I think that David Leonhardt is a tad premature in predicting victory for the economy:
Just look at the outside evaluations of the stimulus. Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs. The Congressional Budget Office, an independent agency, considers these estimates to be conservative.
Unfortunately, the CBO and all three of the economic research firms mentiond are producing those analyses comparing model results to model results rather than by comparing model results to new data or old data to new data. Unless their models are reliable predictors of actual results they tell us exactly nothing. There is no value added.
And we have at least a little reason to believe that the models aren’t good predictors: the administration’s own models predicted much lower unemployment than has actually been observed.
So, has the stimulus package “worked”? I don’t know. And at this point I don’t think that anybody else does, either.
A valid point. How are the models at predicting current unemployment, output, etc. If there is a substantial differences then the “calibration” of the models is in question and the results are too. Thus, such comparisons are not really of much use. I imagine its a point that is a bit too subtle for your typical business journalist.
I’m sure it has had some impact and you’re right that nobody really knows the full extent and we may not know for sometime.
My beef with this type of spending is based on the argument that money spent by government is often driven by special interests. And I don’t see how special interests have to align with those sectors of the economy that provide the best return for said spending.
For example, is the auto industry going to be leading the way out of the current economic doldrums? Highly unlikely, but the government has spent tens of billions on that sector of the economy. Another example, we have a surplus of housing and as such it is unlikely that housing/construction will lead us out of the doldrums either. But we’ve spent lots of money there as well and policy has been aimed at propping up prices when if anything we probably need prices lower to “clear the market”.
Of course, I don’t think anyone knows what sector will lead us out, but one could argue that does not negate the benefit of government spending. Spending money on autoworkers who are unemployed so long as they are either:
1. looking for new employment, or
2. seeking training for a new career.
I think we’d spend less money and prepare workers for the demise of corporations that are likely going to die anyways.
Instead we’ve locked ourselves into a situation of premanent government subsidies and dependency. Not exactly a recipe for robust economic growth.
It probably won’t shock anyone that I agree with Steve Verdon’s comments. But some color.
Isn’t it the job of economists to “economize?” That is, to understand the costs that are attendant to the perceived spending benefits? So if we tax to fund the spending we have a cost; and if we debt finance we also have a cost……….even though Team Obama will not discuss this…….because thats politics, not economics.
Mr. Verdon hits it – from my perspective – when he states: “My beef with this type of spending is based on the argument that money spent by government is often driven by special interests. And I don’t see how special interests have to align with those sectors of the economy that provide the best return for said spending.”
The essential problem of our collective 40 years of public financial mismangement summed up in one paragraph. Perfect.
And how would sum up the private sector, especially finance?
Why do you assume that these bailouts need to be permanent? Remember context.
Steve
As soon as you stop the government money flowing into GM it will likely die. For things to get better in housing the market will have to eventually clear and for that to happen the prices will have to go back up. That could set up a cycle of boom-bust-bailout. And same goes for the financial sector. Nothing has really changed save that the government has made is completely and utterly clear that irresponsible behavior doesn’t matter and the big boys will always be bailed out.
At best we’ve merely put off the day of reckoning. Like I said before, if you look you’ll see that we’ve had a series of bubbles over the last 2 – 3 decades…its the new black.