Pethokoukis

Did the 2009 stimulus really perform just as Team Obama expected?

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I, and others, have given the Obama administration a lot of flak for its early 2009 prediction that its $800 billion stimulus plan would drive the unemployment rate to under 6% by 2012. The fact that unemployment is over 8% might lead one to conclude that those fancy economic models with their Keynesian multipliers were wrong.

But Obama supporters defend the forecast by arguing that White House economists were basing that prediction on incomplete numbers that didn’t reflect the true severity of the downturn. Once the data were revised, White House economists seemingly made more accurate predictions.

For instance, here’s what former Obama economic adviser Austan Goolsbee tweeted the other day when the June jobless report — which showed an 8.2% unemployment rate — was released:

Indeed, you can find that forecast in the 2010 Economic Report of the President. And, I guess, we should conclude from that accurate CEA forecast that the $800 billion stimulus really did perform pretty much as expected, right? The White House predicted 8.2% and that is exactly what we got. Score one for Keynes — and the idea the stimulus should have been larger.

But here’s your trouble: In that report, the Council of Economic Advisers also predicted that the U.S. economy would grow by 4.3% in both 2011 and 2012. Instead, the economy grew by 1.7% in 2011 and might not do much better this year — if not worse. (First quarter GDP expanded at 1.9%, and many economists see the second quarter also sub-2%.) As a result, we have a $13.3 trillion economy instead of the $14.3 trillion economy Team Obama predicted (looking at just the underperformance in 2011 and 2012).

And here’s the puzzle: How can GDP growth be less than half of what Team Obama predicted in 2010 for 2011 and 2012, while the unemployment rate is exactly what Team Obama predicted? Less growth should have produced at least a somewhat higher unemployment rate, right?

The answer is almost certainly that White House economists didn’t expect a shockingly sharp drop in the labor force participation rate since they didn’t expect GDP growth to be so miserable. The size of the active workforce as a share of the total population fell from 64.5% in November of 2010 to 63.8% last month even as the economy was slowly expanding.

If Obama economists had known the economic recovery would be so weak the past two years, they might have expected a much, much higher unemployment rate. In November of 2010, the Congressional Budget Office predicted the labor force participation rate would be roughly 65.5% in 2012, even though it saw GDP growth of 1.9% in 2011, accelerating after that. Everything else being equal, a participation rate that high today would translate into a 2012 unemployment rate of 10.6%.

But the impact of such a weak recovery has resulted in a historically weak labor market where so many folks have given up that it has driven the official unemployment rate to 8.2% rather than 10.6%.

Bottom line: The $800 billion stimulus does not seem to have produced the sort of economic growth — less than 2% instead of over 4% — that was predicted, raising serious question about whether another round should be tried, as the White House and some left-of-center economics contend.

15 thoughts on “Did the 2009 stimulus really perform just as Team Obama expected?

  1. The stimulus did EXACTLY as expected (though not as barry told us he expected it). The purpose of such stimuluses is to make the rich RICHER, which is what happened.
    It was meant to steal from the non-rich so the economy would Continue to plummet and drive the country into bankruptcy and the eventual acceptance (begging by the people, actually) for his New World Order.

    • Cloward-Piven on steroids?

      Those who demean 0 for his incompetence and inexperience may be wrong. He learned plenty as a Community Organizer and his plan may be proceeding just as he had hoped.

      • I hope you are wrong, but the facts support this theory better than any other theory being advanced out there. The suspension of work requirements of the 1996 welfare reform act now points directly at a Coware-Piven model. I sincerely hope this guy is incompetent becaseu it is the only other plausible explanation for the stars aligning as they are.

        • Larry: Sorry, but Polly is correct. This guy is evil, not incompetant. As much as we all try to NOT beleive that our President is working hard for our demise and manipulating us all to reach his political and social agenda like a true “black community organizer” (think Van Jones) would, it’s true. People, in their denial, keep trying to put frosting on a turd and expecting it to become a cupcake. The real question is…….Now that we’ve tasted 4 years of it, what’s it taste like to you?

  2. The stimulus was a Democrat slush fund dressed up as an economic growth program. In that respect it worked well. Thousands of unionized government employees were kept at the trough a bit longer and lots of friends of Obama with “green companies” were paid off.

  3. Thank you for making several good points about the dismal state of the labor market.

    You said that you have given the Obama Administration “a lot of flack.” You meant to say “flak,” an acronym of the German word “Fliegerabwehrkanonen,” which means air defense artillery. A flack is a publicity agent.

  4. Obama got close to 900 million in donation in 2008. Obama had to pay these high rollers in green energy money hence Solendra and all other so call green energy companies. All these solar companies are just fronts for paying back all his backers. However some of it is being used for this election. Some of the stimulas is still not used. And the reason it isn’t used is because that in fact is the stash fund for Obama’s re election. Never in the history of this nation has there been a president as thuggish as Obama.

  5. I am somebody that feels a properly designed stimulus package would have had a positive benefit. For private business, expensing (vs depreciating) the field or ‘on site’ investment in plant and equipment but not the materials involved would favor domestic labor vs purchases from China. In the public sector, Construction was just cratered in ’08. Investing in ‘Real’ assets (vs Pork) such as power transmission lines, federal buildings, bridges, etc that actually have an economic life and payback isn’t just spending money, it is shifting in time the money that needs to be spent to when the economy needs it. That kind of project has a pretty strong multiplier, but paying the states current accounts just is a waste.

  6. All three of the posts before mine hit the nail right on the head, yet Obamabots can’t see it. Pity the fool who votes for this viper a second time.

  7. Size (of the government) matters. An economy where government takes up 60% won’t produce as much as the same economy if government takes up 20%. If the problem is a government that is too big, more government (i.e. Keynsian stimulus) won’t make it better.

  8. C’mon, the White House is monkeying with the employment statistics left and right. You can’t trust those calculations at all, with all of the season adjustments going on and the shrinking participation rate that magically makes the bottom line statistic look better than it would otherwise be.

    The only reason they “nailed” the Q4 number is because they fixed the calculation to land there and thus “verify” their prediction. It’s harder to manipulate the GDP data and thus their prediction didn’t verify at all, did it?

    Please.

  9. Using an unemployment index that fails to account for workers who have left the workforce is ludicrous.

    That is like using the following method to record the effects of an epidemic on a particular neighborhood:”We’ll go house-to-house and see how many sick people there are, but those that got so sick that they had to go to the hospital won’t be counted at all.”

    Ridiculous.

  10. The Stimulus was a Democrat slush fund that was used to save UNION Government Jobs.

    There were REAL things that should have been done, like upgrading our FAA Radar installations to a 2010 model, instead of the current 1980s version.. or working on upgrading the Highway System.. but no, OBAMA left it to a Partisan Democrat Congress to split the Stimulus among their friends..

    What a wasted..

  11. You don’t understand the nature of liberal proofs. When you factor in the excuse quotient it is obvious it would have been so much worse without their Keynesian rescue.

    Keep that in mind in case they get all they want to stop Global Warming and it doesn’t change the climate. You shouldn’t say look how much it cost and it didn’t do anything. The correct analysis is to say how much worse would it have been.

    • They live in never never land:
      What will happen if we don’t. . . .
      What would have happened if we hadn’t . . .

      Never: what is.

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