David Leonhardt of the New York Times finds that despite some minor flaws and some valid criticism that the American Recovery and Reinvestment Act has the done the job it was intended to do. In other words, the fiscal stimulus added 1.6 million to 1.8 million jobs so far and that its ultimate impact will roughly be an estimated 2.5 million jobs.
Pick just about any area of the economy and you come across the stimulus bill’s footprints.
In the early months of last year, spending by state and local governments was falling rapidly, as was tax revenue. In the spring, tax revenue continued to drop, yet spending jumped — during the very time when state and local officials were finding out roughly how much stimulus money they would be receiving. This is the money that has kept teachers, police officers, health care workers and firefighters employed.
Then there is corporate spending. It surged in the final months of last year. Mark Zandi of Economy.com (who has advised the McCain campaign and Congressional Democrats) says that the Dec. 31 expiration of a tax credit for corporate investment, which was part of the stimulus, is a big reason.
The story isn’t quite as clear-cut with consumer spending, as skeptics note. Its sharp plunge stopped before President Obama signed the stimulus into law exactly one year ago. But the billions of dollars in tax cuts, food stamps and jobless benefits in the stimulus have still made a difference. Since February, aggregate wages and salaries have fallen, while consumer spending has risen. The difference between the two — some $100 billion — has essentially come from stimulus checks.
The second argument in the bill’s favor is the history of financial crises. They have wreaked terrible damage on economies. Indeed, the damage tended to be even worse than what we have suffered.
Around the world over the last century, the typical financial crisis caused the jobless rate to rise for almost five years, according to work by the economists Carmen Reinhart and Kenneth Rogoff. On that timeline, our rate would still be rising in early 2012. Even that may be optimistic, given that the recent crisis was so bad. As Ben Bernanke, Henry Paulson (Republicans both) and many others warned in 2008, this recession had the potential to become a depression.
Yet the jobless rate is now expected to begin falling consistently by the end of this year.
For that, the stimulus package, flaws and all, deserves a big heaping of credit. “It prevented things from getting much worse than they otherwise would have been,” Nariman Behravesh, Global Insight’s chief economist, says. “I think everyone would have to acknowledge that’s a good thing.”
The most effective part of the American Recovery and Reinvestment Act was the direct aid to the states and to cities which kept the public sector - from school teachers to firemen - employed. And to be blunt, the fiscal stimulus kept a recession from a depression.
Now the Administration's task and ours is that they receive the credit for this achievement. With a Pew Research poll out this week showing that just 24 percent of Americans believe that the Administration's economic policies have things better versus 27 percent who believe that things are worse and 45 percent believing that they have had no effect at all, that job is arduous indeed.
In his weekly address, the President pledges to rein in the deficit, citing three specific steps to this end. He praises the Senate for restoring the pay-as-you-go law, discusses his proposal for a freeze in discretionary spending, and calls for a bipartisan Fiscal Commission to hammer out further concrete deficit reduction proposals.
While the President notes that his number one priority is job creation, he seems to be putting more focus on controlling the deficit. I'm not sure these are goals that can be tackled concurrently. To give you a measure of the unemployment problem, I'll point to one statistic. Speaking on a panel on the topic of the global economic outlook at the annual meeting of the World Economic Forum in Davos, Larry Summers, the chief economic advisor in the Obama Administration, noted that one in five American men aged 25 to 54 are unemployed. He described the US economic situation as “statistical recovery and a human recession.”
Dr. Summers went on to say that given a “reasonable recovery,” that rate could improve to one in seven or one in eight. That still contrasts with a 95 percent employment rate for that group in the mid-1960s. One in eight is still 12.5 percent. Such a level is simply not acceptable nor do I believe achievable without direct government intervention in the economy. The reality is that our current economic model is broken for the overwhelming number of Americans. That the economic model, one that favors the aggrandizement of financial assets over the creation of productive assets, works for the financial elites is not in question but for the middle classes, the American dream is fast becoming a nightmare. There are simply no jobs to be had.
At any rate, the President is unveiling a new proposal involving a $33 billion tax credit aimed at small businesses in the hopes of stimulating job creation by reducing payroll taxes.
In proposing a one-year, $33 billion tax credit for small businesses, the Obama administration is simultaneously seeking to stimulate hiring by reducing payroll taxes and to turn its attention to a constituency that has historically been associated with Republicans.
Hours after the Commerce Department announced that economic growth had picked up at the end of last year, President Obama visited a machine plant in Baltimore on Friday to promote the plan, which would give companies a tax credit of up to $5,000 for each new hire and reimburse them for Social Security taxes if they expand their payrolls. The credit is capped at $500,000 for each employer.
“Now is the perfect time for this kind of incentive because the economy is growing, but businesses are still hesitant to start hiring again,” Mr. Obama said at the Chesapeake Machine Company, which makes custom industrial equipment.
Earlier this month, the nonpartisan Congressional Budget Office concluded that reducing the payroll taxes of employers would be the most cost-effective approach — after extending unemployment benefits — to stimulating economic output and job growth.
Even though this latest proposal is out of the GOP playbook, Republicans have had a muted response. Representative Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, which oversees tax matters, said, “A sprinkling here and there of a few poll-tested proposals won’t provide enough help or get small businesses hiring again.”