After seeing today’s job report from the BLS I have to wonder, is the stimulus working? I’m thinking no. There are two possible explanations as to what is going on here.
- The initial forecast for unemployment was too optimistic.
- The forecast was fine, but the stimulus is just not doing what it is supposed to do: create jobs.
Why do I believe 2 vs. 1? The idea behind the stimulus package was to create (or save, don’t forget this!) jobs. We were presented a graph of unemployment with and without the stimulus. Right now we are on track for the “no stimulus” scenario. Further, we have evidence that very little stimulus has been spent so far. Further, up until recently the consensus view was that fiscal policy was at best an clumsy tool for stimulating the economy and that multipliers were not significant. So, even if we had stimulus money being spent quickly enough there was some reason to believe it would have only a minor impact. In other words, whatever benefit the small amount of stimulus money actually spent would have is likely smaller than the politically motivated initial claims.
The other explanation is that without the stimulus package and its paltry spending to date we’d be in a situation with unemployment at this point well above the 10% range and probably above 11%, but we aren’t because of the paltry spending by the Obama Administration. I find it somewhat unlikely that spending merely $56 billion would result in unemploymnt being 1% lower.
So based on this I’m going to go with explanation 2. That the stimulus spending is not working. It is not working for the following reasons: the first is that that stimulus money is not being spent fast enough. Second, whatever benefit we are getting from the $56 billion spent so far, it is likely not enough to offset the effects of the recession. These were two criticisms raised by people opposed to the stimulus package. So far, the evidence seems to be in favor of those critical to the stimulus package.
So we are going to waste hundreds of billions of dollars because President Obama implemented a bad policy and was able to make it sound good…a lot like a used car salesman.
Image by Flickr user Joan Thewlis, under the Creative Commons License.