Stay the Stimulus Course, by Alan S. Blinder, Commentary, Washington Post: Apparently not bothered by facts, some congressional Republicans are already claiming that President Obama’s $787 billion stimulus package has failed and are even advocating that some of the remaining scheduled steps in the legislation be canceled. … In reality, we need to stay the course.
The course now includes “Cash for Clunkers,”… an idea that I advocated more than a year ago. At first blush, “clunkers” seems to be the quintessentially successful stimulus program… But that’s not quite right.
First, the images of car dealerships and crushed vehicles that have been blanketing newspaper pages and TV screens do not depict real stimulus. …. The stimulus to employment comes only when automakers respond to the higher sales and depleted inventories by boosting production. Everything takes time…
So it is with most of the stimulus measures in the American Recovery and Reinvestment Act. The effects are there, but they will take a while to be felt, and they don’t usually lend themselves to photo-ops. One good example is fiscal relief for state and local governments… Just over 20 percent of the $174 billion in federal funds appropriated for the states has been spent, and that cash infusion is limiting — though not eliminating — …cutbacks. The other 80 percent is on the way. But we won’t see photos of public servants not being fired.
Critics claim that the stimulus program is running way behind schedule. Is it? Well, no. … Spending … is running pretty much in line with what the Congressional Budget Office projected…
These are still early days for a bill Congress passed only six months ago, but the stimulus has already had a notable impact. The average estimate of three private forecasting firms is that the stimulus added about 2 1/2 percentage points to the annualized GDP growth rate in the second quarter…, about half of the improvement from the first quarter to the second.
We are now in the third quarter, when the importance of the stimulus is likely to be even greater. In fact, its estimated growth impact (about 3 percentage points) actually exceeds the consensus forecast…
Cartoonists may scoff at lights at the ends of tunnels, but our economy does, finally, seem to be growing again. The Recovery Act is by no means the only reason. Chairman Ben Bernanke and his colleagues at the Federal Reserve have certainly done a great deal, and the economy’s self-curative powers also have helped. But what six months ago looked like an economy plunging into an abyss is now an economy on the mend. And the stimulus deserves some of the credit.
I’m hesitant to put too optimistic a face on the current economy. The economy is declining slower than before (and policy has played a crucial role in putting on the brakes), but we haven’t hit bottom yet. We are still in recession. Once we do hit bottom, there’s no reason to believe that we are more likely to bounce back toward full employment immediately than we are to stay stuck at the bottom for awhile as we catch our breath and recalibrate. My view is that we are likely to remain at the trough of the cycle awhile before the economy takes a strong upward turn, but exactly how long we will remain stuck near the bottom of the cycle is hard to gauge. I hope it isn’t long at all, but a sustained period of sluggishness is a possibility policymakers have to take seriously.
So we aren’t at the bottom yet, when we do get there we could remain at the bottom for some time, and once the recovery phase finally arrives, the upward climb is almost always slower than the fall. I agree that stimulus deserves some of the credit for where we are, things could be much, much worse. But the economy has a long way to go before this is over, and it can still use all the stimulus help it can get.
Originally published at Economist’s View and reproduced here with the author’s permission.