Researchers Ask, Did the Stimulus Work?
As the economic recovery continues to flounder, policymakers are coming to some sort of consensus that action is needed to help address the nation’s economic ills. What’s missing so far is a consensus on what form that action should take. President Obama’s plan, which he announced last night, includes a combination of tax cuts and spending aimed at providing a temporary boost to the economy. Republicans have indicated a willingness to consider some aspects of his proposal.
Given that lawmakers are going to be debating the best way to drag the economy out of its current funk, now is a good time to scrutinize the track record of the last significant effort to jumpstart the economy. More than two years have passed since the federal Recovery Act was put into place in 2009, and researchers have had time to study the effects of the stimulus and determine whether the results were worth the cost.
One such study is the Congressional Budget Office’s quarterly evaluation of the impact of the Recovery Act, the most recent of which was released at the end of last month. The report determined that the Recovery Act had the following effect during April to June 2011, compared to what would have happened had there been no stimulus:
- Increased the Gross Domestic Product by between 0.8 and 2.5 percent,
- Lowered the unemployment rate by between 0.5 and 1.6 percentage points, and
- Increased the number of people employed by between 1.0 and 2.9 million.
The Recovery Act was designed to provide a temporary boost to the economy, and the effect of the stimulus has waned as Recovery spending has lessened. Still, it’s significant that even at this late date the Recovery Act is increasing the number of people employed by more than a million, especially given that the national economy created no net new jobs in August. (If you’re not up for reading the Congressional Budget Office report, the Center for Budget and Policy Priorities has a helpful summary of the report’s findings.)
At the Washington Post, Ezra Klein’s blog posted a review of nine recent studies (including the one by the Congressional Budget Office) that tackle the issue of measuring the impact of the Recovery Act. Of the nine, six studies concluded that the Recovery Act was a significant factor in increasing employment and economic growth. The other three found that the impact of the legislation was small or nonexistent. The post goes into significant detail about the approaches used by each study and potential strengths and weaknesses of each study.
It’s not quite a full-fledged study, but Jared Bernstein of the Center on Policy and Budget Priorities put together three compelling charts that show how certain economic indicators improved in the period immediately after the Recovery Act was introduced. It’s hard to look at those charts – one of which is below — and conclude that the Recovery Act did not play a significant part in averting an even worse recession.
Given that the discouraging nature of recent economic indicators, it’s especially important to get a handle on the impact of the Recovery Act. If we can show that the Recovery Act is still making significant contributions to employment and GDP growth more than two years after it was put into place, perhaps that will help us identify ways to effectively boost the economy out of its current slump.