Monday, July 19, 2010

Stimulus is a Success?

Charles Pope of the Oregonian writes:
"WASHINGTON -- Economists generally agree that the largest spending package of all time -- the $787 billion stimulus law of 2009 -- worked as designed, stabilizing a heaving economy, possibly preventing a full-blown depression and freeing up money to pave rutted roads and keep many Americans at work.

"This would seem to be good news for Democrats in a difficult election year. After all, they muscled the bill into law with virtually no help from Republicans.

"Think again.

"According to a July 13 CBS News poll, only 23 percent of Americans think the stimulus helped the economy (down from 32 percent in April). Eighteen percent say it actually made the economy worse, and 56 percent say it had no effect."
Perhaps Pope forgets that the key question we are supposed to ask ourselves about economic policies is: "Am I better off now than before the policy was adopted?"
Are most Americans better off today than they were before the stimulus bill passed? No. Is unemployment lower? No.

Unemployment was under 8% at the time, and we were warned that it could go clear up to 8% if the stimulus package wasn't passed. The expert economists said the same. The stimulus was passed and unemployment went up a good deal past 8%.* It's now hovering about 9.5% nationally and at 10.5% in Oregon. The economists were wrong on the effects of the stimulus package in their initial assessment. Why should they be believed now?

So, it's no wonder that 74% of Americans disagree profoundly with economists and think the stimulus either was a waste of money and made no significant difference or that it actually made things worse by piling up debt--not to mention all the pork projects in it.

Maybe if economists admitted that they were taking a shot in the dark before and really had no idea what the effect of the stimulus would be, they would have more credibility now. But, Charles Pope didn't think to ask them about their poor predictions about the stimulus bill before it was passed.

This points not only to the disconnect between economists and average life reality, but to the disconnect between reporters and average life reality. Most Americans' lives aren't better post-stimulus, and about 10% are really hurting bad. It's too bad Pope and the Oregonian haven't figured that out. Maybe if Pope talked to some average Oregonians instead of politicians and experts who were wrong last time . . . .

*UPDATE 2: When the stimulus bill was passed in mid-February, 2009, the then current Bureau of Labor Statistics report showed US unemployment at 7.6%. Some feared that the stimulus bill's "slimmed-down" form might result in unemployment going over 9%. A rise over 10% wasn't on any of its supporters' radar.

UPDATE: OregonGuy comments that not all economists are disconnected from average life reality--or humility. He cites Greg Mankiw of Harvard who has a very insightful article on this very issue in National Affairs.


OregonGuy said...

Not all economists. Just those who are normative, rather than objective, economists.

On my daily read list is Greg Mankiw. Students of econ prolly know his name.

We can warn policy makers of error in many ways, but when outcomes become more important than process, many choose to ignore process in order to achieve policy goals. Unfortunately, this rarely works.

T. D. said...


You're right, as usual. I was using "economists" a bit tongue in cheek--in the same limited global sense that Pope was, i.e., the only economists who count are the ones who thought the stimulus bill was a great idea.

Pope seems to know of no economist who thought the stimulus was a bad idea. One such "invisible" economist is Raghuram Rajan. The current Weekly Standard has an article on his book Fault Lines. Rajan is quoted as saying that the stimulus was not a stimulus but "a form of redistribution to fulfill election promises."