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You’d think there wouldn’t be a debate on stimulus any more. The contraction of the economy has slowed to 1% entirely due to the stimulus bill. Cash for Clunkers is working so well that it’s critics are reduced to spouting utter nonsense. You’d think the stimulus critics would be struck dumb by this torrent of good news. But on Sunday morning before a nationwide audience on Meet the Press host David Gregory grilled Larry Summers and spouted the line that the stimulus had failed and should be rolled back. Gregory’s evidence? The climbing employment numbers.
MR. GREGORY: The criticism of this administration is that it has misread the impact of the stimulus on the economy, and here are the raw numbers when it comes to the unemployment rate. As of February 17th of 2009, the day that the stimulus plan was signed, unemployment was at 7.6 percent, it’s now at 9.5 percent. Experts like yourself believe it’s going to go up over 10 percent. Roughly two million jobs have been lost since the stimulus came on line, after this administration said in a report that if you pass a stimulus plan, we’ll hold unemployment steady at 8 percent. What went wrong?
Larry Summers tried to get across the point that the employment numbers would have been a lot worse without the stimulus to no avail.
DR. SUMMERS: David, I, I think that’s really very, with great respect, I think that’s really a very misleading way of putting it. The administration’s report was very clear that the stimulus would build over time, that less than 10 percent of the job creation would take place during 2009, that the largest impacts would be felt as the program took effect, as all of those projects got started. So we forecast that there would be a meaningful impact felt right away, but that that effect would increase very substantially. …and that’s what’s happened. Now, it’s true that unemployment is higher. It’s higher than almost anyone forecast at the beginning of the year; and it’s higher because, frankly, what we inherited was much worse. Most of the surprise increase had already taken place by March, and you can hardly hold the administration accountable for that. It turned out that businesses were even more scared than we realized; and, therefore, relative to past recessions, as demand for their products declined, they were much quicker to lay people off than they, than they have been. And so there was a surprise in the employment statistics, but that didn’t have to do with the impact of the stimulus. That had to do with the baseline that we were dealing with. You saw that. You see evidence for that also, David, in this last economic report. In addition to giving us the data for the second quarter, which is what everybody’s talked about, the negative 1 percent, it also gave us data on revisions of the whole history of GDP. And what those revisions showed us is that last winter the economy was much weaker than we thought it was at the time. …
But it was like talking to the walls.
Incredibly some actually thought Gregory had a point as this comment from The New Republic’s website shows.
My read of this blog is that Gregory actually called Summers out. Gregory should be commended for doing this, particularly given that he was forced to take on an individual with greater expertise than himself. Gregory’s approach is a stark contrast to that of his sycophantic predecessor.
Here’s a newsflash, Gregory didn’t "call out" Larry Summers, all he did was flunk basic algebra. If you add a negative and a positive number together, the result can be positive or negative depending which one was greater. If the result is negative it’s still a smaller negative than it would have been otherwise. In other words, without stimulus we’d have even more jobs lost, more economic contraction, and no increased car sales. The only thing Larry Summers is guilty of is not smacking Gregory down hard enough.
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The contraction may have slowed but it was not due to the stimulus. Most of the money from the stimulus that has been spent so far went into tax cuts which had little stimulative value and which Americans either saved or used to pay down debt. Some aid went to states and this did slow some of their job cuts, but state budgets continue to be in the red with resultant job losses. The Bush and Obama Administrations have pumped some $7 trillion into the financial sector. Much of this financial institutions have simply sat on, but some has been used to create mini-bubbles in stock and oil markets and to fund mergers in the banking industry and BigPharma. There was a large inventory overhang in many industries. They have been working through these, improving their financial picture relatively speaking but it is far from clear that they will seek to rebuild those inventories. So we have gone over the cliff and have landed on a ledge further down. Whether we go up, down, or sideways and for how long remains to be seen.
The problem with the Obama stimulus is that it needed to be in the trillion dollar a year range for as long as necessary, not $787 billion over two years with much of it in non-stimulative taxcuts. Indeed the last time I calculated the net stimulus to the economy would be about $50 billion on an overall injection of some $310 billion a year. And of course a smart stimulus also needs to be directed to where we want to take the country. Healthcare, sustainable energy, infrastructure, and re-industrialization would be good areas for this kind of investment. Currently only some kinds of infrastructure, much of it involved with shoring up old infrastructure are being considered.
The EPI gave full credit to the turnaround to the stimulus package as noted. Doesn’t mean your take isn’t true, just I haven’t seen any corroborating reports.
Other posts on FDL and online articles in Slate show that the stimulus was a lot more than Fat Cat deals, that real jobs have been created or saved as a direct result of the package.
Could it have been better? You bet. But I’m not about to make perfect the enemy of the good in this case.
To be honest, I could care less what the EPI, Lawrence Mishel, and Josh Bivens have to say about much of anything. They were big supporters, with a few small caveats, of Obama’s stimulus so it is hardly surprising that they continue to view it through rose colored glasses. Bivens asserts that because Obama has a stimulus package and the rate of contraction slowed, the stimulus must be responsible. But he ignores that states continue to have major budget problems. As for most of the disposable income he sees, it is actually being saved or used to pay down debt by fearful consumers. Neither of these activities is stimulative.
Nor did I say that the stimulus had anything to do with Fat Cat deals. That is part of the $7 trillion in aid banks have received from the Fed and Treasury.
By the beginning of 2011 we are looking at a jobs hole (from the start of the recession) of at least 13 million. Obama’s stimulus package is so poorly put together that we will be lucky to see 2 million jobs out of it, and most of those will disappear in early 2011.
I wish people would retire that perfect being the enemy of the good argument. Sometimes it’s just the pathetic masquerading as the good. The important thing to keep in mind here is that all this stuff that Obama and his economic team are doing will have an effect. When you sling around trillions, things will happen. But none of the underlying problems which produced this mess have been addressed let alone fixed. So at some point we will run out of money to throw at things. The mini-bubbles will pop. We will need to cut back and then in the absence of effective action we will be in a worse situation with fewer resources to deal with our problems.
You’re still not making a case.
You can’t just call everyone who disagrees with you as viewing the situation with rose colored glasses, especially since the only authority you sight is your own. Excuse me if I don’t take your word for it that job losses will continue for another 18 months.
I would not ask you to take my word on any of this. I would advise you to look at the numbers and apply a little critical thought to them. Ultimately, they, not ideology, not your desire to see Obama succeed, will determine what is what.
As for job losses, it is likely that they will continue through the end of this year. What happens next year is unclear because other actions could be taken or the suckers market could go south. So we won’t know until we get closer to 2010.
Even so, there are two components to the jobs hole. One is jobs lost. The other is jobs needed to keep up with population growth. So while what may happen next year with job losses is uncertain, this other is a fairly fixed and knowable quantity. So we can take this plus job losses real and projected to the begining of 2010 and that produces the 13 million number. If there are further job losses in 2010 the hole will increase. If there are positive numbers next year, the number will decrease, but this is the base number we are looking at.