Monday, July 06, 2009

Is the economic stimulus effective?

Back when President Obama was arguing for the fiscal stimulus package, his economic team created a graph forecasting the effects of the fiscal stimulus. The blue lines below show the expected unemployment rate with and without the fiscal stimulus. The maroon dots show the actual unemployment rate so far.

The fact that the unemployment situation is substantially worse than expected didn't prevent President Obama from bragging back in late May that, "In these last few months, the American Recovery and Reinvestment Act has saved or created nearly 150,000 jobs."

It is impossible to empirically measure how many jobs have been saved, so the "saved or created" numbers Obama uses are complete fabrications based on the White House's own shifting macroeconomic estimates. No matter how bad things get, Obama can always claim—without evidence—that things would have been worse, therefore he saved jobs. The gullible news media have been falling for it.

That said, the bulk of the stimulus package takes effect in late 2009 and in 2010, so we should not expect it to have had much economic impact yet.

Update: Someone pointed out to me that I forgot to specify the source of the graph. The specific version of the graph I posted came from Harvard economics professor Greg Mankiw's blog. The original graph came from this document by CEA Chair Christina Romer. The unemployment information plotted on the graph can be found on the St. Louis Federal Reserve web site.


  1. well no stimulus is going to help this sinking ship. As long as the housing keeps destroying credit, our economy is going to be in the crapper.

    Its not like America does or makes anything that anyone else in the world actually wants. So our entire economy is based off of borrowing money. Its a failed plan from the start, its just that nobody expected they would have to pay the piper so soon.

    I also love to hear "joe plumber" redneck types b*tch and moan about obama, their mortgage and their unemployment....instead of going out and getting an education in an actual in demand skill. I gotta my teabag protest right here....on your chin buddy.

  2. The additional debt is very troubling.

  3. to anonymous

    What do you consider an "actual in demand skill" ?? banking?

    I'm a yuppie in every sense of the word but at this point, however I have more respct for the "joe the plumber" types who work hard for their money vs the bankers who bitched and moaned until they got a bailout.

  4. What do you consider an "actual in demand skill" ?? banking?

    Your comment doesn't make any sense. You basically imply there are now 2 types of workers in the world, bankers and plumbers, and all of them fit some simplistic stereotype of the hardworking plumber and the whining banker. There are tons of lazy plumbers and hardworking honest bankers. And there are also in demand careers such as nursing, engineering, bio-tech, IT etc. Its easy to spout off simplistic cliches but they're generally wrong.

  5. James,

    Complete fabrications? Really? Because the white house's estimates don't meet your standards of "empirical" measurements, they should be discounted? Perhaps we should just do nothing because there is no way to prove that we've done anything. Now how many problems would we solve that way?

  6. Tuskenrayder,

    The White House's estimates don't meet anybody's standards of empirical measurement.

    You seem to be confusing three issues. The first is whether an economic stimulus package was needed. The second is whether this particular stimulus package is being effective. The third is whether President Obama is misleading the public about the effectiveness of this stimulus package.

    Based on standard economic theory, I believe a stimulus package was needed. The utter failure of fiscal policy in Japan does worry me, though.

    Whether this particular stimulus package is effective is unknown. Most of the spending occurs in late 2009 and in 2010, so we may not know until 2011 whether it has been effective.

    It is intensely dishonest for President Obama to claim that he has "saved or created" 150,000 jobs when the actual unemployment situation is far worse than originally projected. As Harvard economics professor Greg Mankiw originally pointed out, measuring the number of jobs "saved" is impossible.

    I voted for Obama both in the primary and the general election and think he is a far better president than George W. Bush, but that doesn't mean he should get a free ride when he starts behaving like a typical politician.

  7. Link to a Gigantic housing bubble pdf here.

    4+ meg download. Many charts and data tables. Perhaps someone will pick off the more interesting sections.

  8. "It is intensely dishonest for President Obama to claim that he has 'saved or created' 150,000 jobs"

    Well, to be honest, its intensely dishonest when any politician claims anything, honestly.

    Politics are about buzzwords and intensely dishonest claims. The sooner you learn that, the better off you will be.

  9. Thanks for the link Ajax...

    The thing that I was seeing in the pdf file is that many of the upcoming resets are in the Alt-A arena, which tend to be in houses that are in mid-upper price ranges. The subprime were in the low to low-middle price ranges.

    Rather than representing a true bottom, recent signs of stabilization are likely due to five factors that are (or are likely to be) short-term:

    A shift from low-end to middle- and upper-end homes defaulting, which has the effect of raising average home prices – but it’s very bad news

    and then this:

    Because the majority of buyers are in ultra low and low-mid prices ranges, the supply-demand imbalance from foreclosures and organic supply will crush the mid-to-upper priced properties in 2009. We already have early seasonal hard data proving this. As the mid-to-upper end go through their respective implosions this year and the volume of sales in these bands increase as prices tumble, the mix shift will raise median and average house prices creating the ultimate in false bottoms. We also have data proving this phenomenon.

  10. Thanks for the summary JackR, all that data overwhelmed me. I'll be reviewing it over the next week, too much for one sitting.

  11. "It is intensely dishonest for President Obama to claim that he has "saved or created" 150,000 jobs when the actual unemployment situation is far worse than originally projected."

    The number of jobs that have been saved or created from the stimulus is an estimate based on real data. Would you say that Nielsen Research is being dishonest when says that such and such million people tuned in to Ugly Betty?