Lots of conservative economists claim the stimulus didn’t amount to much. Turns out – quelle surprise! (heh.) – that they were totally wrong.
Their claims were based on the initial measurement of the depth of recession – and these measurements turned out to be wildly optimistic. The recession was far, far deeper than previously admitted.
The stimulus worked great.
It’s pretty clear if you use the exact same methodology used by prominent conservatives to show the stimulus didn’t work with the new, massive numbers on the depth of the recession, you’d get a multiplier for the fiscal stimulus that was totally huge.
I meant to write a TC post about it, but the Center for American progress did the work, and beat me to the post.
CAP’s Michael Linden via Kevin Drum:
“Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.
And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.”
A multiplier of more than 4. This isn’t the Romer method, or the barro method.
But it is one method. and no matter what method you use, you need to use the new GDP data. Using that data will show that the stimulus was extremely effective, and was a 2 or 3 to 1 return on investment in a few short months.
This is more evidence that fiscal policy works great when monetary policy can’t get in the way. A reminder: Monetary Policy sucks.
