Commentary by Robert Kleine: Federal Stimulus Effect Sept 2011

You assert that the federal stimulus plan was a failure with no supporting evidence other than the statement by the President that it was needed to keep the unemployment rate from rising to 8%. The 8% was an estimate and it proved to be a bad estimate.  The recession was much worse than almost anyone projected. Even data that was available at the time has now been revised down. What the president should have said was that the unemployment rate would have increased to 12% without federal intervention, which is what most economic models show would have happened. You can question the accuracy of economic models but they are based on a rigorous analysis of the data while your evidence appears to be based on nothing more than a bias against government.

The stimulus plan was enacted in February 2009 and of course it took a few months for its effects to be felt. In March 2009, employment was down by 796,000 jobs and the unemployment rate was 8.6%. Job loses gradually diminished and by March 2010, employment was increasing. The unemployment rate peaked at 10.1 % in October 2009 and had dropped to 8.8% in March of this year. The rate has ticked up to 9.1%, due partly to a decline in government employment. Since May 2009, government employment has dropped by over 1 million. Over that same period private employment has increased by 1.9 million. The recent weakness in GDP has also been significantly influenced by cutbacks in government. In the last three quarters the government sector has subtracted 0.6%, 1.2%, and 0.2% from real GDP growth. Obviously the withdrawal of stimulus is dampening economic growth. It is rather disingenuous to call for cutbacks in government spending and then blame the President for the slowdown in economic growth.

As for the President's current plan, Mark Zandi, chief economist for Moody's Analytics, has projected that the plan would add 1.9 million jobs and reduce the unemployment rate by 1%. If everyone would stop playing politics and look at the facts maybe we could actually make some progress and  start putting more people back to work..

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