It raised real (inflation-adjusted) gross domestic product (GDP) by between 1.7 per cent and 4.5 per cent;
Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points;
Increased the number of people employed by between 1.4 million and 3.3 million;
Naturally, the GOP is up-in-arms over the report's findings. In fact, House minority leader John Boehner launched a counterattack claiming that the stimulus "has gotten us nowhere" and that it was a sign of "government run amok."
Boehner's "talking points" are part of a larger political strategy to mislead the public about the effects of the stimulus while assuming the mantle of fiscal conservatives. Keep in mind, George W. Bush nearly doubled the national debt--from $5.4 trillion to $10.5 trillion--during his 8 years in office. If GOP leaders were really "thrifty minded" conservatives, as they pretend to be, they should have stopped Bush when they had the chance. Instead, they pumped out enough red ink to fill an ocean.
By the time the Republicans were swept from office in 2008, the economy was in freefall. Unemployment was rising at 750,000 per month, and all of the main economic indicators were plunging faster rate than after the Crash of '29. The only thing that kept the country from sliding into a full-blown depression, was massive doses of monetary and fiscal stimulus. And, while the hugely unpopular TARP handout merely distributed public funds to crooked banksters, Obama's fiscal stimulus did what it was designed to do.
Here's Boehner again: "We will not solve our fiscal challenges until we cut spending and have real economic growth...But we do not have the luxury of waiting months for the president to pick scapegoats for his failing "stimulus' policies."
More nonsense. Cutting spending when the economy is still weak is the fast-track to recession as Ireland, Greece, Hungary, Latvia and Spain have all found out in recent months. Each one of these countries has tried to reduce deficits by slashing government spending, and they've all discovered the same thing; that spending cuts widen the output gap, increase unemployment, shrink growth, lower government revenues and, thus, increase the deficits. That's right; when government cuts spending, revenues shrink and deficits grow, the exact opposite of what one might expect. Additionally, these belt-tightening measures make it more expensive for struggling nations to borrow in the capital markets. Most of these countries are now facing painful downgrades that will make it more costly for them to procure funding to keep government operations going.
Here's an excerpt from an article by economist Gary Burtless titled "It could have been much worse," which explains how the stimulus helped the economy avoid a steeper decline:
"The tea leaves are clear: The Great Recession will not be a second Great Depression...Any reasonable grader of the stimulus's effects on driving recovery and combating joblessness would give the stimulus at least a B+...
"Federal government programs and stimulus dollars cushioned the massive blow to private family incomes. Disposable income fell less than 1 percent after the start of the recession...Reduced federal taxes and increased government benefit payments, partly funded out of the stimulus package, have kept Americans' spendable incomes from falling as fast as their private incomes. Household consumption fell in the recession, in spite of the massive swing in taxes and public transfers, but it only fell modestly. Americans were made cautious in their spending because of the drop in their personal wealth and fear of losing their jobs. But government benefits helped boost the spending of the unemployed, and lower taxes helped insulate middle class families from some of the effect of the drop in wealth.
"Could the administration and Congress have done better? (Yes, but) opposition to stimulus spending by conservatives in the Senate precluded a larger package. In fact, Congress passed a smaller stimulus than the one the president asked for. In retrospect, the package should also have included a much bigger allocation for new government capital spending--on roads, mass transit, public buildings, and environmental capital projects. This investment would directly provide jobs to workers in construction and capital goods manufacturing, industries hard hit by the recession..." ("It could have been much worse," Gary Burtless, Brookings Institute)
The Republicans succeeded in blocking a larger stimulus bill although some of the blame clearly belongs to Blue dog Democrats and Obama's feckless economics team. Even so, it could have been much worse as Burtless notes. Once the downward spiral of layoffs, debt-liquidation, falling asset prices and deflation begins, it is hard to reverse. It's much better to keep Pandora's Box bolted shut, than to unleash economic forces that can lead to widespread hardship and social unrest. Fortunately, those pitfalls have been (mostly) avoided, but we're not out of the woods yet. Rebuilding the economy will require a long-term commitment to expand the deficits until the private sector is back on its feet and able to spend again. US households are still recovering from a decades-long credit binge; it will take time to repair the damage. That means the government must sustain its outlays until private sector retrenchment ends and the recovery takes hold.
Recent surveys show that more than 50 per cent of Americans think that the funds for Obama's stimulus were "wasted." Clearly, Republicans have been able to capitalize on the fact that activity hasn't returned to pre-crisis levels. But this is an impossibly high standard. The economy cannot return to the "frothy" bubble era without generating another gigantic credit bubble. And that's unlikely since the bubble depended on easy credit and gargantuan leveraging on the part of households and financial institutions. Those days are over, at least for now. The present sluggishness reflects the true state of the economy (the "new normal") without steroids. The government needs to ease the transition to slower growth by shoring up demand while the economy emerges from its post-crisis funk. That means more stimulus.
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