I’ve been waiting for someone to collect these data, so imagine my nerdly joy when I saw the table 3-11 on page 140 of the new Economic Report of the President, reproduced below (click on the table to see larger version).
There’s a misconception that the administration only pushed the Recovery Act and then gave up on fiscal stimulus. Not so. They (“we,” back in the day) did quite a bit more as shown in the table, which provides year-by-year spending (and some subsequent savings) amounting to around $700 billion.
Now, this cuts both ways. It pushes back on the critique that the administration didn’t push for more stimulus when it was clear that the Recovery Act was insufficient. But critics from the other side of the aisle will argue that even with another $700 billion, the recovery still hasn’t taken off.
Re the latter point, remember, the bottom line in the table shows that the fiscal impulse from this spending (the stimulus in year t minus that of year t-1) was in 2010 and 2011. After that, fiscal impulse went negative (e.g., -41 billion in 2012; 253-294). In other words, even with this extra effort, fiscal headwinds became increasingly strong in recent years. As I’ve often said, the stimulus and its follow-ons worked—they just didn’t last long enough (it’s worth remembering here that the administration proposed the American Jobs Act in 2011, a set of job creation measures ignored by Congressional anti-stimulus proponents).
Second, not all stimulus is created equal. Bonus depreciation, for example, doesn’t do much and fairly quickly turns negative (i.e., depreciation taxes are just deferred for a few years). Note, btw, to the CEA’s credit, they did not include routine extensions in the table, like tax extenders, because they deliver no fiscal impulse.
There are many more juicy data nuggets in this ERP, so more to come.
Source: 2014 ERP.
“when it was clear that the Recovery Act was insufficient.”
The recent data from Japan (record trade deficit, anemic GDP growth) tells me their much bigger stimulus wasn’t big enough. At what point does it become safe to conclude stimulus just isn’t efficacious.
At full employment, stimulus will become less effective at expanding real output. Up until then, it should always be considered. I recall that Dr. Romer had an early proposal of 2.2 or 2.3 billion as the initial stimulus target. Perhaps Dr. Bernstein can confirm that. Sounded about right to me then, and nothing in the data has changed my mind. Stimulate until full employment is in sight.
trillion, not billion, of course.
It sounds like you are suggestion stimulus is a failure because Japan is at full employment. Is that your position?
As I understand it the fiscal stimulus in the early years was canceled out by the “50 little Hoovers” in the states balancing their budgets. (More aid to the states would have helped, but as the journalist Grunwald wrote, Democratic Senators didn’t like aiding Republican governors who may run for the Senate. And of course Republicans don’t like letting states off the hook no matter the economic fallout.)
The premise of this stimulus policy was based on previous go rounds. Therefore, there was almost unanimous consensus that the program had to be fast, targeted and ending in two years. All of the politicians agreed that this was essential for avoiding the presumptive negative effects on the economy.
Summers argued two points, The politics of the matter limited the size of the program because this was the largest program that could be passed through congress. (Agreement with Krugman and Romer in the perfect world)
Secondly, he argued that there is a finite number of shovel ready projects that could be funded. Mechanisms are limited. Bernstein argued that an alternative infrastructure program of rebuilding America’s schools would be an outstanding compliment because this economic capacity was grossly underutilized during the recession. The timing would have extended beyond the two year window.
My questions are:
Was there a consensus among the economists that you had run out of valuable projects that fit the two year window requirement?
What is more important in the long run, the magnitude of the stimulus package relative to the size of the economic hole? OR, is the rate of stimulus roll out most important.
Finally, given the reality of the first stimulus round, a rational approach would have taken a second bite at the apple, However, the same constraints would apply… targeted, timely and ending in X years. Would this round have been as effective?
Alternatively, Policy makers sold the idea that downturn would be limited in duration and marketed the V shaped model of recovery. (green shoots were always seen and failed to develop) Pessimists at the time talked about the worst case and actual scenario of a very slow recovery. Financial crisis take forever as debt is worked off. This proved the case. So, would a stimulus program that was designed for 4 year duration have been a superior policy? Or, would the amount of stimulus been need to increase commensurate with the size of the hole?
Internal memos seem to say Summers did not argue those two points, politics and shovel readiness. See links:
The Republicans did not support the stimulus, so a larger package was a matter of party discipline, blue dog Democrats, and not realizing that too small means anemic recovery and loss of the House in 2010.
You don’t need more shovel ready projects to give more state aid to avoid cutbacks in state spending and employment (laid off teachers).
Payroll tax cuts, because they show up weekly are probably more effective stimulus than lump sum checks.
Debt relief for homeowners and others was and is totally inadequate and has stalled and delayed any return to fully functioning economy.
I think it was part of this blog already, a viable solution to the quandary posed by uncertain predictions would have been conditional stimulus with triggers. if(unemployment is greater than 8% and inflation is less than 3%) then spend another $500 billion. It’s similar to the Bush tax cut strategy with expiration dates, except vastly more vital. (remind me again which president is supposed to be really smart)
Thanks, Great links …
Definitely counters the spin machine!
Your points about state and local and payroll tax portions of the stimulus are true and would have been valuable to expand . However, I remember the selling point was balance… with it being 1/3 1/3 1/3…
Who knows about the number of shovel ready projects.
Moreover, I think perception of the media and the public was that state and local subsidies and the tax holiday was not “real stimulus” Certainly the public never recognized the payroll tax holiday. The media chased story after story about the expected boondoggles in Shovel Readythat never really materialized after Solyndra’s fail.
I also remember that Confidence Fairies (per Krugman) as well as Consumer Confidence were viewed as a huge portion of the solution. Part of the cure was rebuilding confidence… (while the republicans sought to ridicule everything) I suspect your reasonable suggestion of triggers for that second round would have been dismissed BECAUSE it would have cast doubt about the future.
It seems that the communication issues are as difficult as the economics to get right. (Again, I remember the Bush Tax cuts ending in ten years because of budget prediction foolishness and the Dem’s held out for the sunset…. not to mention… the republicans could politick on extending tax cuts as their core message for ever)