A survey of business economists reported that they largely believe the stimulus didn’t work. That’s right, the $787 billion bailout did nothing. That’s what the headline is saying at least. In more detail, the survey was of 68 private sector economists. A private sector economist is employed by a private firm and is responsible for assessing the overall health of their firm. They would look at things like supply and demand, resource allocation, and operational efficiency. In other words, they know the ins and outs of their companies better than anyone else. 73% of those polled said their company’s employment situation has neither increased nor decreased because of the stimulus.
Wait just a darn tootin minute. That’s not the same thing as saying the stimulus didn’t work. The question was whether employment increased or decreased. What would the answer have been if the question was: did the stimulus have any impact (decrease, increase, or removing the need to lay off) on the employment at the firm? We don’t know the answer since either the question wasn’t asked, or the answer wasn’t reported.
Moreover, is a survey of 68 economists really a valid survey? I could set that up on Survey Monkey in 20 minutes, or send out an email to 68 people in the same amount of time. I might start to take this survey seriously if it was of 200 or so economists, but I’d still prefer more than that. That isn’t to say 68 economists don’t have validity, but it looks bad and makes me skeptical.
But all this begs the real question, did the stimulus work? In the way the stimulus was initially envisioned, it has been an absolute failure. The stimulus was supposed to inject $700 billion into the economy in just a few months. The bill was signed into law in February of last year. That means by the fall most of the money should have been allocated or spent. We’re now 14 months into the program and have spent only about 40% of the stimulus. The stimulus can be broken down into 3 categories: tax breaks, contracts/grants/loans, and entitlements. Entitlements are things such as unemployment, medicare, food stamps, etc. Can you guess which of the 3 has spent more than half while the other two have not? That’s right, entitlements. This means that so far the biggest impact the stimulus has had on the economy is allowing people to collect unemployment longer. I’m not necessarily opposed to that, but I am opposed to the idea that we haven’t been spending the money where we were supposed to when we were supposed to. The silver lining is at least the Obama Administration does have full transparency for the stimulus on the website Recovery.gov.
So the stimulus is a failure in its ability to actually get money into the hands of people and businesses. But of the money that has made it out, has THAT stimulated the economy?
I can’t see how it couldn’t have. The money is being spent. Give unemployment checks to someone and they’ll spend it. Give a tax break to the middle class and they’ll try to pay down their mortgage. 68 economists may not have seen benefits from receiving federal funds directly, but they’re getting benefits in other ways. Maybe a bank had 100 foreclosures instead of 120 last month thanks to those 20 homeowners being able to afford payments based on federal money from one source or the other. That’s 20 losses the bank doesn’t have to book and one less person they have to lay off that month. This is how money moves through the economy. Economists aren’t as smart as they’ve been made out to be. They can’t trace every dollar through their system so they can’t know for certain the impact on their business from the stimulus. Is the stimulus a failure? Without a doubt it’s had some level of success, even if it was minute.
The final question must be then was the stimulus worth it?
The answer is without a doubt no. It didn’t do what Obama claimed it would do. The benefits haven’t been measurable. Opposition leaders decried it’s failures yet hypocritically show up to ribbon cuttings for stimulus funded projects and take the credit. And 14 months later 60% of the money (remember this is borrowed money) hasn’t even been spent. So failure it is not, waste of effort it has been.
Photo: Argonne National Laboratory
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
