Sometimes comments at Angry Bear and other sites get to resemble an exchange of slogans, statements of faith on particular macro economic policies using tax cuts and government spending as political stimulus rather than economic, and proof of validity premised on how forceful one is. At one time or another we all fall into that routine. Bill McBride, Bruce Bartlett, and Jeffery Frankel offer views on this process:
Bill McBride at Calculated Risk advises:
It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy.
The stimulus could have been structured differently, for example, why have tax incentives for businesses to invest when their is already too much capacity? And research suggests the cash-for-clunkers program was not very helpful.
And more importantly – knowing that recoveries from financial crisis are slow – investment in infrastructure could have been larger and lasted longer (not just “shovel ready” programs).
It is the details that should be debated – understanding what worked and what didn’t work would be useful during the next financial crisis (when the next generation of financial wizards think they’ve discovered how to turn lead into gold) – but overall the program was obviously helpful. Note: One of the reasons I was able to anticipate the bottom of the recession was that I correctly analyzed the impact of the stimulus.
It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future. As an example, look at these absurd comments via the WSJ:
“If you recall five years ago, the notion was that if the government spent all this money—that, by the way, was borrowed—that somehow the economy would begin to grow and create jobs,” said Sen. Marco Rubio (R., Fla.), in a video message released Monday morning. “Well, of course, it clearly failed.”
Obviously Rubio is clueless about the economy, but I think it is important to point that out. Debate the details, but the program clearly helped. From the White House:
The Recovery Act, by itself, saved or created about 6 million job-years, where a job-year is defined as one full-time job for one year. This translates to an average of 1.6 million jobs a year for four years through the end of 2012. This estimate is within the range of estimates provided by the Congressional Budget Office and other outside organizations.
This impact is in line with analysis from the CBO and others. We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues … Rubio’s comments are not just wrong but dangerous (if enough people believe him).
Jeffery Frankel via Econbrowser offers his take on the stimulus fifth year:
Those who think that the spending increases and tax cuts were the right thing to do have given a number of responses, which sound a bit weak to me. The first is that the stimulus wasn’t big enough. The second was that the Great Recession would have been much worse in the absence of the stimulus, perhaps a replay of the Great Depression of the 1930s. (The media are fond of this line of reasoning because it allows them to escape making a judgment. They can just say “nobody knows what would have happened otherwise.”) The third response is that the fiscal stimulus was short-lived, and in fact was reversed by the Congress by 2010.
I believe that each of these three statements is true. But they sound weak because they look like attempts to explain away the absence of a visible positive impact. Listening to these arguments, one would think that no effect of the Obama stimulus could be seen by the naked eye in the U.S. economic statistics of 2009. Nothing could be further from the truth.
Bruce Bartlett via Economix has his take on tax reform:
The main problem with this game is that a few citizens out there don’t know it’s a game. They really believe tax reform is important and necessary and will materially improve their lives. The reality that previous reforms in 1969, 1976 and 1986 had virtually no discernible effect on the economy, living standards, fairness or simplicity has faded from memory, even among tax experts.
I have previously discussed the academic research on the Tax Reform Act of 1986, especially the authoritative article in the June 1997 issue of the Journal of Economic Literature by Alan J. Auerbach of the University of California, Berkeley, and Joel Slemrod of the University of Michigan, which found almost no “real” effects on the economy despite massive changes in tax rates and the tax base. The bulk of the effects they could find simply consisted of superficial accounting and portfolio changes.
This is not to say that tax reform isn’t a good idea from time to time…