So there I was, quietly working on a piece on the economic impact of the Recovery Act when I stumbled on a few simple graphs that I think tell a very compelling story.
It’s an important story too, both in terms of looking backwards and forwards.
Republicans constantly ply the talking point “discredited stimulus” in the interest of blocking any similar ideas, like some of those I expect to hear come out of the President’s jobs package. But the evidence shows otherwise. The evidence shows the stimulus (and other stimulative measures, including those of the Fed) worked, but ended too soon, before the private sector was ready to walk on its own. The evidence shows we need to do more of these sorts of policy interventions.
I know—this ain’t about the evidence. But I will never accept that condition and neither should anyone else. That’s the way societies decline and I’d kind of like to avoid that.
The first graph shows the growth in real gross domestic product (GDP) from 2007 up until the last quarter. The next picture shows job growth over the same period in both the total job market and excluding government jobs, since the temporary influx of Census working in 2010 distorts the overall series for a few months.
Sources: GDP: BEA, Payrolls and unemployment, BLS
While these are very simple pictures of fundamental economic variables, and while there are always many moving parts influencing such trends, they a) present remarkably compelling evidence against the “failed stimulus” case, and b) show that we need to do more of these types of interventions.
When the bill was signed in February 2009, GDP growth was almost unprecedentedly negative—down 9% in the previous quarter (2008q4). But as the figure reveals, the economy immediately between to contract less quickly, and growth turned positive by mid-2009. We see the same pattern in job growth, which also reversed course soon after passage, and broke zero—net job growth—in March of 2010 (the addition and subtraction of Census workers that year distort the picture somewhat, but they’re not included in the private sector data, which present a clearer view of what happened).
Unemployment always lags growth by at least six months, but a few months after ARRA kicked in, it stopped growing.
But that’s only half of what these simple graphs show. The other piece of information they yield is even more important. As the stimulus fades, the positive trends begin to falter: both GDP and job growth slow significantly, and unemployment stagnates at a highly elevated level.
The message of these three simple graphs is itself disarmingly simple: the stimulus worked. It prevented recession from becoming depression. It just ended too soon.
And that’s why the President’s new jobs agenda is so damn important.
I saw you on Rachel Maddow and was very impressed. I wonder if you would consider the following: I think what we need is to get funds/incentives/tax credits into the hands of manufacturing companies that already have up and running plants with strict conditions that they must add workers in order to receive any of the above (which would be strictly monitored as a new line on their SEC reporting). While your FAST proposal on schools is fine, I am afraid that it will not lead to long-term employment and it will take a long time to get going. On the other hand, if we could make sure that the Chevy Volt and other electric cars are a success, it would generate new jobs not just at the factory but also in all the related industries and new industries ancillary to building charging stations, batteries etc. Americans are ready for a car their plug-in overnight in a way they have never been before because they regularly plug in their cell phones and other electronic devices overnight so it is no longer a big step to do that for a car. And making sure that the electric cars are successful is good for the environment and would break the hold of the oil companies at home and abroad on our economy. But I would not limit this proposal to the auto industry- it could go to any industry that already has a plant and makes things. I was in NY’s Westchester County govt at the time of the stimulus and all they did was submit every single project they had in the budget, including buying new buses, and see what $ came in. Not one new job was created from that stimulus, although arguably by helping the budget we were less likely to have let people go. But the point is, we (and the Democrats) need to see tangible NEW jobs come out of any proposal and I am afraid that your Fix Our Schools Plan will just melt money away the same way Westchester County melted away the first stimulus. What I want to see is new manufacturing jobs by companies that can do it tomorrow in order, for example, to make more cars at a cheaper price so more people can buy them (a Chevy Volt is $40K- more than I could/would spend for one).
Hello Mr. Bernstein,
Excellent site and commentary. I made my way over from Prof. Krugman’s site last year.
One powerful addition to your graphs would be the ARRA spend rate over laid the economic variables you present.
You show the start date, when did the ARRA effectively “end”? Does the end correlate with the poor economic performance of the last 2 quarters?
Thanks!
Dennis
What a pity you could not include the charts from the U.S. Department of Labor and the National Bureau of Economic Research, which show that in terms of both GDP growth and employment, this has been – by far – the slowest, shallowest recovery of the ten such recoveries since World War II.
What a pity you excluded the recovery from the Great Depression (which took over a decade) because that’s the only global financial catastrophe in American history that even compares in scale to this one.
exactly compare the numbers to the great depression but no one cares about that all they care about is a fix right now but if they try romney at it the us is done for.
i recall Krugman explaining how the peak impact of the ARRA would come in early 2010 and every graph since them that i have seen proves him right.
The way I understand it is the economy had already bottomed out and had started it’s climb back upwards by the time the ARRA had been signed. (See your own chart.) And, like any Federal Government initiative, it takes time for the money to start flowing. By the end of the QIII2009, ONLY $157 billion dollars had been AWARDED, not spent, but awarded. I can’t say with any specificity when the money was actually spent, but I can provide a quote from President Obama, “Shovel-ready was not as … uh .. shovel-ready as we expected.” With that said, and borne out in your own and Recovery.org’s numbers, is it that the economy started improving on the promise of Obama and the promise of stimulus money, cause from where this Engineer sits, your conclusions seem “iffy,” partisan, plain wrong or all three. Please advise.
Except that at least 2/3 of the stimulus was either tax cuts (nearly 40%) or aid to the states/unemployment/etc., moneys that entered the economy quickly. (I believe well under $300 million were actually the projects you refer to.) Hence, nothing “iffy” (or partisan, or wrong) about this analysis.
so you being an engineer means your well off and could be very upset if obama gets in there and makes you pay more taxes cause you make more money then us who has to work for a measley ten dollars an hour while feeding a family of five which is not easy by any means.
It shows the recession bottomed out, it’s fairly logical to conclude the ARRA being enacted in the 1st quarter was a reason behind it bottoming out. Had less been implemented or had it been implemented slower we would have seen a much longer recovery.
If anything the graphs indicate we did not spend enough. The weakening has been at the hands of an incompetent and intransigent House backed by, at best, weak willed Republican Senators blocking any possible spending program.
Corps are sitting on trillions in reserves, taxes haven’t changed on those funds, they simply aren’t putting it into the market as fast as needed. They’re complaining about lack of trained applicants but are slow in starting up any training programs or joint programs with existing secondary schools.
This isn’t difficult.
Over the last 30-40 years there has been little to no evidence showing tax cuts creating jobs and with our current trade agreements benefiting outsourced jobs we may never see job increases at home. If the retraining portions of our trade acts had been followed instead of having funding killed it might be a different story.
Superb posting and exactly right. Now, instead of a short-term half-hearted (or politically compromised?) effort to fix the economy, what would a 5-year full-throttle effort look like? Taxpayers and voters deserve to know what their Congress and President ought to do and aren’t doing.
Probably too late for you to see this, but about that census irregularity in chart 2: private-sector jobs seem to have followed that pattern as well, to a lesser degree. Isn’t that fairly strong evidence that even jobs created directly by government (eg, a WPA/CCC-type program) do help spur the larger private economy? I mean, it seems moronically obvious that the more people who have jobs of whatever kind, the more money is being spent in the economy, with the obvious consequence; but the right certainly likes to scoff at the idea of government job creation. That chart, however, is pretty striking…?
Well said rj, the Presidents detractors marginalize, at every turn, his positive/successful initiatives such as the results of the ARRA reviewed here(thanks), trying to substantiate their claim that the 53% of Americans that had/have faith in his leadership are/were wrong. Those of us out here who are paying attention, know the President is doing the best job he can in the face of intransigence and blue dog Democrats. They can’t touch him on Foreign policy, and with 2.5% gdp growth in q32011, I bet they won’t be able to touch him on the economy either in 2012. The contenders are ankle height in comparison.
The President, bless his heart, has no new jobs agenda. He has an agenda to talk about jobs, but he has absolutely no intention of hiring millions of people to fix infrastructure and make houses fuel-efficient.
Gee, then why don’t the Republicans allow a vote on the jobs bills that are in Congress and show him up, then?
The problem with your solution is that it is like a drug fix. It works for a while and then you need another fix. The graph clearly shows that. Eventually you run out of money and have to resort to less than optimum means to get the next fix.
Actually, what’s not shown is that the states absorbed most of the money, primarily in education and in health and human services. Whether they used it wisely or not can be investigated, but that’s where the problem primarily lies.
hmmm so you say cut school funding, funding for family medicine and the well being of the middle to lower class families? good point there. that is where we need the most money spent where we dont need the money spent is that 200 million oprah got last year for doin really nothing. or the congress and senate hundreds of thousands of dollars just to take a vote 5-10 times a year. yeah they need tax cuts and tax breaks and such. arg if i was in control these senators and congressmen would take massive pay cuts and if i was president id even take a pay cut. granted the senate and house make more money then the all important president. movie stars can give at least half their millions a year to the deficit easily and not have to worry bout being broke. see what im talking about? and how about those oil companies that are robbing us blind. hundreds of billions of dolars in their pockets and baby bush gave them all tax breaks it really irritates me when it comes tot he deficit and see all these money hungry rich people not sharing and guess what that is romney’s plan give the rich more breaks and tax cuts accross the board to Stimulate the economy yeah like that will happen
This is typical neo-keynesian spatter. The great depression would have been merely a recession were it not for government intervention (see monetary contraction and the Smoot-Hawley act). These graphs fail to illustrate the real story, the only reason unemployment has decreased or leveled off is due to discouraged workers leaving the labor force. Japan learned in the 1990s that spending on “infrastructural” public works projects adds very little to long-term economic growth. The recession of 2008 was a natural correction. Too many resources were inefficiently allocated into into over-hyped industries like construction. Government interventions are keeping these resources from naturally re-allocating into more efficient frontiers.
Blinded by the blight. So the 40 or so percent tax cuts of the ARRA did not “create” any jobs? You seem to use economic terms like reallocation well, but have forgotten the Econ 101 supply and demand curve. The graphs show that the recipients of the tax cuts did not hesitate to spend (demand more goods in the marketplace) which stimulated the businesses to hire more workers to increase the supply to meet the demand. Exactly as planned by the President and then democratically controlled Congress in response to a train wreck. We know a growing economy is the answer to a short term deficit. They know it too, that’s why we know they are not acting in the public interest, buy trying to cut short term spending. No pure market exists for public goods, so your “natural” theory does not compute for infrastructure. Nor are CDO’s, CDS’s natural phenomena, but greed that we see expressed through human nature is. No that episode has more to do with a collapse of public regulation then on restraint on natural reallocation.
The question is not just whether the stimulus had an effect, but what the ultimate trade off is. If each new $50,000 job costs $500,0000 in deficit spending, our we better or worse off? Of course, if we spend enough we can create jobs, at least for a while, but that is the big question. How long term is that job (e.g. Solynda), and was the cos greater than the gain. Also, was the cost so great that it will actually be an economic drain in the future costing other jobs?
Alex,
If each $50K job DID cost $500K to create you would have a valid point. But this is not the case. You would probably even have a valid point if each job cost more to create than it yields. But again..this is not the case.
As for short term vs long term job creation. Optimally long term jobs are better. But even short term jobs have a positive effect on the overall economy. And that is the goal of economic stimulous programs. Eventually the economy reaches a point where IT is strong enough to create jobs without intervention.
Perhaps if the recession was presented as “economic war” the right would not have sucha problem allocating resources to “fight” it. I think that most would agree that the curent recession is a much larger threat to the USA than Saddam Hussien ever was. It would also reveal the right wing agenda as what it actually is. Unpatriotic, counter productive, treasonous.
When the cost in job creation is too high, are we not just taking a job from one person and giving it to another.
You assume that no job creation would take place without government intervention, and you are wrong to assume so. The fed has been using interest-rate interventions to “sustain” the construction/housing industries since the late 90s, resulting in one of the largest Economic bubbles in the history of our country. It is not “better” to just pump money into useless infrastructure (yes, these investments are useless, just look at how little Japan benefited from its infrastructural stimuli). If the market is telling construction workers to find a different career, why try so hard to prevent them from doing so? The “short-run” outlook is what got us into this mess in the first place.
Given that our infrastructure is in terrible shape, this is the perfect time to work on rebuilding it. We can borrow the money at essentially no interest, fix all of the roads, bridges, and tunnels that are past their expiration date, and create jobs. The work is long overdue, so it can’t be called “make work”.
Why are you repeatedly saying that it is useless to pump money into infrastructure? Do you prefer that we have more tragedies like the bridge collapse in MN a few years ago before we start to repair and rebuild our infrastructure? It costs far more to keep doing cheap “patch” jobs on bridges, roads, railways, etc. than it does to fix them properly with the intended use being available for years to come. Many of these projects will take years to complete and by the time they are finished, our economic situation will have improved.
Maybe if we told the RWNJ’s that we wanted to fight a war against our failing infrastructure, they would have approved it whole-heartedly. They have nothing against spending money to go to war.
I’m a huge advocate of fixing up our stock of public goods! Especially now.
I’m not opposed to infrastructure spending from a general perspective. Bear in mind that this thread is attached to an article on “stimulus” spending. Current infrastructure spending is funded through fuel taxes or other means, and any needed funds for such projects are and should be raised through those channels. Additional funding in the form of “stimulus” spending, however, is another matter completely. The Japanese attempted such endeavors in the 1990s, spending whimsically on bridges and highway systems above and beyond what was needed by the nation. The only result was a deepened national debt. The 1990s in Japan is now called the “lost decade” due to the lack of economic growth through that period. Call me a right-winged nut job if you will, though I never supported the invasion of Iraq or Bush-era “stimulus” spending. You are too blind to see the truth, that Bush-Obama stimuli are fundamentally the same, and likewise fundamentally useless.
I don’t think anyone is advocating “bridges to nowhere”, but there are a lot of repairs that need to be made, some of them quite desperately. One example, which has been fast-tracked, is the Tappan Zee Bridge. It is literally beyond its expiration date, can no longer be repaired, and must be replaced. I know about this one because it’s near where I grew up, but I’m sure there are many more that are a disaster waiting to happen.
here is a way to raise money to rebuild those structures. congressmen, senators, movie stars, business ceo’s anyone making over a million dollars contributes half of it and guess what we have jobs we have no deficit and we have a much better life. but we all know the GOP wont have nothing to do with it cause its money out of their pockets for the greater good of this country.
Your charts show CORRELATION between implementation of ARRA and economic measures. They don’t show CAUSATION. What makes economic debate endless, unlike, say, scientific debate, is that we don’t or can’t conduct controlled experiments in macroeconomics that would enable us to make a definitive statement such as: “The stimulus failed (or worked).”
Our arguments are generally grounded in correlation–which can be misleading–or in theory. Yes, economists have models that supposedly provide answers, but all models use assumptions that may or may not be valid and all models have error. The economy is endlessly complex. Models assume that people are rational and act in the present and future as they have in the past. Even a casual student of market behavior knows such assumptions are questionable.