Economist Mark Zandi - "The Impact of the Recovery Act on Economic Growth" - The Stimulus Is Working

[TomCADem]

:crazy: Warning! Wonky! :crazy:

Here is a pretty even keel and sobering discussion of the economy and the impact of the stimulus on the economy's recovery from well known economist Mark Zandi. This may disappoint those folks who might have a distinctly pro-Obama and anti-Obama agenda, or who want to see things in black and white. Also, for those who insist that President Obama has done nothing, and that his economic policy has been ineffective or insufficiently ideological, you will be disappointed by the conclusion that the fiscal stimulus is generally working.

So, you have been warned before you review on his graph filled report.

http://www.economy.com/mark-zandi/documents/JEC-Fiscal-Stimulus-102909.pdf

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The Great Recession has finally come to an end, in large part because of unprecedented policy efforts by the Federal Reserve and fiscal policymakers. The cost to taxpayers has been substantial but would have been even greater if aggressive action was not taken and the financial crisis and recession had been allowed to continue unchecked.

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The fiscal stimulus is working

The fiscal stimulus is also working. The American Recovery and Reinvestment Act passed early this year has reduced payroll tax withholding, sent checks to Social Security recipients, and provided financial help to unemployed workers whose normal benefits have run out. The cash for clunkers program revved up vehicle sales, and the housing tax credit has boosted home purchases.iii It is no coincidence that the Great Recession ended just as the stimulus began providing its maximum economic benefit (see Chart 1).iv The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.

* * *

The part of the stimulus providing the biggest bang for the buck—the most economic activity per federal dollar spent—is the extension of unemployment insurance benefits (see Table 3). Workers who lose their jobs before the end of 2009 can temporarily receive more UI, food stamps, and help with health insurance payments. Without this extra help, laid-off workers and their families would be slashing their own spending, leading to the loss of even more jobs.

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It is possible that firms will resume hiring soon. There is historically a lag between a pickup in production and increased hiring. In the past, however, during the gap between increased production and increased full-time hiring, businesses boosted working hours and brought on more temporary employees. None of this has happened so far; hours worked remain stuck at a record low, and temporary jobs continue to decline.

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[emulatorloo]

1. bookmarking to read later. Thnx for posting n/t

[Odin2005]

2. Warch out, the doomers will be screaming at you shortly.

Claiming that the fact that employment is a lagging indicator is a lie or similar nonsense. :eyes:

[MannyGoldstein]

3. Farting Against A Hurricane Slows It Down

Not very much.

But it does work.

[TomCADem]

4. "Unprecedented policy efforts"

Apparently, the Obama administration did a bit more than just part wind.

Federal aid to strapped state and local governments also is providing significant economic benefits, lessening their need to slash programs and jobs or to hike taxes and fees. State and local tax revenues have fallen by nearly $120 billion during the past year, but government expenditures have merely gone flat, because federal grants in aid have soared by almost $110 billion (see Chart 2).vi

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Criticism that infrastructure spending funded by the stimulus has been slow to get started is valid. But this is partly because safeguards against funding unproductive or politically driven projects have slowed things down. Infrastructure projects are now gearing up, however, and this will be particularly helpful next year, when the recovery will still be fragile.

[MannyGoldstein]

6. Of Course! But Was The Magnitude Appropriate?

That's the question.

[TomCADem]

7. So, We Needed Super Unprecedented, Rather Than Just Unprecedented

I actually think that is a very fair criticism.

However, I wonder if the magnitude was increased, would the federal government have the logistical capacity to implement such a massive stimulus program? As we have seen, there are inevitably going to be implementation problems in creating such a large, yet temporary, stimulus program. In addition, to funding projects that are desirable, you also have to give priority to projects that may be less desirable, but that are shovel ready.

Even now, the bulk of the infrastructure spending will not hit until 2010. The unemployment benefits and the aid to state and local governments has been even more immediate. So, if I were to tinker with the stimulus, I would actually add more money to the state and local aid, since their efforts to balance their budgets has actually resulted in a counter-vailing contraction of spending.

[HamdenRice]

5. Once again proving Keynes was right!

K&R