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Thursday, October 22, 2009

Romer Vs. Gross

Christina Romer of the President's Council on Economic Advisors had this startling answer during a Congressional hearing today.

Romer … said Thursday that the $194 billion already spent gave a jolt to the economy that contributed to growth in the second and third quarters of the year. She told a congressional panel that by the middle of next year, the impact of the stimulus will level off. Romer said spending so far has saved or created 600,000 to 1.5 million jobs but warned that unemployment will remain high, above 9.5 percent, through the end of 2010

I found this curious for several reasons and not the least of which is because Daniel Gross, of Slate, said this recently in defense of the stimulus.

In other words, nearly eight months after its passage, a large majority of the stimulus has yet to start impacting the economy—as was the plan. And as was also the plan, the most visible parts of the stimulus are only taking effect now and will remain active through 2010. As you drive around town, it's difficult to visualize tax rebates or aid to states—the fast-acting components of the stimulus. But as I drive around my town today, I can see workers laboring at a $4 million, stimulus-backed road project that is just getting started and will run through the spring of 2011.

So, which is it? Is the effect of the stimulus largely already felt as Romer now claims or is the stimulus just gearing up as Gross said?

The stimulus appears to be one of those things that will work at all times but the present. When it was being debated, President Obama said we'd feel the impact right away. Then, at the beginning of the summer, the president said he was disappointed with the pace of implementation and promised to speed up the spending. Then, the unemployment passed 8%, 9%, and 9.5%, and the president started saying it was a plan designed to work over two years.

Now, the unemployment rate is at 9.9% and the administration is saying that most of the impact has already been felt. Of course, Vice President Joe Biden also says the stimulus has worked beyond all expectations. Is that success that will happen next year, has already happened, or will never happen?


John said...

I would put my money on Romer over a Slate author most days of the week. It seems like the answer to your question is 'both and neither' at the same time. Remember the bulk of the stimulus in terms of allocation was a tax rebate, which did get felt right away; the remainder of the stimuli goes out via govt contracts, grants, aid etc. that wouldn't be as instantaneous as it would come on an as-needed basis.

Personally I feel like the stimulus is a massive failure and is a exponential version of cash-for-clunkers. We will see demand throughout the stimulus package, but once over we'll likely see these projects fall off a cliff and organic economic activity won't return until the gov't exits the stimulus role and interest rates are raised to preserve dollar value. Afterall what's the point in doing business here if all your ROI is crushed by a declining dollar?

Anonymous said...

I think the salient point is that the impact of the stimulus cannot be measured, therefore one can say what one wants about it without worrying!