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CBO Says Stimulus a Drag on Economy

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Oh dear! What will Obamaphiles say or do now? No less than a (supposedly non-partisan) Congressional Budget Office (CBO) report says that the 2009 American Recovery and Reinvestment Act (ARRA), better known as the “stimulus,” is a long-term drag on our economy. It concluded that the stimulus created fewer jobs than expected and hindered private investment.

The stimulus may have saved or produced 700,000 jobs (far fewer than the 3.5 million jobs the Obama administration estimated and promised), and “will reduce output slightly in the long run – by between 0 and 0.2 percent after 2016,” says the CBO.

Also, a CBO study released in February, 2011, says that each job saved or created cost $228,055 each. That figure was based on the CBO’s estimate of between 1.5 million jobs and 3.5 million jobs, something their latest report disputes. So if we take the CBO’s latest figure of 700,000 jobs, each job costs $1,124,285, using the $787 billion (original) figure, which the CBO now says has risen to $825 billion. Not bad work if you can get it!   (Was my last remark snarky? It was meant to be!)

The CBO changed its model for the stimulus’ impact on the economy, and the new calculations show that the act did less than originally predicted. The CBO is now saying it’s possible that the stimulus had virtually no effect on the economy despite its massive expenditures.

Obama promised the stimulus would “ignite spending by businesses and consumers,” unleash “a new wave of innovation, activity and construction,” and keep unemployment under 8%. What we really got was the worst recovery, if what we got can be called a “recovery,” since the Great Depression.

So I guess the pertinent questions are, “Why was all that stimulus money spent, driving this country further into debt?” “Why does Obama (and his economists that he selected and his administration) think the second stimulus he proposed will be any different from the first?”

No opinion, just (sourced) facts!

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  • YouAreA_RightWingLiar

    That is a total lie. The CBO said just the opposite. Damn right-wingers lie.

  • http://loftypremise.blogspot.com/2011/01/assassination-and-2nd-amendment.html Tommy Mack

    A nice rant with lots of links is only going to really make it suck more for you when Obama is reelected. The opposition you represent has no plan to do anything but oppose the President. Doing something takes determination.

    Tommy

  • Glenn Contrarian

    Warren –

    I thought you said you had a PhD. Well, a guy with a PhD SHOULD have seen the following manipulation by the Newsmax report you referenced:

    A new report the CBO released on Tuesday finds that the American Recovery and Reinvestment Act may have boosted the economy in the short run by sustaining some 700,000 jobs at its peak in 2010 but “will reduce output slightly in the long run – by between 0 and 0.2 percent after 2016.”

    How did the report manipulate the data? WELL, Mr. PhD, if you would have read the CBO report containing the quote NewsMax used, you would have seen the following caveat:

    In contrast to its positive near-term macroeconomic effects,

    And WHAT was the purpose of the ARRA? To get the economy moving in the short term since we were at the time losing 700+K jobs per month and our stock market was in free fall!

    AND if you’ll check, according to most economists we were OUT of what is officially designated a recession by August of 2009 – about six months after the ARRA halted the free-fall of our economy. Most economists will also tell you that the stimulus was too SMALL, and could not fully sustain the recovery.

    IF you, Mr. PhD, would care to do a little research, you’d find that after the 1929 crash, Hoover (whose Treasury secretary was a big believer in austerity) tried austerity measures for three years – and it did NOT work. FDR came in (after 5000 banks had failed in the waning years of the Hoover Administration), pushed through the New Deal, and if you’d check the numbers you’d find that by 1936 America had largely recovered from the Depression!

    But wait! That’s not what we usually hear in history class! What happened?

    In 1936, a slew of conservatives were elected and a new political force was founded – the “Conservative Coalition”. The similarities to the modern-day Tea Party are legion. Anyway, just like today’s Tea Party, the CC essentially held legislation in Congress hostage until they got their way – MORE austerity.

    And what happened as a result of MORE austerity? BACK DOWN INTO THE DEPRESSION WE WENT…until we experienced the largest taxpayer-funded economic stimulus in American history – WWII. And at the end of this particular economic stimulus in 1945, America was saddled with a larger relative debt than we have today! So in the early 1950’s Truman jacked up the top marginal tax rate and we nearly paid off the ENTIRE national debt in ten years!

    HISTORY, Warren, shows that in times of economic crisis, a sizable stimulus CAN work very well. It might not always work…but there’s little evidence of austerity EVER working to help an economy recover. HISTORY also shows that a high tax rate on the rich not only doesn’t make the rich go broke, but significantly helps the economy as ours did with 70%-90% tax rates did for America from 1951-1981.

    But I get it – never mind all the obvious hard numbers that history shows us, this is all BASE HERESY to today’s conservatives.

    YES, history has repeated itself with the Tea Party…and YES, it would be nice if those with advanced degrees would LEARN from history rather than pushing us to repeat it all over again.

  • http://dissentiscool.wordpress.com Dissent Is Cool

    [personal attack deleted by comments editor] The report actually said the opposite. Without the stimulus package, the economy would have been much worse off and unemployment would have been higher. You would know that if you hadn’t based your entire post on a newsmax article. It helps if you read the report itself or cite real media outlets, not an ultra conservative rag.

  • Igor

    I’m afraid that Mr. Beatty has taken himself out of consideration as a serious commentator with his irrational rants based on assiduous misstatement of facts.

  • http://rwno.limewebs.com Warren Beatty

    Here is the CBO Report, the same one cited in my post.

    At the bottom left of page 1 (of the CBO report) it states: “When ARRA was being considered, the CongressionalBudget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019. CBO now estimates that the total impact over the 2009–2019 period will amount to about $825 billion.”

    At the top left of page 2 it states: “The effects of ARRA on output peaked in the first half of 2010 and have since diminished, CBO estimates. The effects of ARRA on employment are estimated to lag slightly behind the effects on output; CBO estimates that the employment effects began to wane at the end of 2010 and have continued to do so throughout 2011″ The report continues: “…and will increase the number of people employed in 2012 by between 0.2 million and 1.1 million.” .7 million, or 700,000 is actually above the middle of the estimate range.

    In the middle right of page 2, it states: “Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.” It continues: “CBO’s current estimates differ in several regards from its previous estimates. First, the current estimates indicate a wider range of possible effects of changes in federal taxes and spending on economic output; specifically, the low end of the ranges is less than in CBO’s previous estimates.” Can these statements be construed to mean that the stimulus may have had no effect on the economy? Or should I have said that the CBO overstated its original economic impact estimate?

    At the bottom right of page 8 it states: “In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates—by between zero and 0.2 percent after 2016.” Can that “reduce output” be considered a drag on the economy?

    At the top left of page 9, the report states: “To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates.”

    Two points here: (1) there is a vast difference between what Obama promised and what was delivered (the theme of my post), and (2) may I suggest that, before casting stones, commenters at least read the CBO report? It was cited in my post.

    Re: comment #1, YouAreA_RightWingLiar, did you even bother to read the article you cited? It said the stimulus created BETWEEN 500,000 and 3.3 million jobs.

    Re: comment #3, Glenn, your OPINION is again showing. You ask me to do some research, yet your comment offers none.

    Re: comments #4 and 5, Dissent Is Cool and Igor (and you as well, Glenn), may I suggest reading the CBO report and considering what it says before offering comments that make you look like a fool?

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    Warren is cherrypicking.

    The CBO’s report is a typical piece of Washington output: that is to say, if there were a Nobel Prize for equivocating, its authors would be listening to a roomful of Swedes applauding right now.

    The overall thrust of the report, as much as there can be said to be one, is that the effect of the stimulus has been somewhat smaller than advertised. It notes that it’s impossible to know for sure whether the economy would have done what it did if ARRA hadn’t passed (well, duh). Warren chooses to interpret this as meaning that ARRA had a negative effect. The opposite could just as easily be true. So his is not an evidence-based argument, as he claims: it is his opinion.

    I think the report is worthless, since it essentially says nothing. Based on what actually happened in the real world, it’s fairly clear that the stimulus did have a positive effect, albeit neither as big nor as lasting as the Obama administration claimed it would.

  • Glenn Contrarian

    Warren –

    When FDR took over in a time of financial crisis, he implemented a stimulus. What happened? In less than two years the economy was growing again. Slowly, sure – but it was GROWING, whereas the austerity measures implemented by Hoover for three years did NOT help America’s economy get back on track.

    When the Conservative Coalition forced austerity measures on America again, we went back down into the second dip of the Depression. What brought us out of it? A taxpayer-funded stimulus called World War Two.

    When Obama took over at a time of financial crisis (America losing 700+K jobs per month, stock market in free fall), he implemented a stimulus. Within the year we were OUT of the recession.

    The Tea Party was elected to Congress and implemented austerity measures, and what happened? Once more we stand on the edge of the second dip of the Great Recession.

    Okay?

    As a remedy to an economic recession, an economic stimulus does not always work – but it CAN – history has proven it can work. On the other hand, I see no indication in history that austerity measures can work.

    Maybe it’s okay with you to ignore history. But I don’t like learning the same lesson over and over and over again.

  • Maurice

    Government should take the Hippocratic Oath and “First do no harm”. Unfortunately the harm they have done by causing the subprime meltdown and then borrowing insane amounts of money is going to be very difficult to repair. Personally I am impressed that they only spent 1.1 million per job! Dolts!

    If only government could leave the economy alone!

  • Glenn Contrarian

    Maurice –

    Would you care to show me a first-world nation where the government “leaves the economy alone”?

    If you want, I can show you LOTS of nations where the government DOES leave the economy alone…and they’re all third-world nations.

  • Maurice

    Glenn – please read the following article and draw your own conclusions.

  • Glenn Contrarian

    Maurice –

    YES, the best countries for starting a business were what – New Zealand, Canada, Australia…

    …all of which are nations with strong regulation of businesses, with strong social safety nets, with strong oversight! THANK YOU for making my point!

    I notice that Singapore made the list – I’ve been there several times – beautiful city! The woman pointed out that the people are REQUIRED to put 30% of their income towards a mandatory savings account, and they can only use that money towards medical bills, education, or buying property. As a result, she pointed out, 95% of all property in Singapore is OWNED and not leased by the tenants – including in the condos.

    Again, Maurice, THANK YOU for pointing out how strongly-socialized nations rank so highly on the list of nations that are highest on the list of nations that are friendliest to business!!!!

  • Baronius

    Dread, what this report shows is that Democrats are lying when they say that all mainstream economists agree that the stimulus created or saved X many million jobs.

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    Bit of a diversion there, Baronius.

    I agreed that one of the report’s conclusions (right up there with such masterpieces of observation as “the sky is blue” and “if you drop a 20 lb weight on your foot you will hurt yourself”) is that the stimulus didn’t have the far-reaching salvatory effect that was advertised. Which is obvious to anyone who cares to look, but documents nothing more than standard political practice.

    Who is lying about what, now, that’s a whole nother subject.

  • Maurice

    Glenn – perhaps the forest is difficult to see because of all the damn trees.

    It appears I was too subtle. My point in all of these threads is that the US is no longer supreme in laissez faire capitalism. The US did NOT make the list. The US is not only not on the list they are UNFRIENDLY to new business and job creation.

    Please tell me why.

  • Glenn Contrarian

    Maurice –

    You’re working with the wrong paradigm. If you’ll look at the list of countries that are friendliest to business, you’ll find that most of the highest-rank nations are the ones with the highest levels of socialism, the most comprehensive sets of business regulations. And if you don’t like the one from Wikipedia, here’s another one from Forbes magazine that says pretty much the same thing, that the best nations for business are those that strive for the optimal level of business regulation. NOT THE LEAST level of business regulation, but the OPTIMAL level.

    NOW WHY IS THAT, MAURICE?

    Why is it that the nations that are friendliest to business are the ones that most strongly regulate business? Hm? YOU, sir, are working with the wrong paradigm…because what proper regulation of business DOES is to ensure a LEVEL PLAYING FIELD. Without proper regulation, the biggest businesses can sweep aside the smallest and competition is lessened as a result.

    If you want healthy competition, Maurice, then you want a LEVEL PLAYING FIELD…and you can’t have a level playing field without rigorous regulation of business.

    Here endeth the lesson.

  • Igor

    New businesses and job creation are both suffering from the same problem: Demand Drought. By redistributing wealth from the low earners to the high earners (as we have done assiduously for the last 30 years) we’ve done tremendous damage to the Economic Multiplier, so the drop in money flow is far greater than what banks and businesses have taken out of circulation (and we measure about $5trillion sidelined).

    It’s a matter of dollars. Of numbers. Of math.

    It has nothing to do with your wobbly foggy ideas of feelings, of the US being “unfriendly”, of regulations “discouraging” investments, etc.

    It’s the chain-reaction of Economic Multiplier that fuels the economy, just as the fission chain reaction fuels an atomic power plant. When you move dollars from the low income people (who have the highest Marginal Propensity To Spend) to high income people it’s like plunging the control rods into the atomic pile: the chain reaction is severely damped. And that’s exactly what we’ve done, and that’s why the economy is dieing.

    Change it or get used to it.

  • Cannonshop

    #17 Igor, how many “Too Big to Fails” do you NEED to lose your blinders, man? How many Government funded, created, and subsidized “private” partnerships do you have to see before you start recognizing cronyism isn’t fixing things?

    How much “Hair of the Dog” you gotta have before your Liver gives out and you die trying to avoid the hangover from your binge?

    The Resources are finite, Dude, the demand’s not there, because it’s mostly NEVER BEEN THERE-malinvestments and subsidies produced a bubble that burst, subsidizing malinvestment is NOT the cure-it’s a temporary patch to hide the damage, but the damage gets worse when you use it. This “Slowdown” or “Recession” might’ve hurt a lot more, for a year or two-but it would be OVER, and we’d have REAL RECOVERY without the attempt to paper over the damage and rescue billionaire and millionaire campaign donors and bundlers with “Stimulus”.

  • Cannonshop

    Warren: ARRA and TARP were putting Bondo on Rust-the rust doesn’t stop, but the car looks good enough to sell to a sucker, they were wood shavings in the transmission-but instead of selling the lemon, we’re still driving it, so those ‘fixes’ have made all the damage they were covering OH so much WORSE.

    Keynesian Theory as practiced, is like getting your drinking advice from an alcoholic…in a bar…with the keys to the liquor cabinet. You follow it long enough, you end up in the gutter drinking sterno to keep the headache from your last binge away.

  • Igor

    Boy, you must really know a LOT about Keynesian theory, Cannonshop! What did you read, “General Theory”, “Tax Flexibility”???

    Tell us some more from your deep deep wisdom!

  • Maurice

    Glenn – why do all my comments seem to go over your head?

    The US is unfriendly to business.

    Nothing to do with Socialism or certain levels of regulation. My question is why do my tax dollars go to support job SUPPRESSION?

    Since you don’t seem to be getting it I will spell it out with two quick examples. The EPA raided Gibson guitars mafia style and basically convinced them they should move their manufacturing to India. The NLRB is busy trying to suppress any and all job creation.

    Why do we have a government that hates job creation.

    BTW I know the answer and I hope to hell you can figure it out.

  • Glenn Contrarian

    Maurice –

    Glenn – why do all my comments seem to go over your head? The US is unfriendly to business.

    Riiiight. That’s why America’s still listed by Forbes magazine as being one of the top ten countries listed by how friendly they are to business. I get it, Maurice – YOU know better than the guys at Forbes. After all, since when should their generations of experience, tradition, and expertise EVER be accepted as factual when Fox News says something else!

  • Maurice

    Whoa Mr Flip Flop. First you said that my link to the fact that the US was NOT in the top ten business friendly countries supported your views. Now you are saying the US is business FRIENDLY.

    Which is it in your world? Is the US business friendly or unfriendly?

  • Glenn Contrarian

    Maurice –

    ‘scuse you – can you show me where I said America was not in the top ten? It seems to me that I was only pointing out that the most business-friendly countries are NOT those that regulate the least.

  • Igor

    Methinks that Maurice invents premises that lead to his pre-conceptions: otherwise known as rationalizing.

  • Jordan Richardson

    Maurice, how can you seriously consider the richest country in the world as “unfriendly” to business? Enlighten me, please, and not with some link to some other guy’s opinion.

    Why do YOU believe this?

  • Maurice

    Jordan,

    you are right. I like to post things like the link I provided where someone else says it. The US did not make their list. I believe for good reasons. The US used to have the second highest corporate tax. Now we are #1. Japan reduced theirs. We also have the NLRB which restricts where and when you can create jobs. We also have far too much regulation for building permits, EPA standards and hiring practices. I have created several businesses and only one still survives.

    BTW I will admit the US government is not responsible for my personal failures in business.

  • Igor

    The US has the highest corp tax bracket, but nobody actually pays that (what with the generous deductions we allow, such as the Foreign Tax Allowance), in fact many corps (Exxon, Chevron, etc.) pay NO corp taxes. It’s a national scandal.

  • Maurice

    Igor – I agree with you but who in their right mind would pay? If you controlled GE, Exxon, Chevron would you pay taxes here or perhaps set up your headquarters in Ireland where the corporate tax is 12%?

  • Glenn Contrarian

    Maurice –

    The US used to have the second highest corporate tax. Now we are #1.

    Yes, we DO have the highest NOMINAL corporate tax rate, and Dave Nalle loved pointing out that we had the second-highest corporate tax rate. Sounds really, really bad, doesn’t it?

    Here – CBS News gives you the opportunity to educate yourself:

    Between 1965 and 2009, corporate income taxes in the U.S. plunged from 4 percent of GDP to 1.3 percent. That compares with an average of 2.4 percent for nations in the Organization for Economic Cooperation and Development. Claims that the U.S. has the highest tax rates in the industrialized world only look at the 35 percent statutory rate, without factoring in the various loopholes, credits and other subsidies many American companies (if not small businesses, it’s worth noting) typically get.

    And Maurice – whenever Dave Nalle made that claim, I’d show him this same information…and he never ever owned up to the reality that our EFFECTIVE corporate tax rate is among the lowest in the industrialized world.

    How about you? Are you – like Dave Nalle – going to keep pushing the Big Lie that our corporations are being taxed to death? That’s the Republican line.

    Or will you push for reform that would force the big corporations to pay their fair share? That’s the Democratic line.

    So…where do you stand?