The Stimulus Worked But Was Not Enough

Dave Johnson

Before I start this post, let’s look at the actual situation. The economy is terrible, people are really hurting, they have been holding out and are starting to drop off the map. There are signs that with the stimulus fading things are starting to turn back down. But compared to what?

The overall jobs picture:

July Jobs Report

The manufacturing jobs picture:

July Jobs Report - Manufacturing Jobs

Finally, the huge deficits. The context of this next chart is that Bush’s last budget year left us with a $1.4 trillion deficit! The projected budgets from this President will cut this in half in the next few years.

PRESIDENT OBAMA'S PROPOSED BUDGET SLASHES DEFICIT IN HALF IN JUST FIVE YEARS

You can see for yourself from the pictures. (chart source) Under conservative policies everything was spiraling downwards. The stimulus clearly worked and stopped the death sprial, but was not enough. According to the Congressional Budget Office,

The massive U.S. stimulus package put millions of people to work and boosted national output by hundreds of billions of dollars in the second quarter, the nonpartisan Congressional Budget Office said on Tuesday. . . . CBO said President Barack Obama’s stimulus boosted real GDP in the quarter by between 1.7 percent and 4.5 percent, adding at least $200 billion in economic activity.

It raised employment by between 1.4 million and 3.3 million jobs during the second quarter of this year, CBO estimated.

The stimulus worked but was not enough. Economists Agree: Stimulus Created Nearly 3 Million Jobs,

Eighteen months later, the consensus among economists is that the stimulus worked in staving off a rerun of the 1930s. [. . .] It’s no surprise that the administration would proclaim its own policies a success. But its verdict is backed by economists at Goldman Sachs, IHS Global Insight, JPMorgan Chase and Macroeconomic Advisers, who say the stimulus boosted gross domestic product by 2.1% to 2.7%.

The stimulus worked but was not enough.

What Now?

In the context of this picture of the economy, President Obama’s economic advisor Christine Romer is stepping down. In her departing speech she said that the economy needs more stimulus to get us to the point where private business is again driving the economy. Romer Calls for More Stimulus,

U.S. Council of Economic Advisers Chairman Christina Romer, in her final speech before stepping down, called on the country to stomach new stimulus measures to lift the lackluster economy, even in the face of growing fears about the nation’s deficit.

“Concern about the deficit cannot be an excuse for leaving unemployed workers to suffer,”

The clear conclusion from all available evidence: The stimulus worked, but it was not enough. In addition, in an effort “to attract Republican votes” that never came, 1/3 of the stimulus was wasted on tax cuts that leave nothing behind but debt. Much of the package was emergency relief for the unemployed, the states, and other emergency safety net programs but won’t contribute to job-creation and reviving business. Only a fraction went to infrastructure, which is the soil in which business thrives and the country maintains its worldwide competitiveness,

The American Society of Civil Engineers puts the bill’s infrastructure spending at $71.8 billion, or less than one-tenth of the package.

The stimulus worked but was not enough. Economists are calling for more stimulus and extending unemployment benefits.

What The Right Says

Meanwhile conservatives are placing their bets on benefiting from a worsening economy, and so are blocking things that might help. Conservatives correctly believe that the worse the economy is doing, the better the chances that they will pick up more House and Senate seats in the coming elections. So it is in their interests to make sure that is what happens. Capitalizing on the shock the nation felt when it heard about the size of the deficit the previous administration left behind, conservatives are trying to block attempts to add stimulus.

And with the original not-enough stimulus fading, the right is trying to drive a narrative that “government spending kills jobs.” This follows decades of “tax and spend” rhetoric that claims that “taxes take money out of the economy,” “government spending slows the economy” and similar nonsense. The original “starve the beast” plan to kill government and democracy by denying them the funds they need is on the verge of succeeding.

To drive this strategy they claim that it is the stimulus itself which has kept the economy from recovering. Newt Gingrich, in Fire the Job Killers,

The big government stimulus bill, the tax increases of the health bill, the plan to let the 2003 tax cuts expire, and the massive growth of government under the Obama Administration are all actions directly attributable to this administration which have killed jobs.

Gingrich even claims that helping the unemployed, not the recession, is the cause of the unemployment!

A few weeks ago in this newsletter, I cited a study by Robert Barro which estimated that without the extension of unemployment benefits to 99 weeks, the unemployment rate would be 6.8% instead of 9.5%.

Republican House leader John Boehner recently gave a speech on his economic plan in which he said that the economy is “stalled by ‘stimulus’ spending” and “each dollar the government collects is taken directly out of the private sector.” (An NDN study found that following the Boehner economic plan will add $4.188 trillion to the debt.)

Some other voices on the right:

Murdoch’s NY Post: Romer admits stimulus failed

Dr. Christina Romer is leaving the Obama administration, and in her final speech she admits that the stimulus did not work to revivie the economy as she had hoped and as President Obama promised.

Malkin’s Hot Ait: Romer: We had no clue … and still don’t

Instead of cutting taxes (especially capital gains taxes) and reducing regulation to entice new investment, Barack Obama and Congressional Democrats chose to chase a government takeover of health care, a massive tax on energy production that would penalize expansion and growth, and expanding the jurisdiction on Wall Street of the same agencies that had watched the collapse come and did nothing about it.

Except, of course, 1/3 of the stimulus was tax cuts. (Further proving that tax cuts leave nothing behind but more debt.)

These are just a few samples from the drumbeat.

America faces a choice. The stimulus worked but was not enough. So we can proceed with “reality-based” solutions that have helped, and demand more stimulus, or we can go back to conservative policies that killed the economy.

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