Monday, February 17, 2014

The Stimulus Success

by Bill McBride on 2/17/2014 02:20:00 PM

It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy.

The stimulus could have been structured differently, for example, why have tax incentives for businesses to invest when their is already too much capacity? And research suggests the cash-for-clunkers program was not very helpful.

And more importantly - knowing that recoveries from financial crisis are slow - investment in infrastructure could have been larger and lasted longer (not just "shovel ready" programs).

It is the details that should be debated - understanding what worked and what didn't work would be useful during the next financial crisis (when the next generation of financial wizards think they've discovered how to turn lead into gold) - but overall the program was obviously helpful.  Note: One of the reasons I was able to anticipate the bottom of the recession was that I correctly analyzed the impact of the stimulus.

It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future. As an example, look at these absurd comments via the WSJ:

"If you recall five years ago, the notion was that if the government spent all this money—that, by the way, was borrowed—that somehow the economy would begin to grow and create jobs," said Sen. Marco Rubio (R., Fla.), in a video message released Monday morning. ``Well, of course, it clearly failed."
Obviously Rubio is clueless about the economy, but I think it is important to point that out. Debate the details, but the program clearly helped.  From the White House:
The Recovery Act, by itself, saved or created about 6 million job-years, where a job-year is defined as one full-time job for one year. This translates to an average of 1.6 million jobs a year for four years through the end of 2012. This estimate is within the range of estimates provided by the Congressional Budget Office and other outside organizations.
This impact is in line with analysis from the CBO and others. We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues ... Rubio's comments are not just wrong but dangerous (if enough people believe him).

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