Report on Stimulus Bill's Impact Has a Problem of Numbers
Having already warned reader against taking its claims too seriously, the CEA report goes on to suggest that the stimulus had a "substantial positive" impact on growth, contributing 2 to 3 percentage points to the GDP in the second quarter, 3 to 4 percentage points in the third quarter and 1.5 to 3 percentage points in the fourth quarter, leaving "little question" that the economy "is on the road to recovery." Essentially unprovable, these assertions manage to be both excessive and underwhelming, suggesting that the 0.8% GDP contraction in the second quarter and the modest 2.6% growth in the third quarter were related to the stimulus, but that this contribution can only be expressed in numbers with relatively wide margins of error.
Too Soon to Tell, and Too Hard to Estimate
The big problem is that it is really far too early to measure the effects of the stimulus. Designed to offer both long- and short-term economic solutions, the plan was to begin with a quick influx of funds to people directly hurt by the recession, followed by spending on projects that would directly lead to job creation. A comparatively small $100 billion, roughly 38% of stimulus expenditure, has gone toward these big projects, largely in the form of "state fiscal relief" and "government investment outlays," and a further $313.9 billion has been earmarked for projects that will likely begin this year. Presumably, this spending will have a massive impact upon unemployment.
But the bulk of stimulus spending -- almost 62% of the $263.4 billion paid out thus far -- has gone toward tax cuts, tax incentives, or other direct help for recession victims. While these expenditures have a massive impact upon the lives of unemployed, underemployed, foreclosed-upon and otherwise disadvantaged people, it is hard to measure how many jobs they have created. To do so, the report attempts to draw a straight line from tax cuts to consumer spending to jobs that were not lost. The trouble is that tax cuts and unemployment spending do not directly translate into money being spent in stores or, for that matter, jobs in those stores.
With items like extended COBRA coverage -- a major stimulus expenditure -- this link is extremely hard to make; moreover, it is strange to suggest that many individuals brutalized by the recession will pour money back into the economy through shop therapy. More likely, much of their cash would go toward maintaining mortgages, paying down credit cards or otherwise trying to keep up with their pre-recession obligations. Even more secure families might shy away from excessive shopping, choosing instead to squirrel away money against a rainy day.
Part of the Solution, or Part of the Problem?
This tenuous link becomes clear in the report, when the CEA acknowledges that, between the first and fourth quarters of 2009, the unemployment rate went from 700,000 jobs lost in January to 69,000 jobs lost in December. In other words, unemployment did not drop or even stop increasing; rather, its rate of increase dropped. Further, one of the areas that improved the most in the fourth quarter was retail, a change that probably had more to do with holiday hiring than with government economic policies.
This sort of short-term job creation is also part of the problem. While part-time or temp jobs register as improvement in U-3, the basic unemployment statistic, they actually increase the U-6 or underemployment number. Given that "Professional and Business Services," which include temp workers, showed more growth than any other employment sector, it seems likely that the jobs "created or saved" by the CEA include a lot of full-time payroll positions that were replaced by part-time workers with no benefits.
To its credit, the CEA has made the best out of a bad situation: Tasked with "providing Congress quarterly reports on the effects of the Recovery Act on overall economic activity, and on employment in particular," they have tried to measure the stimulus with a yardstick that is fundamentally inappropriate. Unfortunately, by doing so, they have opened themselves up to a great deal of criticism and may have brought the actual value of the stimulus into question. For the millions of families that have benefited from tax cuts and unemployment programs, that would be a true tragedy.