Stimulus Credited for Lifting Economy, But Worries About Unemployment Persist

By Michael A. Fletcher and Neil Irwin
Washington Post Staff Writers
Friday, September 4, 2009

Half a year after Congress enacted the largest economic stimulus plan in the nation's history, the measure is contributing to what increasingly looks like a budding recovery, analysts say, but significant concern remains about rising unemployment and the initiative's contribution to the federal budget deficit.

With the Obama administration under fire for what critics call unrestrained spending and polls showing the American public ambivalent about the impact of the stimulus plan, officials are pushing back, seeking to highlight the role played by their polices in fueling a recovery.

Vice President Biden, making what the White House billed as a major speech Thursday, touted the role of the $787 billion stimulus program in lifting the economy.

"The Recovery Act has played a significant role in changing the trajectory of our economy and changing the conversation about the economy in this country," Biden said in a speech at the Brookings Institution, a Washington think tank. "Instead of talking about the beginning of a depression, we are talking about the end of a recession."

While some congressional Republicans and others are dubious about the success of the stimulus plan, economists generally agree that the package has played a significant part in stabilizing the economy. They are less certain about the size of the impact.

"It's starting to play a role, helping us to have slightly positive rather than slightly negative GDP growth," said Phillip Swagel, an assistant Treasury secretary in the Bush administration who is now a visiting professor at Georgetown's McDonough School of Business. "It's a gigantic amount of fiscal stimulus, and anyone who tells you it has had no impact, you should be skeptical of."

IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.

The firm also forecasts that the package will, in total, result in about 2 million more jobs than otherwise would have existed at the end of 2010. Moody's estimates that the initiative will increase employment by 2.5 million jobs. Both estimates are below the 3 million to 3.5 million jobs the Obama administration estimated the package would create or save because the firms assumed more modest ripple effects from the stimulus spending than administration economists did.

Still, Mark Zandi, chief economist of Moody's, said, "I don't think it's any accident that the economy has gone out of recession and into recovery at the same time stimulus is providing its maximum economic impact."

Yet even as the economy shows signs of improving, labor markets remain as weak as they have been in a generation, with unemployment at 9.4 percent. Just hours before Biden spoke, the Labor Department said that another 570,000 people filed new claims for unemployment insurance benefits last week, little changed from the previous week.

On Friday, the Labor Department is due to report monthly jobs numbers for August. Economists expect the unemployment rate to rise to 9.5 percent.

The administration was criticized this spring for the slow pace of stimulus spending. One hundred days after the plan was passed, officials said it was still too early to judge its success. Now, with Saturday marking another 100 days, the administration is making the case that the legislation helped move the country away from the edge of an economic abyss.

Biden defended the program's slow start. While he acknowledged that this blunted the initial impact, he said it was crucial to put safeguards in place to ensure that stimulus money was not wasted.

"This was all about establishing credibility at the front end of this, that this was going to be done well and differently, with accountability and transparency," he said. "Otherwise it had no chance."

Biden said the pace of stimulus spending has increased significantly in recent months, predicting that the impact will grow as more money is spent on public works and other construction projects. So far, much of the stimulus has come from other forms of spending in the package, which also provides tax cuts for businesses and individuals, aid to state and local governments that helped avert layoffs, money to extend unemployment benefits and provide health insurance to people out of work, as well as huge grants for renewable energy, education, job training and health care.

"If you look at the Recovery Act as a two-year marathon, we're at the nine-mile mark," Biden said. "We're just approaching the nine-mile mark. Two hundred days in, the Recovery Act is doing more faster and more efficiently and more effectively than most people expected."

The public has had mixed views of Obama's economic policies. Just 43 percent of Americans said they believed the policies were improving the economy, according to a Washington Post-ABC News poll conducted last month, while 32 percent said they were having no effect and 23 percent said they were making things worse.

On Thursday, Republican National Committee Chairman Michael S. Steele discounted the impact of the stimulus plan. "Vice President Biden has been trying for 200 days to convince the American people the president's economic stimulus experiment is working, but just like their government-run health-care scheme, no one is buying it," he said.

While many economists share Biden's assessment that the stimulus has helped stem the economic slide, they say it's hard to determined how large this role has been. Besides that initiative, the government has put in place an ambitious program to stabilize the financial system while the Federal Reserve has cut interest rates to near zero and launched several unprecedented programs to spur economic activity. The economy, meanwhile, has had time to begin its own natural healing.

"The debate will never be resolved" over how much of a role various measures played in the economic stabilization, Zandi said. "It's a matter of trying to disentangle some very complex policy steps that are all interrelated in a very fast-changing economy. It's very reasonable to say that the reason we're in recovery is because of the unprecedented policy response, and that includes all of the above."

Polling analyst Jennifer Agiesta contributed to this report.

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