mess with very little quick stimulation and 2) the newly installed geniuses in the White House left the legislative details to the old warhorses in Congress.
Are those who are still out of work going to say 1) no problem, it could have been even worse, or 2) I blame that old fart Obey since he drafted the stimulus package, or 3) I understand that Henry Waxman has bigger fish to fry than little old me and he got impatient?
We shall see.
- lsernoff
August 2, 2009 at 11:57pm
And what are those who aren't out of work, but could have been, going to say? Or those whose business was saved by new procurement funds? Or those who might get back into reasonable health care coverage if things begin to come together?
FDR was voted in again in 1936 because people knew he was trying everything, even if not everything worked out, and that the alternative was pretty awful.
- ironyroad
August 3, 2009 at 12:04am
The rules David Gregory follow each and every Sunday:
1] Ask questions the guests would ask themselves if they were you
2] Ask yourself this: Would my question [or the guest's answer] rankle the corporations that advertise on Meet The Press?
3] Play "gotcha!", sure, but never go too far in a direction that might provoke viewers to explore the incestuous relationship between the moguls, the media and the moolah the messengers shower on all of you between segments
4] Under no circumstances should the discussion be allowed to pull back the curtain and expose the pecuniary relationship between "political power" and "economic power"
5] Try to create a warm, fuzzy ambiance...something a viewer might translate into him, you and the guests sitting around a campfire bullshitting about newspaper headlines
6] Towards this end try to keep exchange on a familiar, first name basis
7] One way or the other try to steer the exchange in a direction one might expect from, say, The National Enquirer
8] Don't sweat The Panel We'll make sure none of your guests take the discussion too far outside "inside the beltway"
9] If you ever get in a jam ask yourself, "What would Tim Russert do?"
10] Do things the way they're supposed to get done and you will be Brian Williams someday
gw
- iambiguous
August 3, 2009 at 8:38am