Stimulus Calculations Laid Out

Not surprisingly, stimulus advocates are already accusing me of miscalculations in my NY Post article. Mistaken criticisms include:

1. "The article has 2005 dollars to make the recession look little." That's incorrect, I used the same dollars to measure the recession as I used to measure the stimulus bill: 2009 dollars.

2. "The recession should be measured relative to an upward trend." For the purpose of a cost-benefit analysis of the stimulus package, that's wrong. It should be measured relative to what real GDP path the stimulus package might achieve. I have been generous in taking that to be real GDP constant (rather than falling, as it would have even with a brilliant stimulus in place).

3. "The stimulus package is cheap when measured per job year". The stimulus is $215,000 per job promised. Now if we took the people who supposedly would have gotten those jobs and asked how much sooner they were employed by the stimulus (as opposed to when they would have found a job on their own), it would be generous to the stimulus to say that it was six months. So that makes it $430,000 per job-year. And I am not counting the job-years inevitably lost by the stimulus when the stimulus projects run out and their employees have to go find something else. Nor am I counting the fact the law will fall far short of the 3-4 million jobs promised -- do these things and results will look more like $1 million per job. (Yes I am aware that the Obama people claim that workers getting the stimulus jobs would have remained unemployed for years without the stimulus, but that's ludicrous ... millions of people not getting employed by the stimulus will manage to find jobs more quickly than two years).

If you would like to see a spreadsheet with my calculations, click here.

Comments

[Neil459:]

Excellent article, 2nd one today by an Academic. I often post about journalistic and academic misconduct. The rapid disappearance of common sense has been a problem for years. Your article shows that we still have a chance. Keep up the good work.

Aug 10 08:03 AM

[MinAkkar20:]

Casey,

I think you did a great job of being objective - some could argue using declining GDP as a realistic assumption once the short-term "bump" from "stimulus" wears off. Also, the government projection only footnoted possible variations to their projections - there was no accounting for possible spikes in interest rates and increasing cost of debt service due to the volume of treasuries required to be sold.

My only problem in your article is you lending creedence to the myth that Hoover tried to balance the budget (when referencing the 50 states). His spending only decreased nominally once during his term, and actually increased spending 80% over his term. And relative to GDP, spending doubled during his 4 years.

Aug 10 08:44 AM

[Valley Boy:]

President Hoover attempted to balance the budget in June 1932 with the passage of the Revenue Act of 1932. This act drastically increased taxes for most people. The myth about this is that he acted alone. The opposition party which controlled Congress in 1931-1932 pressured him into raising taxes to pay for his spending which, in turn, the same Congress encouraged with the usual partisan complaints. The other myth about Hoover is that he had an austerity program with cutbacks in spending. He actually spent several times over the budget done by the previous Coolidge Administration. The increased spending followed by increased taxes made the Depression worse.
One of the problems with today's spending is that it will probably be followed by increased taxes. And that will make the present situation worse.

On Aug 10 08:44 AM MinAkkar20 wrote:

> Casey,
>
> I think you did a great job of being objective - some could argue
> using declining GDP as a realistic assumption once the short-term
> "bump" from "stimulus" wears off. Also, the government projection
> only footnoted possible variations to their projections - there was
> no accounting for possible spikes in interest rates and increasing
> cost of debt service due to the volume of treasuries required to
> be sold.
>
> My only problem in your article is you lending creedence to the myth
> that Hoover tried to balance the budget (when referencing the 50
> states). His spending only decreased nominally once during his term,
> and actually increased spending 80% over his term. And relative to
> GDP, spending doubled during his 4 years.

Aug 10 01:35 PM

[Danny Newton:]

At least a few people recognize how difficult it is to estimate an alleged stimulus. I think there are only two examples of true stimulus to the economy in the past 70 or so years and that would be the building of the Interstate and the establishment of Rural Electric Cooperatives. In both cases, the productivity of the users improved and the costs were offset by greater productivity.
There was massive restructuring required in the road side service industries after the Interstates were built. The hotels aand motels along parallel roads died rather quickly and the cost of land at Interstate Exits was very high because Interstate Exits were not to be conferred on any community as a matter of their convenience. Many claim that the Interstate caused a decline in the central core of cities.
Rural electric service was hampered by the cost of line losses in remote locations. Companies had a duty not to serve customers and investors at a loss. The cost of rural electrification was eventually socialized by making low cost loans available. Money could be made in cities where distribution costs were lower because there were more meters per mile of line.
It would be an interesting exercise to explain why Rural Electrification worked while Barney Frank's Freddie Mac and Fannie Mac was a disaster. Both programs socialized costs. I think meters prevented over use of electricity while there was no meters in the home mortgage fiasco.
There is a push on to build new Interstate Routes, Like I-69, and there is an expectation that they will bring forth economic development as they did in the mid Fifties. I doubt that because the utility, if I may refer to roads as a utility, is at the saturation point. There is no incremental value to new routes or a lesser value. Additional value is still within adding lanes to the existing system however to maintain capacity. The average speed of Interstate Travel, will decline within the next fifteen years and those productivity gains will be lost.

Aug 10 03:17 PM

[MinAkkar20:]

What you stated is correct. People portray Hoover as someone who drastically cut spending to balance the budget. In fact, he was merely trying to keep revenue equal to the unprecedented federal spending under his presidency.
www.presidency.ucsb.ed...

When the terminology "balance the budget" is thrown around, historians make him seem like the do-nothing president. Ironically, FDR of all people made the following speech during his campaign:

"I accuse the present Administration (Hoover’s) of being the greatest spending Administration in peace time in all American history - one which piled bureau on bureau, commission on commission, and has failed to anticipate the dire needs of reduced earning power of the people."

Perhaps the next presidential candidate can dust that speech off...

On Aug 10 01:35 PM Valley Boy wrote:

> President Hoover attempted to balance the budget in June 1932 with
> the passage of the Revenue Act of 1932. This act drastically increased
> taxes for most people. The myth about this is that he acted alone.
> The opposition party which controlled Congress in 1931-1932 pressured
> him into raising taxes to pay for his spending which, in turn, the
> same Congress encouraged with the usual partisan complaints. The
> other myth about Hoover is that he had an austerity program with
> cutbacks in spending. He actually spent several times over the budget
> done by the previous Coolidge Administration. The increased spending
> followed by increased taxes made the Depression worse.
> One of the problems with today's spending is that it will probably
> be followed by increased taxes. And that will make the present situation
> worse.
>
> On Aug 10 08:44 AM MinAkkar20 wrote:

Aug 10 03:34 PM

[Valley Boy:]

That is right. The truth about what was thought during Hoover's time can be ascertained at Time Magazine's Time.com covers archive search box, old yearbook encyclopedias, old journals and various histories. The president became conservative after he left office, thereby critiquing his own contributions while opposing the New Deal. His liberal approaches were obscurred by his later conservative reputation.
It is interesting to take time to study Presidents Hoover and Roosevelt as sort of a way to understand Presidents Bush and Obama; not near exactly but to follow historical threads of thought and action.

On Aug 10 03:34 PM MinAkkar20 wrote:

> What you stated is correct. People portray Hoover as someone who
> drastically cut spending to balance the budget. In fact, he was merely
> trying to keep revenue equal to the unprecedented federal spending
> under his presidency.
> www.presidency.ucsb.ed...
>
> When the terminology "balance the budget" is thrown around, historians
> make him seem like the do-nothing president. Ironically, FDR of all
> people made the following speech during his campaign:
>
> "I accuse the present Administration (Hoover’s) of being the greatest
> spending Administration in peace time in all American history - one
> which piled bureau on bureau, commission on commission, and has failed
> to anticipate the dire needs of reduced earning power of the people."
>
>
> Perhaps the next presidential candidate can dust that speech off...
>
>
> On Aug 10 01:35 PM Valley Boy wrote:

Aug 10 04:29 PM