CBO Estimated The Economic Impact Of The H.R.1 Stimulus Bill
Tuesday morning, Congressional Budget Office Director Doug Elmendorf testified before the House Budget Committee with detailed estimates of the impact on the economy of adopting H.R.1, the $819 b. House stimulus bill, which the House passed by 244-188 last night.
Table 4 at the end of the testimony shows CBO's estimates of H.R.1 assuming low and high fiscal policy effectiveness in an attempt to bound the views of leading economists. By the fourth quarter of 2010 under low effectiveness, GDP is estimated to rise 1.2% over baseline, and employment is estimated to rise by 1.3 million jobs. Under high effectiveness, GDP is estimated to rise 3.5% over baseline, and employment is estimated to rise by 3.7 million jobs. That's quite a range, but it reflects the uncertainty over how effective fiscal policy is when credit markets remain impaired.
Some (rough, quick & dirty)
Some (rough, quick & dirty) number crunching for 2009-2011, in $ billions:
Low Effectiveness Estimate:
Increm Debt (static analysis) 700
Base GDP 14,300
Incremental GDP 429
Revenue feedback effect @20% effective tax rate 86
Incremental Debt Net of Revenue Feedback 614
High Effectiveness Estimate:
Increm Debt (static analysis) 700
Base GDP 14,300
Incremental GDP 1,216
Revenue feedback effect @20% effective tax rate 243
Incremental Debt Net of Revenue Feedback 457
So, the mid-point between the estimates of net increase in the debt for 2009-2011 is $536 billion, which, if applied to 2008 GDP of $14.3 trillion, would be 3.7% of GDP added to our debt-to-GDP. In terms of long-term effect on our fiscal imbalance in terms of debt-to-GDP, this figure would have to be refined to take into account (at least) the following:
- The additional projected $119 billion of incremental deficit as part of the "stimulus" package after 2011, and the incremental GDP it provides.
- Interest Expense on the incremental debt
- Higher future GDP. In the long-term, this would reflect mainly GDP growth that would have occurred without the stimulus (since most of the incremental GDP will be short-term*), and to a lesser degree long-term incremental GDP due to residual effects of investments (e.g., infrastructure).
I'd appreciate if anyone can refine this analysis and take it farther in terms of gauging the impact of the stimulus package on our long-term fiscal imbalance.
* As a note, something that I haven't seen, but would like to see as an indicator of our long-term fiscal health and ability to finance our debt (and the degree of adverse impact of the debt) is not just a set of projections of debt-to-GDP under various scenarios, but also of debt-to-assets (private assets, and private plus public assets combined). Just as the credit-worthiness of an individual or business is a function of debt-to-assets as well as debt-to-income and debt service-to-income, it seems to me we should be viewing projected debt scenarios relative to assets as well. In addition to providing a better picture of our fiscal health, such a metric would also put a "stimulus" package into more complete perspective. To illustrate, if a hypothetical stimulus package provided incremental GDP only in the first two years with zero residual effect (no incremental GDP beyond two years), the result from Year 3 onward would be incremental debt with zero incremental GDP (or revenue feedback effect), making it appear to be merely a trade-off of the longer term for the sake of alleviating suffering in the short term, but this would ignore the fact that assets would still be higher in Year 3 and thereafter (assuming the incremental GDP was not all spent on services and goods that are not liquid even over the long-term). I realize that projecting asset values is problematic, to say the least, but I wonder if such analysis is available. Does anyone here know?
As a note, the numbers for
As a note, the numbers for 2009-2011 in my comment above are not discounted to present value. A dollar in 2011 is treated as equal to a dollar in 2009.