This week the White House's Council of Economic Advisers released a report marking the fifth anniversary of the American Recovery and Reconstruction Act -- the economic stimulus passed at the beginning of President Obama's term. Much criticized by Republicans, the stimulus was one of the most significant pieces of economic policymaking in generations. The CEA report was designed to tout the merits of the stimulus and the follow-up legislation, but it also provides a neat visual history of Obama's response to the economic crisis he confronted when he came into office and the meager recovery he presided over.
When the Obama administration first proposed its "cash for clunkers" plan in 2009, the reaction was generally favorable. Congress would spend $2.85 billion to encourage drivers to swap their old gas-guzzlers for newer, more fuel-efficient cars.
The program had something for everyone: It would lend a hand to the ailing U.S. auto industry. It would tamp down on oil consumption. And, once launched, the program proved so popular with consumers that it burned through $1 billion in its first five days. Sure, a few critics argued that the program wouldn't be very cost-effective, but no one was really listening.
Conservatives don't really get that some things are "public," and it's hurting their ability to handle the challenges of the early 21st century.
Don't believe me? The economics blogs were shocked last week at the idea that libertarian economist Milton Friedman's macroeconomic legacy is missing from the conservative movement. So it might be useful to remember that one of the leading intellectual lights of the early conservative movement, William F. Buckley, got his start red-baiting the great economist Paul Samuelson.
Raghuram Rajan is the new leader of India's central bank, the Reserve Bank of India. The respected University of Chicago economist will thus be guiding monetary policy for the world's second most populous nation. He faces a seemingly impossible task: To rein in the nation's double-digit inflation without excessively crimping India's growth, which has already slowed.
Not too long ago, we heard a lot about "green jobs": The win-win equation for boosting employment while retrofitting America's buildings, energy systems, and transportation infrastructure for a cleaner future. In 2009, the federal stimulus act poured $595 million into green jobs programs, most of which went towards equipping people with the skills to particulate in the new green economy. Four years later, it's still not clear what all the cash for green jobs achieved--and a Government Accountability Office report issued last week illustrates the difficulty of trying to foster an emerging industry by pumping money into it.
The Ryan budget wasn't the only spending document released Tuesday. The Senate Budget Committee, led by Patty Murray, released the topline numbers of their budget as well.
It includes $100 billion in stimulus spending on infrastructure projects, $975 billion in new tax revenue through cutting expenditures, $493 billion in domestic cuts (including $275 billion in health cuts), and $240 billion in defense cuts (all numbers over 10 years). Together with the $242 billion that it saves in interest payments, it adds up to a $1.85 trillion package, split evenly between taxes and spending cuts.
At the end of this Center for Budget and Policy Priorities paper is a terribly sad note: "This represents the final update of an analysis that we first produced in 2009 and have updated once or twice annually since." That may sound dry, but the analysis to which they're referring is the center's famed "parfait chart," showing which policies have contributed to our large current budget deficit and debt levels. For budget nerds, this is like "Arrested Development" getting canceled (and not getting brought back, at least not yet). But one last hurrah is better than none. Without further ado, the final parfait chart (for debt, which gives a broader historical sweep):
Fiscal stimulus may be pass in the United States, but, like Bill Murray in "Lost in Translation," it's big in Japan.
Shinz Abe, Japan's newly elected prime minister, has announced 10.3 trillion (or about $116 billion) in new spending to promote growth. To clear up what this actually means, we'll break it down for you.
If the United States goes over the so-called "fiscal cliff," allowing a wave of scheduled tax hikes and spending cuts to take effect Jan. 1, the nation would likely enter a recession as the deficit falls too far, too fast. How would you avert the cliff, though?
Your job, should you choose to accept it, is to figure out a path forward using this calculator. First, identify which aspects of the fiscal cliff's tax increases and spending cuts you would allow to go forward, and which you would cancel. Then, pair it with other deficit-reduction policies you want to enact to start bringing deficits down even without the pain of an immediate austerity crisis. Then, add in any stimulus measures you might want to cushion the blow of deficit reduction and try to get the economy on track.
As Ezra noted this morning, the White House is floating a revival of the Making Work Pay tax credit — a key part of the stimulus package — as a replacement for the expiring payroll tax holiday. That’s ironic, since the payroll tax holiday was originally a replacement for the expiring Making Work Pay (or MWP) tax credit, which lapsed in late 2010.
You can’t go below zero. But man, it’d sure be nice if you could. That’s the conclusion of a new report from two economists at the Cleveland Fed, who say that the downturn in 2009 called for Fed interest rates to actually be negative — if only that were possible.
This is the main dilemma for central banks during deep recessions like the one from which we’re currently emerging. In normal times, if a slump is coming, the Fed and its counterparts in other countries will slash interest rates. If the rate was 5 percent and the Fed slashed it to 2, that reduces banks’ incentive to hoard money and encourages lending, which in turn boosts the economy.
Can Congress or the Federal Reserve fix the economy by buying stuff? Keynesians say yes: Government spending gives people in the private sector more money to spend, which helps businesses and creates jobs. Same deal when the Fed buys up bonds or commits to keep interest rates low. Keynes critics, however, say no: Government spending and Fed action just drive up inflation and make the situation worse than it was before.
Michael Grunwald is a national correspondent for Time Magazine and author of “The New New Deal: The Hidden Story of Change in the Obama Era,” a reported history of the stimulus. We spoke last week. A lightly edited transcript of our conversation follows.
Ezra Klein: Lets begin with the obvious question. Did the stimulus work?
It was Paul Ryan’s big moment in Tampa tonight, and he sure didn’t lack for passion. But do the claims he made hold up? Wonkblog went about sorting the true from the misleading and the downright false.
Obama cut Medicare - Ryanblasted thecuts to Medicare reimbursements and Medicare advantage included in the Affordable Care Act. “They just took it all away from Medicare,” Ryan declared. “Seven hundred and sixteen billion dollars, funneled out of Medicare by President Obama.” That much is correct – the Affordable Care Act contained over $700 billion in cuts to Medicare reimbursement rates and Medicare advantage. The Obama administration insists the cuts will not hurt quality and are necessary to control costs, while the Romney-Ryan campaign disputes this, but the underlying claim is correct.
I see that the Republican convention will feature a debt clock ticking away behind the speakers. It will also, as I understand it, consist entirely of speakers who want to make all the Bush tax cuts permanent without paying for them, and who want to pass trillions of dollars more in tax cuts that they also haven’t said how they’ll pay for.
Two of Mitt Romney’s key economic advisers, Kevin Hasset and Glenn Hubbard, have an op-ed in this morning’s Washington Post making the case that the Obama recovery has been slower than the recession can explain and that Obama’s policies were the reason.
The first part of the op-ed reprises the argument from an earlier paper Hasset and Hubbard released on behalf of the Romney campaign: While financial crises might lead to slow recoveries internationally, they don’t lead to slow recoveries in the United States. Again, the citation goes to ”an extensive study of recessions in the United States” by Michael Bordo of Rutgers University and Joseph Haubrich of the Federal Reserve Bank of Cleveland, which found that the recovery from this recession has been unusually slow.
This post has been updated to clarify aspects of Oh and Reis’ paper
“The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies,” write economists Glenn Hubbard, Greg Mankiw, John Taylor and Kevin Hassett in a paper released by the Romney campaign. But the paper only mentions two studies, and one of them, by Amir Sufi and Atif Mian, is about Cash for Clunkers, a tiny subprogram of the stimulus.
The Romney campaign is out with a new white paper, co-authored by Harvard’s Greg Mankiw, Columbia’s Glenn Hubbard, Stanford’s John Taylor and AEI’s Kevin Hassett, defending his economic plan, and in particular his tax plan, in the wake of the damning Tax Policy Center study on it. Like most such documents, the white paper references a lot of outside research. But does it take all the relevant studies into account?
It’s been a while since we’ve done a page 69 test on Wonkblog, and I can’t think of a better book with which to start back up again than Time magazine senior correspondent Michael Grunwald’s “The New New Deal,” a history of the passage and implementation of the 2009 stimulus package. In case you’ve forgotten the test: Marshall McLuhan said the best way to choose a book is to open it to page 69. If you like what’s on that page, buy the book. For blogging purposes, if we at Wonkblog like what’s on page 69, we’ll post it to the blog.
Here comes the latest policy announcement from Ben Bernanke and the Federal Open Market Committee. And the verdict: The central bank’s still in a holding pattern, not quite ready to take further action to stimulate the U.S. economy, but still not ruling anything out for its next meeting in September.
The latest Chicago Booth poll of economists focuses on the 2009 stimulus. The first question asked whether the stimulus increased employment by the end of 2010. Eighty percent of the polled economists agreed. Four percent disagreed. Two percent were uncertain.
The second question asked whether, over the long run, the benefits would outweigh the long-term costs (like paying down the extra debt). Forty-six percent agreed. Twelve percent disagreed. Twenty-seven percent were uncertain.
The remainder in each case came from economists who didn’t answer the question. Brad DeLong is encouraged.
Related: The stimulus bill, three years later.
There’s been a lot of discussion over whether we should have had a smaller or larger stimulus package. But a lot of these arguments leave a key question unanswered: How much stimulus did we actually pass?
There was the American Recovery and Reinvestment Act, of course. That was the big gun. But after that, there were dozens of smaller measures passed. For instance: The White House only put a single year of expanded unemployment insurance into the original stimulus. They did that, in part, because they expected they would be able to get unemployment insurance extended on its own. That allowed them to show a lower number for ARRA, but more stimulus in total.
Paul Krugman writes that “the defense people outside the administration make for the inadequate stimulus is very different from the defense the administration makes. Outside defenders argue that Obama got all he could; but administration figures like Jay Carney claim that the reason the stimulus wasn’t bigger was that nobody realized how deep the recession was going to be.”
Christina Romer had traveled to Chicago to perform an unpleasant task: she needed to scare her new boss. David Axelrod, Barack Obama’s top political adviser, had been very clear about that. He thought the president-elect needed to know exactly what he would be walking into when he took the oath of office in January. But it fell to Romer to deliver the bad news.
So Romer, a preternaturally cheerful economist whose expertise on the Great Depression made her an obvious choice to head the Council of Economic Advisers, gathered her tables and her charts and, on a snowy day in mid-December, sat down to explain to the next President of the United States of America exactly what sort of mess he was inheriting.
Axelrod had warned her against pulling her punches, and so she didn’t. It was not a pleasant presentation to sit through. Afterward, Austan Goolsbee, Obama’s friend from Chicago and Romer’s successor, remarked that “that must be the worst briefing any president-elect has ever had.”
But Romer wasn’t trying to be alarmist. Her numbers were based, at least in part, on everybody else’s numbers: There were models from forecasting firms such as Macroeconomic Advisers and Moody’s Analytics. There were preliminary data pouring in from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. Romer’s predictions were more pessimistic than the consensus, but not by much.
By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.
The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn’t been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden’s office, was assigned to join the effort.
Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody’s, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on “The Job Impact of the American Recovery and Reinvestment Act.” It was a smash hit.
“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” enthused columnist Paul Krugman in the New York Times.
There was only one problem: It was wrong.