Good Question #1: Stimulus

Reader Elmer raises a couple of good questions in the comments. One is about the effect (or lack of effect) of the stimulus, the other is about the complexity of the healthcare bill. Let's start with stimulus.

My simple-minded answer to the question about whether the stimulus helped is that it's pretty clear that it worked. What I mean by that is that there's no question that government spending turned around the GDP numbers. This Washington Post story is accompanied a great graph showing that GDP whipsawed from - .5% to +3.5% in one quarter. As the Post reports, there's really no way that would have happened without government assistance. Here's a breakdown of that growth. A lot of it was in sectors that had government stimulus programs, including consumer spending on cars and residences. Those were stimulated by Cash for Clunkers and the $8,000 first-time homebuyer incentive. Also, with state government spending falling, the federal government has stepped into the breach:

All the strength in third-quarter government spending came from a 7.9 percent rise in spending at the federal level, reflecting in part the boost from the stimulus program. That offset a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession. The expectation is that the stimulus program, which is helping states weather the recession, will keep government spending growing in coming quarters.

As for jobs, here's a New York Times roundup of the claims of job saving by the stimulus bill. The Times story indicates that main group assisted so far has been workers in education. The White House claims that at least a million jobs have been saved. And there's a lot of dispute about the numbers, which are premature at best.

Elmer's specific question is what did it cost to save each job. There are two answers to that question. The first is that it is too early to tell. The second is that the answer depends on whether you think that we were on the edge of another Great Depression, or if you think that we overreacted. If you think we were facing a hundred-year catastrophe, then the number of jobs that could have been lost is more than triple the current unemployment rate, which means that more than 30 million jobs were saved. If you think this was a garden-variety recession, then that number is a few million.


The Times story indicates that main group assisted so far has been workers in education.

Which will be rewarded with the undying gratitude of the teachers' unions.

It is, after all, Obama's goal to help out the poor and downtrodden in sour society :)

Guys, don't forget the poor downtrodden construction unions. They're doing OK, too.

There's no doubt that stimulus and related spending were huge in regard to that number. However a lot of it looks to be car and house purchases based on short-term incentives, so Q3 will only look good if Q4 holds up.

For a President who cares so much about lower income people he did manage to take a lot of good used cars off the market. Does he think someone at lower income levels can buy a Porsche?

The stimulus was probably too small.
It turned around the GDP but is not changing employment very fast.
But of course, there were members of Congress who cut money from the stimulus proposal just to say they cut money.
They had no way to determine nor any interest in determining what the appropriate amount of spending would be.