Let's start with two indisputable facts. First, both the financial system and the economy are in far better shape today than they were in the dark days of January or February 2009. For example, even though unemployment is higher now, it is receding rather than soaring, dropping to 9.7% in May from 9.9% in April. Second, the growth of the U.S. economy over, say, the last 12-18 months beat virtually every forecast made back then. I know, because I stuck my neck out on this page with a forecast viewed as too optimistic in July 2009, and the U.S. economy did better than I predicted.
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Why the bad reputation [for the stimulus package]? The main reason appears to be that the White House's January 2009 forecast was too optimistic -- projecting, for example, an unemployment rate around 8% by the end of 2009 if the stimulus passed. (It was actually 10%.) Notice the reasoning here: Since unemployment turned out worse than expected, the stimulus must have failed. Did someone say non sequitur? Let's see. If the Yankees lose a game 13-11, as they did one day last month, the hitters must have failed. Right?
Try to imagine any government spending a massive sum like $862 billion without creating or saving millions of jobs. More specifically, suppose peak-year spending from the stimulus bill was about $300 billion -- which is roughly correct -- and that our hapless government just sprinkled its purchases around at random. On average, each job in our economy accounts for about $100,000 worth of GDP. (We are a highly productive bunch!) So $300 billion worth of additional GDP should be the product of about three million more jobs. Do we really believe the stimulus produced only a small fraction of that -- or none at all?
Thursday, June 17, 2010
Alan Blinder's Op-Ed in the Wall Street Journal yesterday is a fantastic analysis and defense of Obama administration economic policies. Blinder is a professor of economics at Princeton and former vice chairman of the Federal Reserve. He was moved to write by a recent poll demonstrating extraordinarily low marks for the Obama administration's economic policies.