Stimulus perception vs. stimulus reality

A couple of developments from late last week have renewed discussion on the efficacy of the 2009 Recovery Act. For those who take reason and evidence seriously, the debate is more than welcome.

Driving this is Mitt Romney’s flip-flop-flip on whether President Obama’s policies made the economy “worse,” as well as a White House report showing that the stimulus made the difference between an economy that was shrinking and one that’s growing. There are as many as 3.6 million Americans with jobs today who wouldn’t have otherwise had them were it not for the Recovery Act.

At this point, the debate quickly becomes mind-numbing. Republicans insist that the stimulus “failed” because the economy is still weak. Democrats, economists, and people who are good at arithmetic explain that the stimulus grew the economy and created millions of jobs.

Most Americans side with Republicans, because the GOP’s talking points have a certain visceral appeal — Dems tried to “fix” the economy, the economy isn’t soaring, ergo, Dems are wrong. Told that a bigger and more ambitious stimulus would have been more successful leads to knee-jerk Republican mockery that the public also finds compelling — if spending didn’t work, why would more spending have worked?

Ezra Klein had a good piece on this yesterday, but I wanted to add one thing.

[T]hough questions of how well the stimulus worked may be complicated, simply pointing out that unemployment remains high, or that the recession was worse than anyone realized back in January of 2009 and so projections made in January of 2009 haven’t held up very well, is neither here nor there. The fact that a starving man is still hungry after eating a burger doesn’t mean the burger did a bad job.

Any serious assessment of the stimulus needs to include some variation of the six words that appear in the CBO’s study: “compared to what would’ve happened otherwise.” If the stimulus created three million jobs even as the economy lost seven million jobs, the stimulus worked. If it created only one million jobs, it performed far worse than the administration promised.

Either way, the stimulus was swamped by an economic crisis it was never large enough to neutralize. But that doesn’t make it unsuccessful. That just makes its success or failure difficult to discern. The same thing would’ve happened if the recession had been milder than expected and economy had only lost a million jobs. In that world, a $787 billion stimulus that only created 500,000 jobs might look better, but it would’ve been a huge failure. If your argument can’t survive that counterfactual — and “look at the unemployment rate!” very much can’t — then your argument is wrong.

Exactly. I’d also note, though, that those making this wrong argument have an additional problem: what they proposed at the time.

In 2009, with the economy on the brink of wholesale collapse, Democrats rallied behind a stimulus measure that rescued the economy, generated growth, created millions of new jobs, and technically even ended the recession. At the exact same time, discredited Republicans not only predicted that the Recovery Act would make the economy worse (mistake #1), they also said the smarter course of action was a five-year spending freeze (mistake #2) and a balanced budget amendment to the U.S. Constitution (mistake #3).

We generally evaluate the stimulus against “what would’ve happened otherwise,” as if there were two options: Recovery Act vs. nothing. But two years ago, we actually had three options: Recovery Act, nothing, and a Republican plan to take billions out of the economy at a critical moment.

The stimulus not only worked, it prevented a crisis that the GOP agenda would have dramatically exacerbated. That these same Republicans claim credibility now — and that reporters and much of the public agree with them — is a national embarrassment.