Happy anniversary, Obama stimulus! Five years after the signing of the American Recovery and Reinvestment Act into law, both opponents and proponents are rehashing the wisdom and efficacy of the government spending and tax-cut package. I’ve written frequently about the US economy’s failure to achieve Obama White House job and GDP growth projections. We still don’t have 5% unemployment or multiple years of 4%-plus GDP growth, as Team Obama economists predicted. Of course fiscal stimulus fans will argue the economy would’ve been much worse without the ARRA. And they have plenty of economic models to back them up, though not all do. Let the Multiplier Wars begin!
But life is complicated. In an excellent 2012 blog post, Russ Roberts argued for humility on both sides given the high-causal density of the US economy:
Step back for a minute and consider the challenge of measuring the impact of the stimulus. It is one of many things that happened between February 2009 and the end of 2010. For starters, massive reforms of health care and the financial sector were passed. They were passed but the details of how they would actually be implemented remained uncertain through the end of 2010 (and remain so today.) There was an unprecedented set of monetary interventions. From the end of 2008 through the end of 2009, the Federal Reserve’s balance sheet went from around $800 billion to about $2.2 trillion. And of course a million other things happened as well. The price of housing fell steadily during this period, the price of oil rose steadily, the recession officially ended and on and on and on.
No one has a model of the independent impact of these different factors or a way of measuring them accurately and reliably in a way that can be tested and confirmed or rejected. No one. That means everyone, on the left or the right, who claims to have evidence for the impact of one of them or who cherry-picks one of those out of the myriad to choose from and blames that one factor for the lousy pace of the recovery is either fooling himself or fooling you. Don’t be a fool. So when the E.J. Dionnes of the world tell you that government creates jobs, just ask them how they know. Their answer will be that someone with exemplary credentials says so. But there are those with exemplary credentials who say otherwise. Where does that leave us? It should leave us in ignorance and doubt. No certainty. No exclamation points. More humility.