Obama stimulus, deficit plans: What matters is 'marginal' job creation and 'marginal' deficit reduction
With today being the one-year anniversary of the American Recovery and Reinvestment Act of 2009 (more commonly referred to as “the stimulus”), and President Obama expected tomorrow to announce his Presidential commission for deficit reduction, I’m hearing a lot of claims and rhetoric about what has “worked” versus what has not, and what has to be done going forward versus what should remain “off limits.”Skip to next paragraph
'EconomistMom' (Diane Lim Rogers) is Chief Economist of the Concord Coalition, a non-partisan, non-profit organization which advocates for fiscal responsibility, and the mom of four (amazing) kids to whom she dedicates her work. She’s been blogging since Mother’s Day 2008.
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In all these arguments and politically-colored “evaluations”, I hear misplaced focus on (the stark and easy-to-talk-about) absolutes, averages, and aggregates, when what matters economically are relatives, marginals, and individuals.
Let me elaborate a bit with the two issues at hand…
On the Stimulus: Republican critics of the stimulus argue that the “proof” that the stimulus hasn’t worked lies in the still-bad numbers of the unemployed–that since ARRA’s passage last year, total jobs in the economy have decreased, not increased. As the New York Times’ David Leonhardt explains:
The reasons for the stimulus’s middling popularity aren’t a mystery. The unemployment rate remains near 10 percent, and many families are struggling. Saying that things could have been even worse doesn’t exactly inspire…
[T]he debate is largely disconnected from the huge stimulus experiment we just ran. Why? As Senator Scott Brown of Massachusetts, the newest member of Congress, said, in a nice summary of the misperceptions, the stimulus might have saved some jobs, but it “didn’t create one new job.”
But of course ARRA made a difference and surely did “create jobs” at the margin–even if the economy continued to lose jobs in aggregate. If the net job losses would have been greater without the stimulus, then the stimulus “created” jobs. That ARRA prevented some jobs from being lost is surely the case in the state and local government sector, where it did not matter what kind of incentive (”substitution” or relative price) effects the stimulus set up for those governments; those governments have budgets that have been so thoroughly bumped up against their binding constraints that any kind of transfers to those governments (even pure cash ones) have to have prevented some of their workers from being let go.
That doesn’t mean that ARRA couldn’t have been better designed to get more (or faster) “bang per buck”; there were parts of the policy that were far more about steering the longer-term economy in a slightly different direction than about stimulating economic activity (any kind of economic activity) now. And even the parts of ARRA that were done in the name of “stimulus” weren’t always so “stimulative”, because there was too much worry about getting the “right mix” of tax cuts versus spending–where the notion of “just right” depended on the politics, not the economics.