So there I was, quietly working on a piece on the economic impact of the Recovery Act when I stumbled on a few simple graphs that I think tell a very compelling story.
It's an important story too, both in terms of looking backwards and forwards.
Republicans constantly ply the talking point "discredited stimulus" in the interest of blocking any similar ideas, like some of those I expect to hear come out of the president's jobs package. But the evidence shows otherwise. The evidence shows the stimulus (and other stimulative measures, including those of the Fed) worked, but ended too soon, before the private sector was ready to walk on its own. The evidence shows we need to do more of these sorts of policy interventions.
I know -- this ain't about the evidence. But I will never accept that condition and neither should anyone else. That's the way societies decline and I'd kind of like to avoid that.
The first graph shows the growth in real gross domestic product (GDP) from 2007 up until the last quarter. The next picture shows job growth over the same period in both the total job market and excluding government jobs, since the temporary influx of Census working in 2010 distorts the overall series for a few months.
While these are very simple pictures of fundamental economic variables, and while there are always many moving parts influencing such trends, they a) present remarkably compelling evidence against the "failed stimulus" case, and b) show that we need to do more of these types of interventions.
When the bill was signed in February 2009, GDP growth was almost unprecedentedly negative -- down 9% in the previous quarter (2008q4). But as the figure reveals, the economy immediately between to contract less quickly, and growth turned positive by mid-2009. We see the same pattern in job growth, which also reversed course soon after passage, and broke zero -- net job growth -- in March of 2010 (the addition and subtraction of Census workers that year distort the picture somewhat, but they're not included in the private sector data, which present a clearer view of what happened).
Unemployment always lags growth by at least six months, but a few months after ARRA kicked in, it stopped growing.
But that's only half of what these simple graphs show. The other piece of information they yield is even more important. As the stimulus fades, the positive trends begin to falter: both GDP and job growth slow significantly, and unemployment stagnates at a highly elevated level.
The message of these three simple graphs is itself disarmingly simple: the stimulus worked. It prevented recession from becoming depression. It just ended too soon.
And that's why the president's new jobs agenda is so damn important.
This post originally appeared at Jared Bernstein's On The Economy blog.
Robert Teitelman: Zuckerman on Business Despair and Obama
If a person is concerned primarily about the debt and the deficit and keeps asking for government spending to be cut at the same time that individuals and corporations are not spending money, that person is saying, more or less, "Let the current economy stagnate. Let's hope that the long-term situation works out."
If a person is concerned about this stagnating economy, that person has to accept short-term deficit spending in hopes that, in the long-run, fiscal responsibility and a revived economy will bring forth surpluses in the future. (Isn't that how it work? Supply? Demand? No money circulating, no demand? See...the 1990s.)
Whether right now I get a $100 to spend on food and essentials from the government or from a job, although the job is prefered, as far as economic impact goes, as far as multipliers go, there is no difference. (Since private industry is not hiring, though....) However, there is a significant different from if I have no money to place into the economy.
The $900B Obama stimulus was nothing but a labor union enrichment Scam. There is no merit in requiring stimulus dollars go to labor union jobs. Taxpayer funds should be used to get public works projects done by the lowest qualified bidder, not by the preferred "unionized" shop.
The Obama corruption has to end.
Both sides at times supported corporate written trade bills that stripped the Nation of good paying productive jobs. Each one that was lost represented someone’s customer. We are even now still engaged in this economic suicide babbling the same false platitudes.
Both sides aided the vampires on Wall Street to suck the life’s blood from the economy with fraudulent MBSs, CDSs and a plethora of other concocted, unregulated time bombs. Both side emptied the Treasury into the vaults of these vampires to continue their pillaging of the Nation.
Both sides support jingoistic corporate/MIC serving Foreign Policies that perpetuate the squandering of trillions to maintain corporate access to oil and maintain disproportionate influence over other Nations. These Foreign Policies create constant friction, reprisal and perpetual war. They are an Albatross around our neck.
The Republicans have instituted a self-defeating policy of deficit spending using non-productive tax cuts to transfer the wealth produced by all to the few at the top. Democrats led by Obama have capitulated to this economic black mail and doubled down on stupid with their own non-productive tax cuts. These lost revenues prevent constructive measures to be taken.
The Democrats through cowardice and incompetence and the Republicans through shear malfeasance have shackled this economy to an anchor and thrown it into the abyss.
Also: one cannot say that "stimulus works". Stimulus can work OR fail. It depends on what you buy.
If it is an asset that creates future income and pays back for itself with interest (!), then it creates wealth.
Otherwise it destroys wealth.
Much of what we did with recent stimulus was pure spending, now consumed, and with only debt left to show.
With our recent downgrade we have no debt capacity to spare. The only stimulus worth considering would be for projects that will pay back handsomely over time.
"I know -- this ain't about the evidence. But I will never accept that condition and neither should anyone else. That's the way societies decline and I'd kind of like to avoid that."
Hence we will feel good in the short-term, but long-term we will be in more debt and worse off.
Our debt is denominated in US dollars which we can print pretty much as we choose. This would devalue the dollar (cause inflation) but this amounts much like the added cost for a tax.
The next generation will pay it much like we did and are doing. Gasoline was just over a quarter a gallon in 1950 and restaurant coffee was a nickle a cup. America must be a bunch of fools if this makes us run around saying we are ruined.
Yes, it would be better if we paid our bills up front and didn't make a cascade of funny money as we lied to ourselves about what this cost. Everything is paid for right now. You cannot eat today the bread that is baked tomorrow but you will pay today the inflation tax on today's bread.
Printing money is a form of cronyism because the government just gives the new money to its friends. I will never support deliberate inflation as a way to fund government subsidies. Inflation is harmless to those getting the government payments (just as likely corporations as people) and those people with wage power, but it destroys value for everyone without a job, everyone with fixed income, and everyone who has worked hard to save money.
Inflation is theft - taking value from those who played the game the right way and saved, and giving it to those who were irresponsible and ran up big debts they could not afford.
When Argentina adopted a similar attitude, it continued to borrow and print to run growing deficits. Suddenly the markets refused to lend more money. Banks closed. The middle class became homeless, and the homeless starved. My favorite story is about a truck full of livestock that pulled over to change a tire. 100 people surrounded the truck and devoured the cows. Then they destroyed the truck.
Inflation to pay government bills? That is not only immoral, it is the sign of imminent dissolution of law and order, leading to chaos.
Before the private sector was ready to walk on its own? Really, you've got to be kidding right?
And here all along I thought the private sector supported the Government.
My strategic sense is that there are several strong headwinds to "recovery", like flying against the jet stream without realizing you're in it, and wondering why it's so hard to get your ground speed up. I don't think we realize there are headwinds, and (needless to say) don't think we know what they are.
Under those circumstances, you can expend a lot of fuel/money trying to get groundspeed up, and for a while, you see progress. But as soon as you turn the afterburners off, you're back to not moving. That's what I think is happening. Those who say "more stimulus" are saying "turn on the afterburners." Those who say "balanced the budget" are saying "we don't have enough fuel to get home".
What is missing is someone to say that we are in the jetstream, and need to move out of it, to a different kind of air.
Perhaps we should increase the fuel/money supply.
If we just increased the money supply as we know it, without affecting the distribution of it, and if Demand drives the economy, then the fuel ends up in the cargo hold (aka, balance sheets) is it did during the first "stimulus".
First we need full production and full employment. Supporting those who want to work but cannot find work to do is hugely expensive. Aside from charities, unemployment insurance, the help from relatives and all those things, there is the loss of the production, fewer items of comfort altogether. Aside from unemployment, there is under employment. If unemployment were zero (something nobody expects), the 6th of our people who aren't allowed to contribute would surely contribute an increase of national wealth of more than a 6th.
This is a tremendous loss we are now suffering. It is almost insane to say we cannot afford except to tolerate it.
Look folks, his policies are not working. We do not need stimulus, we need a strong business environment with a business friendly tax code, regulatory environment, and educated employment base. We have the last one, the other two are nowhere to be seen and Obama is making it worse.
Look at this animated graphic that shows how dramatically the job losses came in 2008, and how painfully slowly they are coming back. Hard to make any argument that stimulus is the answer.
http://precisiontradingsolutions.blogspot.com/2011/08/unemployment-infographic.html
If you are bleeding and somebody puts on a tourniquet, it will probably take a few minutes for the bleeding to stop. So, putting on the tourniquet is worthless.