Stimulus Plan Stimulates the Economy

[BSmith1068]

Looks like the stimulus plan is working:

Stimulus plan boosted GDP by as much as 4.5%, says CBO

WASHINGTON (MarketWatch) – The oft-criticized stimulus plan boosted the economy in the second quarter by as much as 4.5%, the Congressional Budget Office said on Tuesday.

In a report published the same day as Minority Leader John Boehner's criticism of President Obama's economic policy, the CBO said the stimulus law boosted the economy by between 1.7% and 4.5%, lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points and increased the number of people employed by between 1.4 million and 3.3 million.

In practice, that means the stimulus plan is the main reason the U.S. economy grew during the second quarter. The Commerce Department estimates the economy grew 2.4% in the second quarter, a figure most economists expect to be sharply revised lower in a report due Friday.

The CBO said the impact from the stimulus law on output and employment, however, will gradually diminish during the second half of 2010 and beyond.

The CBO also upwardly raised the cost of the stimulus plan to $814 billion from $787 billion.

http://www.marketwatch.com/story/st...uch-as-45-cbo-2010-08-24?reflink=MW_news_stmp

Maybe now we can move past the debate on if it has been effective?

 

[BuckyRea]

Looks like the stimulus plan is working:

Maybe now we can move past the debate on if it has been effective?

I'm a rabid Dem and a committed Obama supporter. That said, I think we're not anywhere near "past the debate" on the efficacy of the stimulus. While a 4% jump in GDP is mighty welcome news, it seems to reflect an improvement in worker productivity, not employment rates. In fact, increasingly worker productivity is Greek for "irrationally high unemployment." It's a demonstration of a redistribution of wealth in the wrong direction.

Economies don't recover when businesses produce more; One of the causes of the Crash of 1929 was that businesses were producing more. Economies recover when more people go to work--especially work with increasing salaries.

The president's done what he can. Businesses are simply choosing not to hire at rates justified by their growing profits.

 

[Godwynn]

Maybe now we can move past the debate on if it has been effective?

We won't.

The Republicans will continue to use the unemployment rate as proof that the stimulus didn't work and people will vote for them despite them leading us into this recession in the first place.

The Democrats will continue to tout this statistic as proof that the stimulus worked and people will vote for them despite the unemployment rate remaining high.

 

[Ajidica]

I remember in a different thread that either Integral or our other economist pointed out that the unemployment rate is a poor indicator of current economic strength as it lags quite a bit. Businesses want to be sure the market is going up before hiring again.

So while the stimulus didn't do as much as was expected, it still helped. We'll get the money back eventualy. Didn't GM already pay off like half of the bailout already?

 

[Ayatollah So]

Even if the stimulus plan is keeping us from sinking further into negative territory, it's high time Ben Bernanke put some ex nihilo money where his mouth is. I.e., bring on more quantitative easing (but make it significant this time).

 

[Integral]

As I've mentioned on another thread, the effectiveness of Fed policy is tied to how much of the rise in unemployment is cyclical vs how much is structural. To the extent that the rise is cyclical, the Fed can still do things to aid the economy.

I'm thinking of a three-pronged strategy: simultaneously abolish interest on excess reserves, set and announce an explicit price level path for the next two years, and engage in another round of QE, possibly massive. Any one of the three in isolation might not do a whole lot, but a shift in the Fed's overall strategy might prove stimulatory. And credit where it's due: these ideas have been floated by more serious commentators than I and they deserve credit for them. Sumner, Rowe, Krugman, etc have all fought (with varying degrees of intensity) for monetary easing.

The Fed gets to think about exit strategies once the price level is back on trend, and no sooner. I mean, even if you are a strict inflation targeter there remains the fact that inflation is well below trend, and on the basis of inflation alone you could argue for more aggressive policy. [Insert caveats about being in uncharted territory here.]

--

Fiscal stimulus: I don't particularly like the macromodel CBO uses, but the various other effects probably wash out in aggregate so I'm not going to complain much.

Two of the things that the stimulus did that I approve of were (1) to throw money at the states, which prevented Federal stimulus from being completely washed out by State contraction and (2) to set expectations that the Administration was serious about the economy. Unfortunately both of those effects are phasing out as aid to the states dries up and persistently high unemployment saps public confidence in the Administration's stance on the economy.

 

[Zarn]

Looks like the stimulus plan is working:



Maybe now we can move past the debate on if it has been effective?

The CBO also determined that Obamacare wouldn't cost us anything...

BTW, we are losing more jobs right now, and the DOW is hurting again. It took a temporary dip below 10,000.

 

[amadeus]

The CBO also determined that Obamacare wouldn't cost us anything...

Their actual thesis is, I believe, that it won't increase the deficit. That said, Medicare is being cut and taxes are being raised in order to pay for it, so that is technically correct.

As for the stimulus and this story, . The story says that the Commerce Dept. estimates 2.4% growth, not "up to" 4.5% and that the figure is to be revised sharply downward. Also, I'd like to see the dartboard they used to come up with those numbers... 1.7% and 4.5% growth? 1.4 and 3.3 million people? That's almost a two million man margin of error.

 

[Zarn]

Everything costs more than originally thought. The bigger it is, the more bloated it gets.

Even some liberals agree with me on this one.

 

[Mise]

As for the stimulus and this story, . The story says that the Commerce Dept. estimates 2.4% growth, not "up to" 4.5% and that the figure is to be revised sharply downward. Also, I'd like to see the dartboard they used to come up with those numbers... 1.7% and 4.5% growth? 1.4 and 3.3 million people? That's almost a two million man margin of error.

Actually, that's quite understandable. Lets say you have a GDP of 100 <arbitrary units> before the stimulus. Now, the CBO's model predicts that GDP will be somewhere between 101.7 and 104.5 after the stimulus. That's an error margin of around ~1.3%, which is very small.

The problem is, you're looking at a % change in a % change, whereas you should be looking at the difference in overall GDP between the high and low estimates. It's the same thing with unemployment numbers -- there are maybe 150,000,000 people employed in the USA right now, so an error margin of 2 million is barely significant (it's a +/-0.67% error margin).

 

[BSmith1068]

As for the stimulus and this story, . The story says that the Commerce Dept. estimates 2.4% growth, not "up to" 4.5% and that the figure is to be revised sharply downward. Also, I'd like to see the dartboard they used to come up with those numbers... 1.7% and 4.5% growth? 1.4 and 3.3 million people? That's almost a two million man margin of error.

So would you have preferred 0.7% to -2.1% growth instead of the 2.4% that is estimated?

Would you have preferred unemployment to be 0.7% to 1.8% higher?

Because the way I read it that is where we would have been without the plan.

 

[JohnRM]

I don't think that most people would argue that the stimulus did not have a positive effect on the economy, at this point, but that the plan could have been more wisely structured or the capital could have been better spent elsewhere to give us a better result. Thusly, this debate shall never cease, but with time.

 

[Zarn]

I don't think that most people would argue that the stimulus did not have a positive effect on the economy, at this point, but that the plan could have been more wisely structured or the capital could have been better spent elsewhere to give us a better result. Thusly, this debate shall never cease, but with time.

Polling indicates that it is rather divided.

 

[Azale]

So uh, should Obama fire Geithner or not? I am so clueless on economic issues its shaming, but everything I've read about Geithner (like the Atlantic piece on him back in March) paints him as a pretty intelligent, competent dude.

 

[Zarn]

Timmah? Competent?

What do you read? Obama's teleprompter?

 

[JohnRM]

The question is, if you recall all of the claims being made by both sides during the debate over stimulus; Have any of them been truly realized? The stimulus plan was not the shock to the heart of the economy that supporters had claimed and it was not the death-stroke that its detractors had claimed. It just proves, yet again, that politicians on both sides of the debate are incompetent.

 

[Zarn]

The question is, if you recall all of the claims being made by both sides during the debate over stimulus; Have any of them been truly realized? The stimulus plan was not the shock to the heart of the economy that supporters had claimed and it was not the death-stroke that its detractors had claimed. It just proves, yet again, that politicians on both sides of the debate are incompetent.

The negatives were steep, due to the price tag. Also, it quite possible (although not certain) we will see a double dip.

 

[Mise]

Price tag? You realise that bond yields are insanely low, right? Deficits have scarcely been cheaper.

 

[Whomp]

Cash for clunkers and the housing credit simply delayed the inevitable so were poorly conceived and should have been allocated very differently.

What Integral said about negative reserve rates seems to make sense since it would seem to stimulate lending to small/medium size businesses. By the way, Alan Blinder suggested the same.

 

[Zarn]

Price tag? You realise that bond yields are insanely low, right? Deficits have scarcely been cheaper.

Deficit spending is never cheap.