From today’s Macroeconomic Advisers blogpost, by Joel Prakken:
Frequently, partisan commentators — and even some economists — exclaim that the stimulus has failed because the unemployment rate now exceeds the peak shown in projections prepared before ARRA was implemented. This argument, which clearly — and perhaps intentionally — confuses the pre-stimulus baseline with the incremental effects of the stimulus, would be laughable if it was not taken so seriously in some quarters. For the record, last spring, as the financial crisis that engulfed the economy worsened unexpectedly — but before the stimulus could possibly have had any real effect on the economy — the unemployment rate already had moved above the Administration’s (and many others’) last pre-stimulus projection. So, this is simple: the baseline forecasts were optimistic, but unemployment would be even higher now without the benefit of the stimulus package.
In addition to knocking down some facile critiques, Prakken reiterates some important points:
For those who argue that we couldn’t afford ARRA, we offer these counterpoints: (a) our analysis showed that the legislation “dynamically” paid for more than a third of itself by restoring the economy to full employment sooner; (b) because it is temporary, ARRA has essentially no lasting impact on the unsustainable nature of the country’s current fiscal stance; (c) our calculations suggested that the benefit (e.g., the present discounted value of temporarily higher GDP) exceeded the budgetary cost of the legislation.
About 25 years ago, the Brookings Institution convened a series of conferences to investigate the comparative properties of the extant macro models used by the Fed, government agencies, the OECD, the think tanks and the private consulting firms (and a few academics). The results were published in Empirical macroeconomics for interdependent economies, edited by R. Bryant et al. (Brookings, 1988). Something like that is desperately needed these days, so that those people who are concerned with seriously considering policy problems can sort out why the simulation results differ. (Of course, those who are happy to merely cast aspersions on all models can sit back and toss peanuts.)