Case closed: the stimulus worked

CBO Director Douglas Elmendorf
CBO Director Douglas Elmendorf
Getty Images

Among Republicans, it’s taken as a given that President Obama’s Recovery Act – a.k.a., the “stimulus” – was a failed Keynesian experiment. Among many voters, it’s also widely assumed that the effort to get the economy back on track simply did not work.

Among those who know what they’re talking about, however, there is no real doubt that the stimulus was a success. Douglas Elmendorf, the director of the non-partisan Congressional Budget Office, reminded Congress of this inconvenient truth yesterday.

Did the stimulus work? Certainly not according to Republicans, who regularly blast President Obama’s “failed” economic policies on the campaign trail. GOP presidential candidate Mitt Romney has called the $787 billion package of temporary tax cuts and spending hikes “the largest one-time careless expenditure of government money in American history.”

But on Wednesday, under questioning from skeptical Republicans, the director of the nonpartisan (and widely respected) Congressional Budget Office was emphatic about the value of the 2009 stimulus. And, he said, the vast majority of economists agree.

In a survey conducted by the University of Chicago Booth School of Business, 80 percent of economic experts agreed that, because of the stimulus, the U.S. unemployment rate was lower at the end of 2010 than it would have been otherwise.

The truth matters, not simply as a political exercise in which partisan players point fingers and thump their chests, but for entirely practical reasons.

For one thing, there’s the question of credibility and accountability. In 2009, the American economy stood on the brink of a catastrophic collapse. Some proposed solutions that made sense (in this case, Democrats) and some proposed solutions that were ridiculous (congressional Republicans wanted a five-year spending freeze). Who got this right and who got it wrong helps us understand who we should listen to now and in the near future.

For another, on a substantive/policy-driven level, there’s value in knowing what worked and what didn’t when it came to making the economy stronger. It’s common sense – if, given certain economic conditions, a Keynesian fiscal stimulus worked, we should do more of it. If it made things worse, we should do less of it.

And I’ve got some charts that help separate fact from fiction.

Here, for example, is a chart showing the nation’s GDP before and after the stimulus. Note, once the stimulus kicked in, the economy immediately started growing.

Case closed: the stimulus worked

Here’s a chart showing private-sector job growth before and after the stimulus. Note, once the stimulus kicked in, job growth immediately improved.

Case closed: the stimulus worked

And here’s a chart showing the Dow Jones Industrial Average before and after the stimulus. See that low point in March 2009? That’s just before the stimulus kicked in.

Case closed: the stimulus worked

Now, a Republican might look at this and argue, “Yeah, but the gains didn’t last.” That’s true; they didn’t. In the spring of 2010, the Eurozone debt crisis rattled international markets and through the global economy a curve ball. The U.S. gains quickly stalled, right around the time the stimulus funds started to wane. In 2011, unrest in the Middle East, coupled with a Japanese tsunami and Eurozone austerity, provided more global troubles.

But that’s not an argument against the stimulus; it’s an argument for more stimulus. The most accurate criticism of the Recovery Act comes from the left – it was too small.

In a political/electoral context, Mitt Romney and congressional Republicans would have Americans believe President Obama’s 2009 policies made the economy “worse.” The challenge, then, is having Romney and his allies explain how, exactly, their argument lines up with reality.

The economy was failing, then the Recovery Act started spending, then conditions quickly improved. In GOP minds, how is that possible? Was it magic? Was it a coincidence? How do they explain why every relevant economic metric showed sharp improvements immediately after Obama’s stimulus took effect?

That’s not a rhetorical question; I genuinely want to know.

As a secondary question, if every relevant economic metric showed sharp improvements immediately after Obama’s stimulus took effect, why in the world should we avoid taking similar steps right now?