The CBO on the American Reinvestment & Recovery Act
Feb 24th, 2010 | 49 responses
That would be what most of us know as “the stimulus.” Republican leaders claim it hasn’t created a single job (while hastening to take credit for the jobs it’s provided at ribbon-cutting ceremonies across the nation).
Well, guess what, two-faced Republican leadership? The CBO reports today that the stimulus bill “in the fourth quarter of calendar year 2009, ARRA added between 1.0 million and 2.1 million to the number of workers employed in the United States, and it increased the number of full-time-equivalent (FTE) jobs by between 1.4 million and 3.0 million.”
And no, hypocritical GOP leadership: You cannot take credit for a single one of those jobs.
Prof. Darren Hutchinson has a question:
If the stimulus had substantial success later in 2009 — yet unemployment remains high — does this validate Paul Krugman’s argument that the stimulus should have been larger and that it should have included more items of direct spending and fewer tax cuts?
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49 Responses to “The CBO on the American Reinvestment & Recovery Act”
[shrug] That's still far below what was promised (even the figures later revised downward by Obama).
Laying aside the issue of government versus private-sector jobs as well,
http://blogs.ajc.com/kyle-wingfield/2010/02/23/…
here's something else to note.
“Stimulus contractors say they've created about 600,000 jobs directly from spending, but CBO uses economic modeling to reach its conclusions. That accounts for the wide range of potential job creation.”
http://washingtontimes.com/news/2010/feb/24/sti…
It's not accurate to say that the CBO “reported” any impact of the ARRA. What it did was to issue a series of calculations that were obtained in the following manner: First, make a series of assumptions about the impact of spending $1 in each of a variety of categories (for example, “transfer payments to individuals” and “one-time payments to retirees” are two of the categories). The assumed impact per dollar of spending is called the “multiplier effect.” Next, multiply the amount spent in each category by the assumed value of the multiplier for that category (hence the name “multiplier”) to get the *assumed* change in total spending (or employment, in other versions) due to the ARRA spending in each category. Finally, add up the calculated total spending (or employment) impact for each category of ARRA spending and–presto!–you've got an “estimate of the impact of the ARRA.”
It is admittedly hard to estimate the difference between the actual performance of the entire economy and what its performance would have been in the absence of the ARRA, so it's easy to poke holes in anyone's attempt to do that. However, this CBO “report” is incredibly weak by any reasonable standard at all.
So basically you are upset because expectations were poorly managed? I guess you weren't one of the 2 million that got a job because of this thing.
DLS is at heart a propagandist, not someone who wishes for people around him to be more knowledgeable and capable of good decisions. Like most climate change “skeptics”, he mostly cares more about the appearance of being right rather than the virtue of being right.
Of course the stimulus created and saved jobs, it is silly of the GOP to claim otherwise (though they can rightly claim there has not been a net increase in jobs). The main question has always been does the short term gain justify the serious long term worsening of the deficit? The initial CBO projections admitted that the stimulus boosts the economy in the short run and damages it in the long run.
There are other concerns regarding the stimulus, namely was the money wisely spent? The one area just about everybody agrees we should spend money on is infrastructure, yet that was a relatively small part of the stimulus. Immediately after campaigning against pork, Obama allowed the stimulus to be loaded up with pet projects. Remember Pelosi defending condom distribution as part of the stimulus? The attitude at the time was that all spending was good, we would throw a bunch of money at the problem and hope some of it worked. That attitude is short-sighted and we will eventually pay for it.
A large effect of the stimulus was to lessen state deficits at the expense of worsening the federal one. What is the long term effect of that? Was it worth it?
Shannon,
That's the problem. Nobody knows whether it was 2 million, 3 million or .2 million. Sandy's point above is absolutely correct. The CBO did a multiplier based analysis to arrive at its conclusion which is a relatively weak form of analysis since it more or less presupposes the conclusion and (implicitly) endorses the critique of many liberals that a larger stimulus would have done more. Indeed, by the logic that CBO is using, a stimulus 4 times as large would have lowered the unemployment rate in 2010 to about 3 percent. If only it were that simple…
DLS is also correct about the distinction between public and private jobs. Almost all of the jobs that can demonstrably be shown to have been saved or created are public sector jobs, reinforced by the fact that the government is the only growing part of the jobs picture. This is implicit rather than explicit in the CBO analysis.
The strong form of both arguments (i.e., the stimulus created or saved no jobs vs. the stimulus created or saved 2 million jobs) is wrong on both sides. Did it help, I'm sure. Did it help as much as the administration claims, who knows?
In any event, I'm not entirely sure why it matters. The stimulus happened. There may be a reasonable debate about what to do in the future but a long debate about whether it “worked” doesn't actually do anything except inform that debate about the future.
So basically you are upset because expectations were poorly managed?
This went beyond poorly managing expectations. Obama's projections were off by a mile and it is appropriate to call him on it. Obama was foolish to say the stimulus would keep unemployment below 8% as he had no way to know that. We expect the president to be right most of the time, that's his job.
That's a knee slapper! “We expect Presidents to be right most of the time.”??!?
I might have some sympathy toward your position if those that cheered the wars of the previous administration, would admit that said wars were nothing but military adventurism. Please, really–stop. Iraq was such a colossal case of “got it wrong” that I cannot imagine it being matched in my lifetime.
No, we don't expect our president to be right most of the time. We expect him to lead us with integrity in his dealings with us. We expect him to have the best interests of us in mind when he makes decisions.
The truth is, that there is a political mind bent in this country right now, that doesn't want anything this president does or attempts to do, to succeed. It must stick mightily in your craw that the stimulus kept us and by extension, the rest of the planet, from a financial Depression.
I find myself grateful, that the people with the ability to do something, DID something to help us. I am grateful for the stimulus, I am grateful that Obama saved the American automakers, I am grateful that we live to fight another day.
So, since we all benefit from a stable financial and political landscape, I am grateful, and you would be, I suppose, an ingrate.
Vera, you are using the common stratagem of defending Obama by comparing him to Bush. I don't want Obama to be a bad president like Bush, I want him to be a good president. I also want him to be right most of the time, so you and I disagree there.
I am happy for the positive effects of the stimulus but concerned about the long term effects, and critical of wasteful elements within it. As the CBO has said in the past, we sacrificed long term growth for short term gain. Whether it averted a depression is anybody's guess.
I'm grateful that the financial situation is relatively stable. How much of that was Bush and Obama, we'll never know but I'm grateful just the same.
As for the automakers, they should have gone into bankruptcy and the administration should not have used restructuring as a payoff to unions and to put the screws to the bondholders.
For me at least, it's not a question of whether the President succeeds. I have enormous faith in the resilience of the country regardless of who the President is. I do find his preference to have Washington solve our problems with our money as opposed to leaving us to solve our own problems disturbing.
I do not want the President to impose new costs on the country in pursuit of policies he finds appropriate, whether that be HCR or cap and trade. If you would like to explain how that makes me an ingrate, I'm happy to listen but it rather sounds like you prefer to attack the individual and their motives as opposed to debate the policy.
So how many of those jobs are not temporary? anyone got numbers for that?
Good to see Americans back to work, but not sure this is the whole picture. I mean building a parking garage in the middle of a cornfield employs people. How many jobs were created by bailouts? Also one has to wonder what the opportunity costs were. Something that will be argued about for years.
If the automakers had gone into bankruptcy, they would have liquidated. THERE WAS NO MONEY FOR BANKRUPTCY PROCEEDINGS.
Millions of retirees would have been thrown on the already overburdened PBGC. The supplier network would have crashed, bringing down Ford, Nissan and any number of other companies with it. The industrial midwest would have turned into an wasteland, with millions of homes, businesses and holdings rendered virtually worthless.
THIS was preferrable to LOANING them a fraction of the amount of money GIVEN to AIG? Money that they have to pay back?
No, it would have been short-sighted lunacy to allow them to fail. GM has made investments of over a billion dollars since exiting bankruptcy, and created over 5,000 jobs. Chrysler was in its death throes, but now has a chance to show the world what they can do after years of astoundingly poor management. They have also hired people, by the way. Ford continues chugging along in its resurgence, making great cars and employing by extension hundred of thousands of people.
So, you must be one of the people driving a Toyota right now. Good luck with that. Might want to revisit your life insurance policy, though.
Since Republicans and Teabaggers thrive on short sighted lunacy, I suppose I'm not surprised by your statement. But it is colossally stupid.
And Democrats too unless you think tripling Bush's deficit in one year is sanity.
Cool, more insults. Seems par for your course
And what if the government had guaranteed the loans necessary to restructure the companies through a standard bankruptcy process? That would have crossed the financing threshhold and avoided liquidation without requiring government ownership of car companies and without creating a precedent that bankruptcy laws are irrelevant in the face of unions.
And get your facts straight. We both loaned them money AND bought substantial chunks of the company in the case of GM. The US government is GMs majority shareholder at the moment. That's not a loan, it's an investment.
Nobody knows what would have happened in bankruptcy since neither company went through it. Liquidation would have been a disaster but there were a lot of options other than liquidation or government investment (not loans) in the company.
Ford is an example of what GM and Chrysler could have been had they chosen to do so. They didn't and there should be consequences for that.
And please don't lump me in with someone who supported the banking bailout. I didn't. It is possible that AIG needed to be bailed out and, in what sounds like the heat of the moment, one might imagine taking that path rather than running the risk of the financial system coming down. The auto thing was nothing like that. We saw it coming months out and couldn't come up with a better option.
In answer to your question, I don't drive a Toyota but my life insurance is paid up. Thanks for caring.
He had to give his best number. Not a lot of people could produce solid estimates because this colapse was pretty unique. It isn't as if we had some model to roll back to and plug in new numbers. He also couldn't come out wishy washy. “Well geez…we think maybe this might probably keep unemployment below 8…give or take 5 points.” That wouldn't have helped anyone at the time.
No, I think cleaning up Bush's mess is very expensive.
You're being entirely too reasonable. I really don't know how to react
Cool, more supercilious nonsense, with a fine bouquet of arrogance. Seems par for your course.
I know the facts, thankyouverymuch.
The government was the lender of last resort in this case. The banks were not in any position or mood to loan ANYONE money at the juncture in time we are discussing. This did not happen in a vaccuum, in which unicorns were romping down Wall Street and fairies blessing the land with sparkly pixie dust.
There were no other options at that time. And you kid yourself if you think otherwise.
The government's holding in GM will begin to be divested as soon as a public offering takes place, probably next year. As will the UAW's Health Care Trust portions.
Ford, while lily-white in the eyes of the uninformed, has benefitted greatly from both government loans and the appearance of being above it all, when in fact, they piggybacked off the troubles of GM and Chrysler.
You know, kind of like the Republicans that show up at stimulus funded ribbon cutting ceremonies.
: ) right back at you Shannon.
I try to be reasonable when I can (although my kids might say otherwise).
I find in most discussions, people stake out points of view that are pretty polarizing and then attack the motives or intellect of people who disagree with them. This is just one example of that conversation. I don't know how many jobs the stimulus created but I strongly suspect that people who claim the money was totally wasted and people who claim it prevented the next Great Depression don't know either.
The truth is likely thus. The stimulus improved the situation from what it would have been without it and for some people, this made a huge difference in their lives. That said, on a purely ROI basis (dollars per job saved or somesuch), it probably doesn't look that great.
Reasonable people can (and do) disagree over how much a difference it made and therefore whether it was worth it. In the end, we'll never know so why get so worked up about it.
Polifact hs something related, although they didn't look at full time vs. part time and sustainable jobs vs unsustainable ones. They gave Obama a 1/2 true.
http://www.politifact.com/truth-o-meter/stateme…
Please tell me how you know there were know other options and how you know about what Ford did or didn't get from the government
Agreed.
Since Republicans and Teabaggers thrive on short sighted lunacy, I suppose I'm not surprised by your statement. But it is colossally stupid.”
The country sure is lucky to have the Dems and classy folks like you to save it.
First of all, there are things I “know” and there's things I can say “no” to.
Here is your proof of $5.9 billion in government loans to Ford:
http://www.thenewamerican.com/index.php/economy…
Please tell me where the money for the automakers was going to come from, if not the government. Some nebulous, competely solvent financial institution at the end of 2009, with loads of money and faith in the American financial system?
Now, real life calls. I am off.
Me and Jayne, we aim to misbehave.
Whether it averted a depression is anybody's guess.
No. It is highly probable that we averted a depression, based on the data we have. It would NOT have been reasonable for officials, in the midst of a huge crisis that was highly likely to turn into a depression, to say… 'Weelllll… let's see if we have Great Depression 2.0 before we actually try to do something about it.'
It is reasonable to question whether the deficit and the dampening effect this will have on long term growth was worth it. But, you have to be prepared to argue that you would have been willing to accept a true depression over the increases to the debt.
parking garage in the middle of a cornfield
Just where is this pork barrel project?
Vera,
Had you read my post, you'd note that I proposed to have the government guarantee loans to make standard bankruptcy a possibility. You maintained there were no other options. I'm waiting to hear a justification for that position.
Thank you for the post on Ford's loans. It's helpful to know.
The car companies should have gone through bankruptcy with government guaranteeing the financing to bridge the restructuring. That would have been a better answer than the one that was chosen. It's fine for you to disagree about whether it's a better answer but pretty unreasonable to argue that it's not possible.
“The main question has always been does the short term gain justify the serious long term worsening of the deficit? “
The sheer amount of spending probably surpassed people's concerns about the lack of jobs generated, and preserving (or expanding) government jobs versus private sector jobs. Even we wiser skeptics were willing to give the Dems a chance, and they really did wrong. The spending wasn't all, the increase in federal government intervention and the size of the federal government as well as its presence may have surpassed concerns and criticism about the spending and other fiscal problems. (It hurt, not helped, to see an Obama budget that projected deficits indefinitely. That's not learning anything from this, or it is learning or doing anyway the opposite of what is needed.) Trying to deny the reality with distractions or with substandard behaving, by claiming it's bad, but there otherwise would have been a Second Great Depression or otherwise much worse, is a poor to worthless argument; even worse is blaming Bush now.
“As for the automakers, they should have gone into bankruptcy and the administration should not have used restructuring as a payoff to unions and to put the screws to the bondholders.”
Payoff to unions — lowly. Screws to the bondholders — Chavez-style. They also have taken over the two companies (which they never should have done; yes, they should have let bankruptcy run its course). A major reason for the disturbing desire by them to levy big new taxes on banks (including banks that never took TARP money) appears to keep GM and Chrysler in operation. Operating to do what remains a serious question. Is it “rigged” competition in the market (which the Toyota current news might be exploited wrongly, as reasonably is suspected), is there be new eco-fascist transportation and energy games we will see (as anticipated) with these companies — what will it be, and how much more money will we be forced to “contribute” to this experiment or game? (They haven't been even practical enough during this past year to be at least rational, though still controversial, and replace much of the federal government's current fleet with current GM and Chrysler vehicles.)
“short term gain”
Short-range as well as short-term thinking, it appears so far (only with range of Dem special interests)
Shannon, you took the words right out of my mouth (so to speak).
Dear VeratheGun
ad hominmen on other commenters will stop now. Stick to the facts and your opinions about the article and debate away to your heart's content.
please read the commenters' rules on the home page
thanks.
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Because we all work here for the big bucks ($0), It gets old to have to edit some very few commenters' remarks that go against the tmv rules for civility, and to have to leave warnings time and again. We'd all rather be writing… for you.
Please read the rules, and debate away with all your facts and ideas.
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Thanks.
I can hold to any standard you wish. But if you're going to moderate, then MODERATE. There are any number of personally offensive monikers that slide around here like they were doused in KY jelly. And a moderator is nowhere to be found. Funny how that works.
I hardly think any of these fellas are in danger of crying into their beer over anything poor widdle me might write on this site.
“Because we all work here for the big bucks ($0), It gets old to have to edit some very few commenters' remarks”
Hey, look at the bright side doctor e…..chances are low you'll lose your job in a cost-cutting move by the corporate oligarchs.
Vera: I can appreciate that you would like moderation to occur when you wish. I would too, but given all of us who work so hard at this site also have day jobs, families, elders to take care of; we do as we can and expect commenters to adhere to the rules.
Thanks.
as I've mentioned to you before CO, really, I think you are a stand up comedian in disguise. That made me laugh.
Thanks.
Where were these jobs saved or created? The CBO used an economic model that was programmed to assume that stimulus spending automatically creates jobs — thus guaranteeing their result.
The CBO model started by automatically assuming that government spending increases GDP by pre-set multipliers, such as:
•Every $1 of government spending that directly purchases goods and services ultimately raises the GDP by $1.75;
Every $1 of government spending sent to state and local governments for infrastructure ultimately raises GDP by $1.75;
•Every $1 of government spending sent to state and local governments for non-infrastructure spending ultimately raises GDP by $1.25; and
•Every $1 of government spending sent to an individual as a transfer payment ultimately raises GDP by $1.45.
By simply assuming large multipliers, CBO effectively pre-ordained its conclusion that the stimulus worked, regardless of what actually happened in the economy.
Oh that is just an example from a paper or article on the faults of Keynsian economics that stuck in my head. Then again, maybe its beside that $100,000 Martini Bar and Brazilian Steakhouse built with stimulas funds or that $15 million dollars which went to 'build a bigger, better airport' for the town of Ouzinkie, Alaska, population 165, or maybe that $7 million bridge in Thedford, Nebraska, to help 168 residents avoid a 30-second wait at a local train crossing. Never know such a parking garage might actually exist.
I thought the garage was outside the Murtha airport. It's about 20 miles away but serves as overflow parking
You know, the bit about private vs public jobs is such a crock. First, those who are employed don't object that their employer is “public” and we have a TON of public works to do. Second, it isn't true. My own slice of the stimulus was in energy conservation. Not A SINGLE one of the people who made or installed new windows, roofing, insulation and solar were public employees. Not one. Sure, the firemen and police who were retained by the money that went to the states, they're public, but in case you haven't noticed or don't care, we need them.
How convenient for the right that they never bother to prove that tax cuts for the rich actually “trickle down”. They don't. So the GOP 30 year “stimulus” program was a complete failure. Middle class incomes stagnant for 30 years. Want to go back to feeding public cash to the already rich? I don't.
“Whether it averted a depression is anybody's guess.”
Not really. The GOP balked at the stimulus under Bush. The market lost $1.3 trillion in ONE DAY, the day after they blocked the stimulus. That was the last day they blocked it. They chickened out. Because they saw that this slide could be devastating and deep. In fact, in that one day, the market lost twice what the vote would have cost. Twice and more. The total spent is far less than even that one day 'protest vote' cost businesses. The GOP did what Obama did. They pumped up the market for fear of a deep depression.
“his preference to have Washington solve our problems with our money as opposed to leaving us to solve our own problems disturbing.”
The “either/or fallacy”. Nice.
“leaving us to solve our problems” sounds great but isn't an option. We CAN'T solve the health insurance problem ourselves. We have no power over the insurance industry. None. I know, having just suffered a 35% increase in mine. So I'm shopping for a cheaper policy. Guess what? There's no real competition. Just TRY, as an exercise, to find any private insurance “deals” that we the people could turn to in order to “solve our problems.”
Green, again you mistake me.
I didn't say the stimulus created no private sector jobs. I said “Almost all of the jobs that can demonstrably be shown to have been saved or created are public sector jobs, reinforced by the fact that the government is the only growing part of the jobs picture.”
I'm happy that the recovery act helped your business but that information is anecdotal. Of the jobs counted on recovery.org, more than 70% are in education. That doesn't make them bad but it is a different thing to say we're going to give money to states so that they don't have to fire more people than it is to stimulate private sector jobs. The difference being the private sector jobs have a potential to be sustaining if the company in question can generate more revenue to support those jobs in the future. Paying money to states doesn't do anything to retain jobs in the long term unless you keep making the payment.
Hence, private sector jobs are more valuable, not because of the intrinsic value of the job but rather because a private sector job has a higher propensity to be sustained in the long-term than a public sector one, all things being equal.
As to your notion of feeding cash to the rich, I can only point you to the same CBO analysis I always point people to that shows that the percentage of taxes paid by the rich has increased over time and, while tax rates for all people have come down, tax rates for the least well off have come down the most.
If you'd like to respond with facts that prove the “giveaway” theory that you like to offer, I'm happy to look at them.
Data on tax rates
http://www.cbo.gov/publications/collections/tax…
Data on share of total tax burden
http://www.cbo.gov/publications/collections/tax…
And why can't you find a cheaper policy? Could it be because there is limited competition due to state regulation and because state minimum requirements eliminate from being offered many policies that might appeal to you and be cheaper?
Current HCR proposes to solve this by creating a minimum federally mandated benefit package which will reduce your choices even more. Not sure how that's going to help.
No, it's because that's what makes the insurance companies the most money. Do everything you think will work to encourage “free market solutions”. There will still be no real solutions to the problems of the health care non-system in this country. The market system is not omniscient, infallible and capable of working for everything.
From what I am seeing the main factor whether you believe the stimulus averted a depression or not seems to be whether you are liberal or conservative. Since I doubt either side of the aisle has a monopoly on intelligence and economic knowledge, I think it's an open question that likely will never be resolved since one's preconceptions generally determine their answer.
I never said it was. I will say that making money provides more incentive to lower cost than simply taking what you want from the taxpayers.
If I'm not in CA as an insurance company because I'm not permitted to compete there, do you not think I would enter if I could? And if I enter, can I be successful if I charge more than everyone else?
The only way your thesis is true is if there is active collusion on pricing among the participants. Sadly, regulation increases the probability of collusion because it makes prices stickier and provides more advance information across the competitors.
It's also unknowable which is why all the passion on the topic is just a bit silly.
Here is an edifying read for you:
http://money.cnn.com/2009/10/21/autos/auto_bail…