CBO Calls Stimulus Resounding Success… I Mean Failure (I Don’t Understand Things)


As a mushy moderate, I’m in the unfortunate position of actually trying to seek out facts when it comes to economic policy — so contrived sound bites from people who are paid to BS me for a living don’t really do it for me (my apologies to Fox News and MSNBC). So, if you will, please take this brief journey with me as I try to sift through analysis on the impact of the federal stimulus package — all based on from what I can glean is the exact same report from the Congressional Budget Office, mind you.

Jay Bookman of The Atlanta Journal-Constitution contends… the CBO says it was a "major success":

The Congressional Budget Office has released its latest assessment of the 2009 stimulus package and the economic impact of its various components.

According to the CBO analysis of stimulus provisions:

They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.3 percent and 1.9 percent,

  • They lowered the unemployment rate by between 0.2 percentage points and 1.3 percentage points,
  • They increased the number of people employed by between 0.4 million and 2.4 million, and
  • They increased the number of full-time-equivalent jobs by 0.5 million to 3.3 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)

 Two other points:

  •  The CBO estimates that the impact of the stimulus will continue to be felt over the next year, increasing GDP by up to 0.8 percent next year and creating up to 1.1 million jobs over what it would have been.
  • The longterm economic impacts of increased borrowing to fund the stimulus will be minimal or nonexistent. “In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates—by between zero and 0.2 percent after 2016,” its economists predict.

The Washington Times relays… Nay, the CBO says it was but a short-term fix, but will cause negative long-term consequences, sucka!:

The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy.

CBO said that while the Recovery Act boosted the economy in the short run, the extra debt that the stimulus piled up “crowds out” private investment and “will reduce output slightly in the long run — by between 0 and 0.2 percent after 2016.”

The analysis confirms what CBO predicted before the stimulus passed in February 2009, though the top-end decline of two-tenths of a percent is actually deeper than the agency predicted back then.

All told, the stimulus did boost jobs and the economy in the short run, according to CBO’s models. At the peak of spending from July through September 2010, it sustained anywhere from 700,000 to 3.6 million, which lowered the unemployment rate by between four-tenths of a percent to 2 percent.

The Obama administration had promised 3.5 million jobs would be produced at the peak of spending.

For this current quarter CBO said the stimulus is sustaining between 600,000 and 1.8 million jobs, which has improved the unemployment rate by as much as 1 percent versus what it otherwise would have been.

The White House did not return a message seeking comment Tuesday afternoon, but officials there previously have said the Recovery Act stopped the economy from falling into another Great Depression…

CBO has re-evaluated the stimulus every three months, and its estimates for the total cost have varied. Initially the package was pegged at $787 billion, rose as high as $862 billion at one point, and is now projected to be $825 billion once all the money is paid out.

The nonpartisan agency also has changed its model for the spending’s impact on the economy, and the new calculations show the Recovery Act did less than originally projected.

CBO said it has concluded there is less of an indirect multiplier effect of federal spending.

Those changes caused it to drop its estimates for total employment sustained by the spending in 2011 from between 1.2 million and 3.7 million down to between 600,000 and 3.6 million.

As for the long-term situation, CBO said its basic assumption is that each dollar of additional federal debt crowds out about a third of a dollar’s worth of private domestic capital.

CBO said there is no crowding out in the short term, which is why the Recovery Act boosts the economy in the near term.

So, in closing, the federal stimulus package was clearly a wonderful/dreadful initiative.