The fascinating graph at the left is from Calculated Risk. The three bars in each quarter represent the assumption about unemployment in the baseline stress test that the administration applied to banks at the beginning of the year (green), the unemployment rate in their “more adverse” stress test (blue), and the actual unemployment rate (red). You can click on the graph for a larger image.
There are a few observations I’d like to make based on this information. First, the actual unemployment rate has already exceeded the maximum unemployment rate envisioned under the administration’s baseline stress test. That suggests that, if you only assume that the administration was right about the change in the unemployment rate under their baseline stress test from the 2nd quarter of 2009 to the 1st quarter of 2010, we will have double digit unemployment before the end of the year.
Second, the actual unemployment continues to exceed the unemployment projected in their “more adverse” stress test. I think you can only conclude that the administration’s projections were unrealistically optimistic. That is very likely to have implications for the health of the banking system. Banks that the administration rated as passing the “more adverse” stress test may well fail the real conditions that we’ll see by the end of the year.
Third, I also think that you can only conclude that the stimulus package was insufficiently front-loaded. I wonder if they had it to do over again if the administration would have pushed for a bill whose provisions could have been implemented faster? It looks to me like a perfect case of having too many oars in the water. If I were in the shoes of President Obama’s economic advisors, I would be looking for ways that I could shift some of the spending scheduled for 2011 into 2009 or 2010. Further extending unemployment benefits is an obvious candidate.
Fourth, if the unemployment rate is actually running well over 10% in the 3rd quarter of 2010, the Obama Administration is likely to have a good opportunity of seeing how well it can pursue a strategy of bipartisanship for the remainder of President Obama’s term. Perhaps the voters will forget that there will have been a Democratic Congress since 2006 and a Democratic President for two years and continue to blame everything on Bush.
“Perhaps the voters will forget that there will have been a Democratic Congress since 2006 and a Democratic President for two years and continue to blame everything on Bush.”
I’m pretty sure Bush has been moved to an “undisclosed location”. Look for him to re-emerge sometime the second week of November next year.
“Perhaps the voters will forget that there will have been a Democratic Congress since 2006 and a Democratic President for two years and continue to blame everything on Bush.”
No doubt professional “journalists” will point out the error of this notion. (snicker)
“Third, I also think that you can only conclude that the stimulus package was insufficiently front-loaded.”
An observation I and many others made at the time. A tax cut, however, would have worked immediately. The econo-leftist complaint is that only the rich would benefit (funny how they understand tax incidence only when it comes to CUTS), they would put the money in a mattress, or it would cause deficits.
Well, it could have been a payroll tax cut for everyman. Cash for clunkers demonstrates available cash doesn’t go to the bed bugs. And deficits? Well.
A cynic might conclude that tax cuts as fiscal stimulus would work, but strip the left of their cherished candy-for-votes MO. So skip that and screw the unemployed.
If you were a cycnic, that is………..
Drew:
A tax cut for the well-off would go into savings. Cuts for the middle-class go to pay down debt. You know who would spend money and provide a stimulus? Poor people. Give a poor family 100 bucks and you know how much they spend? 100 bucks.
So maybe what we should have done is tax the rich and hand it out directly to the poor. Then the rich wouldn’t sock it away, the poor would spend it on food and clothing and car repairs and we’d have a real stimulus.
A cynic might suggest that this would violate the GOP’s core economic philosophy of, “Me, Me, Me, Mine, Mine, Mine.”
“Third, I also think that you can only conclude that the stimulus package was insufficiently front-loaded. I wonder if they had it to do over again if the administration would have pushed for a bill whose provisions could have been implemented faster?”
Maybe. OTOH, Romer’s (?) work shows that it is important to also sustain the stimulus. I think there was also an attempt to find projects that were worthwhile, like volcano monitoring.
Steve