After a Year of Crisis, Taking Stock
Friday, September 11, 2009
The economic stimulus package President Obama rushed through Congress during his first days in office is rapidly pumping energy into the nation's once-moribund economy and has already created or preserved more than 1 million jobs, Obama's chief economic adviser said Thursday.
In her first official assessment of the $787 billion stimulus, Christina Romer, chairman of the president's Council of Economic Advisers, concluded that the package of tax cuts and government spending -- the largest dose of economic medicine in U.S. history -- has poured about $150 billion into the economy since its passage in February, boosting overall economic output by about 2.3 percentage points during the quarter that ended in June.
While the economy remains in recession and has shed more than 3 million jobs since the stimulus money began flowing, the downturn would have been more severe and the number of jobs lost far greater if the stimulus had not been enacted, Romer said. As spending continues to ramp up throughout 2010, the power of the package should grow stronger, she said, though she declined to rule out the possibility that additional government action may be needed to lift the nation out of its worst economic slump in a generation.
"Let's take the $787 billion we have -- that we think is absolutely working effectively -- and see where we stand at the end of this year or early next year," Romer told reporters.
Republican lawmakers, who voted unanimously against the stimulus package, quickly dismissed Romer's assessment and accused the White House of whipping up a self-serving estimate of saved jobs that can never be substantiated or disproved.
"Despite skyrocketing unemployment rates and millions of lost jobs, the administration can use these models time and again to avoid accountability. By creating the immeasurable metric of 'jobs created or saved,' the administration can make job claims month after month that fly in the face of economic reality," said Rep. Darrell Issa (R-Calif.).
Added Rep. Tom Price (R-Ga.), chairman of the Republican Study Committee: "The fuzzy math used to produce these claims of jobs 'saved or created' bears no resemblance to anything our children learn in school . . . Considering the so-called Recovery Act is little more than a spending binge for liberal constituencies, it's no surprise the White House has to fudge the numbers to make it look successful."
In a 48-page analysis, Romer cited an array of independent estimates that back up the administration's claims. For example, Mark Zandi, chief economist for Moody's Economy.com, projects that the stimulus will have created about 1 million jobs by the end of September, while the nonpartisan Congressional Budget Office projects that the number could be as high as 1.5 million.
The numbers from two other independent forecasters, Macroeconomic Advisers and IHS Global Insight, come in much lower, projecting around 650,000 jobs saved or created so far. But "what is so striking," Romer said, "is the broad . . . sense that this program has been very important both to real GDP growth and to the change in employment."
Brian A. Bethune, chief U.S. financial economist for IHS Global Insight, said his firm agrees that the stimulus has had a big impact on economic growth but differs with the White House on job creation. "Since early 2009, there has been strong productivity growth, which means firms are making do with fewer people and squeezing more out of the people who are working," Bethune said. As a result, "fewer jobs are going to be needed."
But the stimulus has clearly prevented a large number of jobs from being destroyed, Bethune said. "Instead of losing 3 million jobs, we would have lost 3.5 million. That seems to be a reasonable calibration at this point. And it's something that most credible macroeconomic forecasters would attest to," he said.
The Council of Economic Advisers report also marshals evidence from abroad, noting that in the countries that adopted aggressive stimulus policies, such as the United States, economic performance exceeded expectations. And it finds support in domestic data: After two quarters of declining spending, state and local governments -- among the earliest beneficiaries of the stimulus -- increased spending in the second quarter at the highest rate in more than five years.
Meanwhile, the Cash for Clunkers program, which was funded with money diverted from the stimulus, fueled one of the largest surges in auto sales in U.S. history and increased employment by as much as 120,000 jobs, the report said. Cash for Clunkers "has much in common with a range of initiatives" in the stimulus package, including a tax credit for first-time home buyers, business investment incentives and weatherization subsidies, the report said. All are "designed to move demand from the future, when it is likely to be less crucial, to today, when it is clearly vital to generating recovery."
Taken together, the evidence suggests that "we are on track to hit the 3.5 million jobs" the president promised to save or create when he first called for a stimulus package in January, Romer said.