The debate about the stimulus was fairly vacuous from the very start. Pundits with apparently little understanding — or worse an agenda to misrepresent things — would chime in on whether it worked. Of course, posing the question in terms of working or not working is already massively confused. Any serious discussion on the stimulus would center on the impact it had.
The Congressional Budget Office put out another report this week estimating the impact of the American Recovery and Reinvestment Act in the last quarter. The CBO estimates that in the second quarter of 2011, the stimulus increased real GDP by 0.8-2.5 percent, lowered the unemployment rate by 0.5-1.6 percent, and increased employment by 1.0-2.9 million people. There are of course other academic studies on the stimulus, the majority of which — as you would expect — point to some positive impact of the stimulus.
Conservative commentators deny this reality with predictably weak and undeveloped arguments. Admittedly, it may not be worthwhile to even engage the mainstream conservative pundits because they are almost certainly not arguing in good faith. Nonetheless, one thing that consistently pops up in their talking points is that the stimulus “did not work.” What is meant by this is somewhat unclear. At times, it appears that because unemployment continued to rise after the stimulus, they take that to be proof that it did not have a positive impact.
This sort of point is just analytically confused. The proper way to measure the impact — as the above studies do — is to estimate what would have occurred without the stimulus and what did occur with the stimulus. If unemployment would have risen by 3 percent due to the state of the economy, but only rose 2 percent with the stimulus, then any serious analysis counts that as a positive.
Other conservatives seem to take the question of whether it “worked” a bit too seriously, believing that the analysis called for in the case of the stimulus is truly binary. This of course is false. Decreasing umemployment by 3 percent is better than decreasing it by 2 percent which is better than decreasing it by 1 percent or not at all. There is no point at which one would say it worked or did not work; there is only bigger and smaller impacts.
What is odd about the conservative framing of this issue is that it is unnecessarily extreme. I realize from a public relations point that it is probably more compelling to send out messaging that talks about the stimulus having no impact or a negative impact. But given that it is undeniable that it had some positive impact relative to the counterfactual world in which no stimulus occurred, any serious right-wing critiques would focus on the trade-offs of the stimulus. Was 700 billion dollars of debt worth a 1 million jobs, a couple of percentage points for the GDP, and a slightly lower unemployment rate?
Debates could certainly be had on that front. But instead of taking that more honest approach to critiquing the stimulus, the right wing messaging continues to make claims that are demonstrably untrue. In a more informed society with better media outlets that sought truth instead of artificial balance and sensationalism, these misrepresentations and lies about the effects of the stimulus might harm the right wing. But in our present world of public relations dominated politics, they almost certainly do the opposite.
That is not to say that the stimulus was all that great. As most Keynesian economists at the time were pointing out, the size of it was far smaller than it should have been for the impact it was trying to achieve. Providing a Keynesian boost to aggregate demand that is half the size it should have been is kind of a strange policy. At the time, defenders of the administration remarked that the small size was not a problem because there was nothing limiting the injection of more stimulus later — a reassurance that has proven politically misguided.
With that said, as much as the left has rightly harangued the administration’s too weak stimulus policy, right wing commentators still manage to make their position on the stimulus even sillier. The reality is that the stimulus — whether it was too small or too expensive — has had a slight positive impact, all the hand-waiving, contrary assertions of the right wing notwithstanding.