Stimulus is helping!

the stimulus has actually helped quite a bit.

From Dean Baker:  “For weeks on end, Republicans have pounded home the message that economic stimulus has failed. (Charles Krauthammer: “[Obama] blew a hole in the budget that is a trillion dollars wide. There is nothing to show for it.”) Polls show that most people think the stimulus has done nothing to help so far. But today’s second quarter GDP data show that the stimulus has actually helped quite a bit.

he headline is that the economy shrank at a 1.0 percent rate, less than the 1.5 percent rate most economists expected. More importantly, the second quarter data looks great compared to the 6.4 percent rate of contraction in the first quarter of 2009 and the 5.4 percent rate of decline in the fourth quarter of 2008.

If you delve into the numbers, the effect of the stimulus is clear. The government sector directly added 1.1 percentage point to the growth rate in the second quarter. This was due partly to additional federal spending (much of it defense-related), but also due to a modest increase in state and local spending. In the prior two quarters, state and local government spending had been contracting, as state and local governments were forced to make cuts in response to budget deficits. The stimulus package allowed them to sustain existing programs and even expand them in some areas.

Even more important than the direct contribution of government spending was the indirect contribution that the stimulus made by keeping disposable income growing. Thanks to the Making Work Pay tax credit, the extension of unemployment benefits, and the special payment to Social Security beneficiaries, disposable income rose at a 4.6 percent annual rate in the quarter, even as wage income shrunk at more than a 5.0 percent rate…

In total, the stimulus probably added 2.5 to 3.0 percentage points to the growth rate for the quarter. This is the difference between the mild decline that we saw and the disastrous plunge of the prior two quarters. And, assuming normal relationships between output and employment, as many as one million people have jobs today, who would not otherwise, because of the stimulus.

But, to say that the stimulus has made things better is not to say that it has made things good. We are looking at an unemployment rate that is virtually certain to cross 10 percent in the next few months and likely to remain above 10 percent into 2011, and possibly longer, without a further boost to the economy. While most of the stimulus has not yet been spent, we are already spending out the money at close to the maximum rate, and it is the rate of spending that matters.

see: http://blogs.tnr.com/tnr/blogs/the_plank/archive/2009/07/31/are-we-better-off-because-of-the-stimulus.aspx

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s