The Congressional Budget Office has released its latest assessment of the 2009 stimulus package and the economic impact of its various components.
– They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.3 percent and 1.9 percent (see Table 1),
– They lowered the unemployment rate by between 0.2 percentage points and 1.3 percentage points,
– They increased the number of people employed by between 0.4 million and 2.4 million, and
– They increased the number of full-time-equivalent jobs by 0.5 million to 3.3 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)
Two other points:
– The CBO estimates that the impact of the stimulus will continue to be felt over the next year, increasing GDP by up to 0.8 percent next year and creating up to 1.1 million jobs over what it would have been.
– The longterm economic impacts of increased borrowing to fund the stimulus will be minimal or nonexistent. “In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates—by between zero and 0.2 percent after 2016,” its economists predict.
As opponents continue to point out, the stimulus did not keep unemployment below 8 percent, as initial projections by the Obama administration had suggested. In rational policy terms, there’s an easily understood and obvious explanation for that discrepancy:
At the time of those projections in early 2009, initial government reports estimated that economic output had declined 3.8 percent in the fourth quarter of 2008. That would have made it quite a serious setback, the deepest recession in 30 years.
As we learned later, in reality GDP had declined 8.9 percent in late 2008, which was much worse than anyone understood at the time. It also fell 6.7 percent in the first quarter of 2009. That’s the biggest two-quarter decline since 1947, when government statisticians started tracking quarterly numbers. In short, in early 2009 we thought the economy had fallen off a ladder. In reality, it had fallen off a six-story building.
Politically speaking, of course, such realities cannot be acknowledged, because they contradict a useful narrative. They remain realities nonetheless.
– Jay Bookman