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The stimulus isn't working? Sorry, but the facts say otherwise

by: Michael Marsh

Fri Jan 29, 2010 at 11:32:48 AM EST


Since the stimulus was passed early last year, the GOP criticized the President's plan as both "too big" and "a waste of money". They said it would do nothing to turn around the economy, and would just drive up the debt.

So what's happened since it was passed?

Michael Marsh :: The stimulus isn't working? Sorry, but the facts say otherwise
A year ago, our economy was shrinking at a rate of more than 5% per year- the biggest collapse we have seen in almost 60 years. Nine months ago- President Obama's first quarter on the job- our economy was shrinking at a rate of more than 4% per year. These back-to-back declines were the largest since the Great Depression.

The economic data for the final quarter of 2009 came out today from the BEA. Guess what- it says our economy is now growing at rate of 6.4% annual rate.

That's an astonishing 11% turnaround in less than 12 months. You have to go back more than 60 years to see that big a swing- pretty remarkable.  And something that President Obama is getting zero credit for from the opposition party. That's not so remarkable. They have already swept the economic disaster left us by Bush and Co.'s demand for ever larger tax cuts and deregulation into the great memory hole. By November, their story will be the economy collapsed in early 2008 because it anticipated Obama's election, and only their intransigence saved us.

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Since when have facts mattered to the GOP? (0.00 / 0)
It's a giant spin machine.  Limbaugh,Fox News and friends daily try convince the American people that there are 5 lights....

"He who loves correction, loves knowledge.  He who hates reproof is stupid." - Proverbs 12:1



I'm sorry (4.00 / 1)
I realize the writers here want Obama to succeed and are just as eager to prove it as Faux News is to discredit him..but as an Economist, I have to tell ya,' this last Stimulus did not work.  That's not a criticism as much as a simple observation.

The purpose of a Fiscal Stimulus is to put more money into circulation, specifically into the hands of the public, so that increased spending will increase demand for goods and services with resulting increases in employment.  This did not happen.

GDP is measured by adding the total spending by consumers and government to the amount of bsiness investment.  While recent GDP has risen significantly, it rose due to government spending.  The scary reality is that consumer spendig actually fell, and business investment has been flat.  

Job creation is good positive evidence of a functional stimulus.  Unfortuantely, the last improvement in Unemployment (from 10.2% to 10%) was due largely to temporary seasonal hiring.  55% of the new hiring came in the form of Temp Agencies that provide neither security nor benefits.  This is troublesome at best.

The reality is that much of the stimulus funds have been used to preserve jobs in the government sector (state transportation and educational agencies), and did not work to create new private sector jobs.  


Your fellow economists disagree with you (0.00 / 0)
When Obama became president a year ago, we were losing about 700,000 jobs a month and this was increasing by 100,000 per month.

Today we are losing less than 100,000 jobs a month and the trend is in the right direction. To not see this as a vast improvement takes a peculiar perspective, I would say.

You are right that government spending (the "stimulus"- get it?) stimulated the economy. That was its purpose, and it has succeeded. In its absense, the economy and employment would be much worse shape today. This is understood and accepted by most of the economic profession. The idea is that the stimulus will first act to shore up demand which will then promote private investment, and this will be self-supporting when the stimulus ends.

This is starting to happen- personal income increased by 4% in Q4, personal spending increased by more than 4%, non-residdential fixed investment was up almost 3%, exports increased by 18%. This is not as fast or as much as we want, but compared to the free fall a year ago, we are in a lot better shape.


[ Parent ]
slowing of pace of inventory reduction (0.00 / 0)
that's what I got out of it... a year ago business was not replacing inventory as it was sold, now they are...indicates a bit more confidence in the future (than confidence in the future in the recent past)and that is positive. Consumer confidence has also nudged up a little three months in a row, another good thing. But the economy is far from creating jobs in the private sector. Temporary employment agencies have seen their business improve, but employers, except in limited cases, are not feeling condfident enough to hire permanent employees.
The exceptions ? Sheraton Corp for one announced two weeks ago that they were going to begin hiring new employees
because corporate travel managers were getting busier sending people on the road again.
Basic industries like corrugated box manufacturers see immediate downturns when the economy slumps and immediate pickups when companies increase their shipping, and they are seeing some pick up. But it is slow to happen.

Annie 2012!

Check Out Galbraith's Take On It (0.00 / 0)
I'm going to talk about this topic, and Keynesian economics in general with economist James Galbraith on The Burt Cohen Show (formerly Portside) Tuesday at noon at wscafm.com, or catch it later on my website or on iTunes. Should be interesting. Send questions to me at burt@burtcohen.com if you'd like.  

No'm Sayn?

The jobless recovery = no recovery for working people (0.00 / 0)
It looks good on paper, but like my first NH boss said,"if you can't eat it, it's track soup".


http://www.nytimes.com/2010/01...
The economy grew at an annual rate of 5.7 percent in the fourth quarter of 2009. But well over half of that growth came from large adjustments to business inventories that are unlikely to be repeated on a similar scale in the months to come. As such, they are evidence that the sick economy is recovering, not that it is healthy.

Another chunk of growth was due to government stimulus spending, which will wane in 2010. Much of the recent upsurge in business purchases of equipment and software was likely due to a rush to take advantage of an investment tax break before it expired in December.

So, what does it take to translate an incipient recovery into a sustained expansion? In a word: jobs. Employment leads to income and to spending. As sales deplete inventories, businesses restock, which creates more jobs and so on in an upward spiral.

Unfortunately, with the economy already some 10 million jobs short, there is no job growth on the horizon robust enough to set that upward spiral in motion. And because the economy is already in such a deep hole, a second leg down would mean ever worsening hardship.

 

Annie 2012!


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