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Not stimulating yet

"The current stimulus and calls for a future one are primarily government growth policies, not strategies to shorten the current recession."

That's Edward P. Lazear, writing in today's Wall Street Journal.

Lazear chaired the President's Council of Economic Advisers from 2006 until early this year, so it's fair to question his judgment based on the economic decline during that period. Then again, the guy has an impressive bio.

The Financial Times reports on second stimulus discussions in Washington.

Meanwhile, USA Today reports: "Billions of dollars in federal aid delivered directly to the local level to help revive the economy have gone overwhelmingly to places that supported President Obama in last year's presidential election."

Who would have thought that?

The story notes this may not be by design. Stimulus spending tends to follow well-worn tracks. Areas of the country that normally receive more federal aid would be in line for more stimulus funds. Voters in such places vote more heavily for Democrats.

Talk of a second stimulus seems irrational when only a small portion of the $787 billion stimulus passed in February has been spent and so far doesn't seem to be accomplishing much.

Here's how the North Carolina share will be used. The three biggests pots are for "state fiscal stabilization," or helping to balance the budget; health and human services, largely Medicaid; and transportation.

The third category, transportation, is most likely to create jobs and provide an actual economic stimulus as well as hopefully help the state to catch up on some important infrastructure work.

The other two will save some government jobs, including in public education, and stave off some tax increases. The stimulative effect may be questionable, but we'll see.

Clearly, there are programs that meet social or political objectives included in the funding, such as energy conservation, homelessness prevention and foster care/adoption services just to name three examples. Nothing wrong with all that, but what's the economic stimulus? Aren't there more direct and effective ways to get more people working?

With the rush to pass the first stimulus bill, not many members of Congress could have been aware of all its provisions. They'd probably do it differently given the chance. Is it too late to modify it now? I guess so, because Congress is too busy rushing toward enactment of other big priorities.

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Posted by Doug Clark on Thursday, July 9, 2009 at 10:19 am

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Connie Mack Jr

July 9, 2009 - 1:19 pm EDT

Not stimulating yet, * Doug
Then again, the guy has an impressive bio.* Doug

Of course it is not stimulating yet! Give it time and than join the food riots at Krogers in the next 8 months over the hyp-inflation to come. The only thing that is stimulating at the moment is the raising price of gold and property values in Costa Rica.....This guy is about impressive as a Wall Street adviser on George Bush stimulus 1 package on a bad day........He should have listen to Ron Paul long ago!

tonymo

July 9, 2009 - 3:02 pm EDT

Thanks Senator Specter for saddling us with this disastrous "emergency stimulus" package that was promised by the economic geniuses in the administration,would keep the unemployment rate at 8 percent or lower. We were also told, by the same source, that if we did nothing the rate would peak at 9 percent. How did those predictions work out. Now these same people are lying to us about the projected costs for nationalizing health care, and Cap, Tax, & Control! The only thing capped will be our future economic growth. Don't believe me, look at Europe!

Andrew Brod

July 9, 2009 - 5:51 pm EDT

Doug, according to a blog entry at TNR.com, a recent Goldman Sachs report (which I can't find online) calculates that while only about 10% of the stimulus funds have been spent, we've received something like 40% of the stimulative effects due to the mix of early spending. That doesn't counter your argument so much as it provides some additional information.

Andrew Brod

July 9, 2009 - 5:58 pm EDT

In addition, it's worth noting that recessions have changed. Until the last couple of recessions, it was certainly true that by the time a fiscal stimulus was spent, the recession had often ended. But while we may be technically out of the recession by the end of this year, we're looking at the potential for unemployment to remain high for some time. After the 2001 recession, it took 3 1/2 years for payrolls to get back to where they were prior to that recession. That was the slowest post-recession jobs recovery on record. If something like that happens after this recession ends (and no one's predicting a strong recovery), a fiscal stimulus geared to job creation has the potential to do some good. To be sure, there are those who oppose all stimulus packages, and fair enough. But the recession we're dealing with isn't quite like the recessions of the past.

Andrew Brod

July 9, 2009 - 6:27 pm EDT

Finally, as usual, tonymo gets just enough of the facts right to get the larger picture wrong. It's true that in January, forecasters believed that a stimulus package would keep unemployment lower than without a stimulus, and it's true that their worst-case scenarios have been surpassed. But it wasn't just the Obama administration's economists who thought so. The nonpartisan Congressional Budget Office thought so too. Even noted Cassandra Paul Krugman thought unemployment would peak below 10%, and one might argue that he had no incentive to sugar-coat the situation. In other words, most economists (and everyone else) failed to see how bad this recession would get. But given that the seeds for this were sown well before Obama took office (remember, this thing started in December 2007 and started on its steeper downhill trajectory in September 2008), the most reasonable conclusion is that the recession inherited by Obama was worse than we imagined. There's no evidence yet that anything done in the name of stimulus was "disastrous." But to true believers, evidence is rather beside the point, isn't it?

Doug

July 9, 2009 - 6:42 pm EDT

It's very discouraging if we've already gotten 40 percent of the stimulative effect because it doesn't seem like much.

I should have added to my original post that another possible explanation for disparities in distribution of funds may be the Howard Coble effect. As he said at a luncheon in Greensboro Monday, he hasn't done anything about bringing stimulus money to Guilford County because he voted against the stimulus bill.

Yes, I know Guilford County did vote for Obama, and that parts of Guilford are represented by Dems Watt and Miller who are trying to get the money. But Coble represents several other counties, too, and most or all of them vote Republican. I doubt he's trying to draw stimulus money to them, either.

Andrew Brod

July 9, 2009 - 9:40 pm EDT

Doug, two points: First, I'm not sure what to make of that Goldman Sachs study either. Second, here's a Krugman blog post that clarifies what the Obama administration expected regarding the timing of the stimulus package:

http://krugman.blogs.nytimes.com/2009/07/05/bruce-bartlett-misstates-the...

As I noted earlier, the economists underestimated how bad this recession would be, as reflected by the heights of the curves. But for now let's focus on the timing. As Krugman points out, the stimulus' expected effect on the unemployment rate is the gap between the two curves, and that reaches its maximum about a year from now. So again, while it's not crazy to oppose fiscal stimulus on principle, it's not reasonable to claim that it isn't working as expected. In other words, don't get discouraged yet.

Doug Johnson

July 10, 2009 - 5:27 am EDT

Tonymo, must be Brod did not.understand what Obama said!
Employment will not go above 8% if we get this bill now!
We most have it now!
Not even time to read it.
Now he whines, we have not spent the money! Must not have been important in the first place.
Liberals like Brod change the rules to suit their BS.
Tonymo, I did not get invited the move on. com show yesterday.
So invited myself.
Had a great time, rushed home to read about it on the NR on line edition.
Can not find it!
Going to store and buy hard copy in a few minutes, can not wait to read it.
Tony just ignore Brod character assignation.
Tony, I talked to people from 4 states and DC, guess what they were all move on people.
The anti Obama on health care were all from NC.
Tonymo you can go on line at WXII and see it on line, they sugar coated it for Hagan people, but a least they reported it.
Their poll showed 66% of people did not want Obama care. This was at 5am.

Andrew Clark

July 10, 2009 - 8:51 am EDT

Yep, when the administration said the full employment effect of the stimulus won't come until 2010 and it hasn't yet come in the middle of 2009, they are obviously horrible liars. And obviously Andrew Brod must also be a horrible liar for explaining the economics of the situation. Explaining economics is now "character assassination"?

Doug

July 10, 2009 - 9:36 am EDT

So people should have believed the administration on one hand while on the other hand accepting that the administration miscalculated.

With all due respect to Dr. Brod, people generally understand that economics is an imprecise science and can forgive miscalculations.

However, President Obama's problem is the creation of very high expectations. When he said the stimulus would create jobs, and that he had to be passed immediately so it would get to work right away, the public naturally expected more than what we've seen. Were their expectations unreasonable? Probably. But the administration contributed.

The administration is also creating the expectation that everyone can have great health care at less cost, that developing new energy will create millions of new jobs with little cost and that no one who isn't rich will have a tax increase, setting the stage for more disappointments ahead.

Back to the stimulus. It certainly is creating some jobs and I hope it will create more in 2010. It's such a mind-boggling amount of money, how could it not? One question I have is whether it's doing as much as it could or should. Has it really targeted the most stimulative projects or is it to some extent just laying the groundwork for a permanent expansion of government as Dr. Lazear says?

tonymo

July 10, 2009 - 11:14 am EDT

So, the new story from the ecomic geniuses is "Jeez, we had no idea it was this bad!" Really? Didn't we hear from them during the campaign, often multiple on a daily basis that this was the worst economy since the Great Depression? Which is it? Obviously it can't be both.

If on believes all of the new polling coming out it appears that many of the Obama supporters are awakening from their comas! It appears that he now has solid support from the rabid, brain dead Demo-Rats. He's rapidly losing support from the "cherished" independents on nearly every issue.

Andrew (Brod), it's hard to believe that someone employed by a business school could think that the way to prosperity is massive spending, high taxes, and unpayable debt. As I've said, if that were true Crazyfornia, New York, and New Jersey would be veritable Utopias, flush with budget surpluses! Crazyfornia is now sending IOU's to creditors!! Liberal land is like a Monthy Python movie. We're still waiting to hear from the VP exactly how they have calculated those "saved" jobs! Maybe the business school guy could explain it to us!

Andrew Brod

July 10, 2009 - 6:05 pm EDT

You're right, tonymo, it can't be both... because it isn't. I wasn't referring to new reports by administration economists trying to cover the tracks of their previous forecasts. I referred to forecasts they made back when they took office in January.

In any case, your claim that economists are saying, "Jeez, we had no idea it was this bad" is misleading. It's true that the economists didn't know it would get this bad, but what they thought was bad enough. As I recall, you were denying even that. In other words, you were wrong while Obama and other Democrats were pretty much on the mark. The Democrats should thank you for pointing out their prescience.

But I won't deny that the Democrats made exaggerated claims. I mean, so what else is new? Will you next point out that the sky is blue? What most of us realize is that politicians exaggerate things. And that cuts both ways along the political spectrum. Remember McCain claiming that the fundamentals of the economy were sound? No exaggeration there?

tonymo

July 11, 2009 - 1:45 pm EDT

And the Messiah later, after denigrating McCain, then being elected said exactly the same thing! I never denioed the seriousness of the problems in the economy, but did contend, as did many others, that it was not necessary to do everything TODAY, as we were told, so let's spends hundreds of billions now, which of course, now 6 months later are fractionally spent. It is obvious that the world economy would not have collapsed had the fools in charge (Bush at the time) had not jumped in with both feet before they actually knew where we stood, and his inept, incompetent successor spped up our march toward oblivion, and the end of our free market, Capitalist society in favor of European Socialism with its high taxes, low growth, high unemployment (even in normal times),and limits on individual freedoms, not to mention $6-$8 per gallon (converted from metric equivalents) or more gasoline. I'm sure looking forward to that!