Stimulus Added 2.3% To Real GDP And Half A Million Jobs In The Second Quarter CEA Estimated
Thursday, the President's Council of Economic Advisors issued its first quarterly report to Congress on the American Recovery and Reinvestment Act (P.L.111-5). CEA reported that $151.4 b. of the $787 b. authorized had been outlaid as of the end of August and estimated that this increased second quarter real GDP by 2.3% and added about half a million jobs. It estimated third quarter real GDP would rise an additional 2.7% and employment would increase by 1 million. See Table 8 on page 26. If these estimates hold up, which I expect them to, American taxpayers might feel better about where their $787 b. went.
I was pleased to see that the CEA carefully qualified its estimates and used several techniques that produced similar estimates to corroborate their analysis. We'll never know exactly what the economy would have looked like without the stimulus bill, so estimating its impact is difficult, especially so soon after its February 17, 2009 enactment. CEA based its primary estimate on statistical projections of stimulus spending and tax cuts, but it also estimated the impact by using its own and several private macro models and by making cross country comparisons. CEA emphasized that these estimates are preliminary and are subject to revision as more data becomes available.
CEA found that countries enacting the largest fiscal stimulus programs seemed to benefit the most and that those who enacted smaller stimulus experienced less benefit. See pages 27 - 33.
CEA took a very close look at state and local spending of stimulus funds and found no evidence of hoarding. To the contrary it found evidence that the states used the money quickly to avoid layoffs of state workers and to sustain crucial services. See pages 33 - 39.
CEA also estimated that the "Cash for Clunkers" program boosted third quarter real GDP by between 0.1% and 0.4% and added between 40,000 and 120,000 jobs. CEA was careful to point out that this "move[d] demand from the future." See page 40.
If you supported the stimulus, these are horrible figures
That comes out to $300,000 per job created. Singapore and France, by contrast, have implemented wage subsidies that are keeping unemployment in the mid single digits.
Broken Windows
Cash for Clunkers, by definition, may add $3B to GDP, but it subtracts from national wealth. We are wealthier by thousands of clunkers, and poorer by the opportunity cost of $3B. Murtha's airport to nowhere may have added millions to GDP but it has created essentially zero consumer value. Breaking the windows that we can most productively replace can add a lot to GDP, but it will always leave us poorer. The GDP definitionally created by government spending cannot be exchanged for GDP that consumers want.
We should stop referring to earmarks and stimulus projects by amount of money spent and jobs created. We should talk about "number of customers served".
Stimulus
Anyone who has worked on stimulus legislation on the inside, as I have, can recall times when unwelcome elements crept into the bill. The only justification I can offer is that passing a stimulus bill wouldn't have happened without opening it up to amendment and that we're better off on the whole for having enacted it, imperfect as it was.