The Congressional Budget Office has released an updated report of the effects of ARRA, the stimulus package. In it they find that the stimulus increased GDP by between 1.7 and 4.5 percent, lowered the unemployment rate between 0.7 percentage points and 1.8 percentage points, and cost $814 billion.
As usual I immediately turned to the appendix which included a fairly detailed discussion of why the CBO prefers the input-based model that they used to arrive at their conclusions over competing approaches. I’ve covered my reservations to their approach ad nauseam and won’t repeat that discussion here other than to say that it’s little more than a gussied-up version of the persistence theory which is all but certain to miss real changes in the economy.
There’s one point I’d like to make. Nowhere in the report do I find a reason the CBO would say that 1.7% growth was less likely than 4.5% growth or anything in between or that a 1.8 percentage point difference in the unemployment rate was more likely than a 0.7 percentage point influence. I have already seen claims that the CBO said that the ARRA produced 4.5% additional growth or that the stimulus package only subtracted 0.7 percentage points from unemployment.
Such claims display nothing but the bias of their purveyors.
US GDP is reported at 14.59 trillion. If the stimulus package cost 814 billion, that’s 5.5% of the GDP. So we took 5.5% of the GDP on credit, invested it, and got back between 1.7% and 4.5% in increased GDP. It doesn’t seem like a very good net return on investment to me.
The number between 1.7 and 4.5 is one quarter in 2010 only. I don’t think this qualifies as total return on investment.
Yes, especially since the $814b was – perhaps unfortunately – not all spent at once. For an ROI you have to be pretty accurate about the timing of cash flows.
But I’ll concur with the sentiment that it doesn’t feel like we got our money’s worth.
Yes, however, CBO notes the effects are likely to diminish going forward. So the question is, will we get back our 5.5% of GDP we borrowed plus interest in terms of higher growth? Picking the mid-point of CBO’s analysis we think we got 3.2% extra GDP than we otherwise would have gotten. Now, will future quarters add enough to offset the costs? Considering the lackluster growth the past few months it is possible we wont.