The US's GDP in 2009 was
$14.256 trillion and the stimulus was $816 billion. Divide that in half as it was spread out over two years and we're talk $408 billion is about 2.9% of GDP. The CBO estimates between 1.5% and 4.1% (when you look at the best yearly benefit) for the positive effects of the stimulus. This means that the mid-point in their estimate is 2.8% which is slightly less than what was spent. Only if you go with the high estimate does the stimulus has a significant positive effect. So in that regard the CBO's report isn't really all that supportive for the stimulus as it was done, only if it was the more optimistic numbers can the stimulus be considered a significant good in terms of GDP.
I would like to note that the CBO is (understandably) focused on the short term and thus, for tax cuts, does not count saved money as an aid to the economy explaining its methodology thusly:
CBO report page 12 said:
If someone receives a dollar in transfer payments and spends 80 cents (saving the other 20 cents), production increases over time to meet the additional demand generated by that spending, and the direct impact on output is 80 cents.
Increased saving do not have an immediate and direct impact on GDP growth (its immediate impact is indirect by providing for cheaper lending and its direct impact, people spending savings, is deferred), so its understandable why the CBO would not measure the positive impacts of savings (not to mention doing so is harder), but this does lead to tax cuts looking less positive than actual spending. It is worth noting that the approach does lead to an inconsistency that you might notice reading further in the paragraph:
CBO report page 12 said:
Similarly, if a dollar in aid to a state government leads that government to spend 50 cents more on employees’ salaries (but causes no other changes in state spending or revenues, with the other 50 cents used to reduce borrowing or build up rainy-day funds), the direct impact on output is 50 cents.
The CBO is assuming that all the wage increased is used in spending rather than part of it being directed to savings like it does with tax cuts. That inconsistency again can cause spending to seem more positive than tax cuts.
Its also worth noting that on the low estimate for the effects of the different aspects of the stimulus,
none of the parts of the stimulus (tax cuts or spending of any kind) exceeded 1 dollar gain in GDP for 1 dollar spent. This means, under pessimistic conditions, the anti-stimulus people are right and no part of the stimulus actually helped grow the economy over what was spent. This also means that the most likely situation is that the higher end things did have at least some positive effect.
So if you think the economy is in worse shape than what most people think, the CBO report is not actually inconsistent with the view that the stimulus did basically nothing. Average estimates would say the stimulus did nothing in terms of GDP growth
as a whole though certain aspects of it may have done more (though do keep in mind the caveat I added in earlier about some inconsistency in methodology that might have made the spending seem better than it was, though with personal savings rates at
about 5.5% currently the effect may not be huge, but its there). Optimists should be shouting the praises of the stimulus and the spending in particular (with criticism of most of the tax cuts).
I will say that the CBO report (with on or two caveats) is a pretty good summation I'd also not the complaint made about the uncertainty of the measurements needs to be put into context, here is that context:
CBO report pages 9-10 said:
During the second quarter of 2010, recipients reported, ARRA funded almost 750,000 full-time-equivalent (FTE) jobs.2 Those reports, however, do not provide a comprehensive estimate of the law’s impact on U.S. employment, which could be higher or lower than the number of FTE jobs reported, for several reasons (in addition to any issues concerning the quality of the reports’ data).3 First, some of the jobs included in the
reports might have existed even without the stimulus package, with employees working on the same activities or other activities. Second, the reports cover employers that received ARRA funding directly and those employers’ immediate subcontractors (the so-called primary and secondary recipients of ARRA funding) but not lower level subcontractors. Third, the reports do not attempt to measure the number of jobs that were created or retained indirectly as a result of recipients’ increased income, and the increased income of their employees, which could boost demand for other products and services as they spent their paychecks. Fourth, the recipients’ reports cover only certain ARRA appropriations, which encompass about one-fifth of the total either spent by the government or conveyed through tax reductions in ARRA during the second quarter; the reports do not measure the effects of other provisions of the stimulus package, such as tax cuts and transfer payments (including unemployment insurance payments) to individual people.
Estimating the law’s overall effects on employment requires a more comprehensive analysis than can be achieved by using the recipients’ reports. Therefore, looking at recorded spending to date along with estimates of the other effects of ARRA on spending and revenues, CBO has estimated the law’s impact on employment and economic output using evidence about the effects of previous similar policies and drawing on various mathematical models that represent the workings of the economy.
As you can see, the quotes Grim17 pulled
were not referring to the CBO report but were in fact referring to the report put out by the Obama administration. The CBO's report mentions these short-comings not to state the limits of its own report (the limitations of its estimates on unemployment are encapsulated by the range it provides), but to state how the CBO report
has avoided those pitfalls.
