Two Items Regarding Fiscal Policy

US GDP and the Stimulus Package

The 2nd release for US GDP revealed a downward revision BEA; CR reports the breakdown. What is interesting is that the downward revision is due in part to a greater than previously estimated decline in the state and local government spending contribution. Something useful to keep in mind as state and local governments move to rely solely upon spending cuts instead of revenue increases as means to reduce budget deficits (e.g., as in Wisconsin).

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I had thought that after these posts [1] [2] [3] [4], Mr. Lawler had foregone further attempts at macroeconomic analysis. Alas, no. In Obama’s Job Search, Mr. Lawler states:

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From the just-released Kauffman Economic Outlook, authored by Tim Kane, an indicator of what some economists thought the ARRA accomplished, in terms of unemployment.

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From Bloomberg:

The biggest Keynesian stimulus in U.S. history was a bust.

Incredibly, some Keynesians who supported Barack Obama’s $862 billion stimulus now claim it fell short of their goals not because the idea was flawed, but because the spending package was too small.

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A few weeks ago [0], I wished for a comparative survey of the properties of many macro models, along the lines of the Brookings comparison project of the early 1980’s. I got part of my wish (at least in part), in the form of a (very cool!) comparison of key policy agency dynamic stochastic general equilibrium (DSGE) models, in Effects of Fiscal Stimulus in Structural Models (h/t Mark Thoma).

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Or, counterfactuals, yet again.

Or, rejoinder to Casey Mulligan, Joseph Lawler, david, tim kemper and others.

From the WSJ March survey survey of forecasters, the results indicate that instead of the 0.15% growth rate recorded in 09Q4 y/y growth, the growth rate would have been -0.93%. For 2010Q4 Q4/Q4 growth, they forecast 3% growth, and in the absence of the ARRA, they would have predicted 2.2% growth.

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Russ Roberts writes:

Menzie Chinn invokes the CBO “estimates” to argue against those who say the stimulus didn’t work. Did the stimulus help turn the economy around and create jobs? I’m skeptical on logical grounds but I confess that I do not have strong empirical evidence on my side.

But those who defend the stimulus have no empirical support either…

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Professor Casey Mulligan says (and yesterday unequivocally reiterates) the stimulus program would not stimulate the economy. The nonpartisan CBO says otherwise:

…CBO estimates that in the fourth quarter of calendar year 2009, ARRA’s policies:

• Raised real GDP by between 1.5 percent and
  3.5 percent,
• Lowered the unemployment rate by between 0.5 percentage
  points and 1.1 percentage points,
• Increased the number of people employed by between
  1.0 million and 2.1 million, and
• Increased the number of full-time-equivalent jobs by
  1.4 million to 3.0 million compared with what those
  amounts would have been otherwise (see Table 1).

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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.

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On the one year anniversary of the passage of the ARRA, it seems appropriate to recap, not what the academics say, but what the business sector forecasters say about the impact of the stimulus package.

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