Politics, Not Stimulus, To Blame for Slow Growth

About Tamara Draut:

Tamara Draut is the Vice President of Policy and Programs at Demos, a progressive research and policy center. Previously, she served as Director of the Economic Opportunity Program at Demos. She is the author of Strapped: Why America's 20- and 30-Somethings Can't Get Ahead.

The answer to the question of whether stimulus spending works is the same answer I'd give my toddler if she asked for an extra helping of spinach: absolutely, yes. In fact, like asking for more spinach, there's really no credible reason for a "no" answer. Spinach is good for the body; stimulus is good for the economy.

The most recent case of stimulus spending, the American Recovery and Reinvestment Act of 2009, did work. Here's what we know about the impact of the stimulus: according to a report from the Congressional Budget Office, the Recovery Act lowered the unemployment rate by between ½ a percentage point to 1.6 percentage points, and increased employment by 1 to nearly 3 million jobs. Private estimates from Global Advisors, Macreconomic Advisors, and Moody's Economy.com all estimate that by the end of the first quarter in 2011, just over 2.4 million jobs were added due to the ARRA. Similarly, even more private analysts, including from Goldman Sachs, estimate that the ARRA boosted GDP by 1.7 to 2.7 percentage points above what it would have been without the stimulus spending.

[Rick Newman: How Politicians Are Wrecking the World Economy]

So why all this talk about the stimulus not working? The stimulus was disappointing because it only filled less than half of the giant hole in the economy. At the time, the economic gap in the economy was around $2 trillion—the stimulus package was roughly $825 billion. Given the pace of the 24-hours news cycle and the constant bickering in Congress, one can be forgiven for forgetting that the big debate about the stimulus among economists at the time was not about whether it would work—it was about it not being big enough to fill the crater left by the financial crash.

The stimulus law performed well given its size and scope. It's a moral tragedy that so many in our nation remain jobless and so many remain unable to refinance their underwater mortgages. But our stubborn jobs crisis isn't a symptom of any inherent deficiency in stimulus spending—it's political. We could have done more, and we still need to do more to get Americans to work and increase consumer demand so that businesses start hiring again. Common sense (and mounds of evidence) tells us "yes" is the obvious answer. Unfortunately, both common sense and empirical wisdom seem irrelevant to many in the halls of Congress.

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economic stimulus