The Stimulus May Have Saved the Economy, but It Won't Matter in November

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President Obama, stimulus package Across the political spectrum, pundits agree that November's midterm elections will be a bloodbath for the Democratic party. Estimates of just how many seats the Democrats stand to lose vary from 65 to 103 in the House of Representatives and six to seven in the Senate, seriously threatening the party's domination of Congress.

At the heart of the furor, an angry electorate has questioned the effectiveness of the Obama administration's stimulus program, arguing that it has failed to support the economy. Yet, according to two well-known economists, the stimulus program actually saved the country, keeping it from plunging into what they call the "Great Depression 2.0."

Officially referred to as the American Recovery and Reinvestment Act (ARRA), the stimulus program was designed to minimize the effects of the recession by promoting infrastructure projects, cutting taxes and funding emergency unemployment payments. In the process -- the government hoped -- ARRA programs would pick up the slack left by the collapse of the housing and credit bubbles. Critics argue that the plan has failed to accomplish those aims, noting that the unemployment rate is far higher than it was when Obama took office. In December 2008, the jobless rate was 7.2% and steadily rose for the next 11 months. It peaked at 10.1% in October 2009 and since then has slowly fallen to its current 9.5%.

Things Could Have Been Worse

In a July paper titled "How the Great Recession Was Brought to an End," Alan S. Blinder, an economics professor at Princeton University and former vice chairman of the Federal Reserve, and Mark Zandi, the chief economist at Moody's Analytics, argue that the stimulus plan has actually been a huge success. According to the pair, ARRA created 2.7 million jobs and added $460 billion to the gross domestic product. Taken in combination with the bank rescue package, they claim that the stimulus's effects were even more impressive: Without the stimulus, unemployment would be 11% today, but without either the stimulus or the rescue package, it would be a staggering 16.5%.

"If policymakers had not reacted as aggressively or as quickly as they did, the financial system might still be unsettled, the economy might still be shrinking, and the costs to U.S. taxpayers would have been vastly greater," they wrote.

Blinder and Zandi's claims are quite similar to those made by the [famously nonpartisan] Congressional Budget Office last March. According to the CBO's analysts, the stimulus program raised the country's GDP by between 1.7% and 4.2% and kept unemployment from rising a further 0.7% to 1.5%. This translates into an estimated 1.2 million to 2.8 million jobs that were directly or indirectly created by ARRA. In terms of jobs preserved, the gains were even more impressive: The CBO estimates that the stimulus saved between 1.8 million and 4.1 million full-time jobs.

Optimism Is a Hard Sell

Blinder and Zandi's conclusions are controversial, in part because they highlight the multiplier effect -- or extended impact -- of some types of spending. For example, the pair notes that ARRA funded $50 billion in "income transfers," including Social Security, COBRA and unemployment allowances that worked their way into the economy through the hands of unemployed or disadvantaged workers. In the process, these funds had a positive effect on GDP because they further stimulated the economy by encouraging retailers and service providers to retain workers. Some economists, including former Bush Treasury Undersecretary John Taylor, argue against the multiplier effect, claiming that direct government spending has a negligible benefit for GDP.


While the Obama White House has long touted the effectiveness of ARRA, its partisan position has made the administration's conclusions easy to ignore. Similarly, when the chief economist at Goldman Sachs praised the stimulus plan, some critics were quick to claim collusion between the White House and one of the most prominent Wall Street banks. Zandi and Blinder, on the other hand, seem to have a somewhat balanced political agenda: Blinder advised John Kerry and Al Gore on their presidential runs; Zandi advised John McCain.

Regardless, the conclusions made by Blinder and Zandi will have minimal effect this fall. While most experts agree that ARRA saved millions of jobs, the idea that things could be a lot worse is a hard sell in an election year. With a brutal unemployment rate that is very slowly improving and a still-sluggish economy, voters are eager for change. According to a recent poll conducted by the American Research Group, 53% of voters disapprove of Obama's stewardship of the economy. While the president has another two years to convince voters that he belongs in the White House, many congressional Democrats may find that November is the end of the road.

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dlwoodford

I definately agree that we need to limit the amount of time that these people stay in office. To let them stay in office forever is wrong. Some of them have been there so long that they can barely speak. And no I am not young.

September 05 2010 at 11:25 AM Report abuse rate up rate down Reply
goody3bo

Bear markets are the result of pessimistic social mood. Aggregate social mood is in a decline since 2000. When the mood turns pessimistic, people first sell stocks because it is easy to do so, and they take economic action later. Hire, fire, start, end businesses are harder things to do. This is why stocks are a leading indicator. We rallied in the middle of bad news back in March 2009. The recession was declared over later. Then we topped in April 2010 with good news and stocks started to decline. A new recession can be declared well into the stock decline. Despite the USD printing press, we are still at lower nominal valuations compared to the 2007 top. Technical indicators say further stock decline is likely. This implies continued detoriation in social mood which will have adverse effects on the rest of the economy. Here is how social mood writes the history: http://www.tradingstocks.net/html/socionomics.html

September 05 2010 at 8:49 AM Report abuse rate up rate down Reply
change to englis

The DEMS have go to go in November. Rebublican incumbents also have got to go. Term limits for every elected person. Two terms, max! Also oust the middle level bureaucrats. Public service is not a life long "profession." It's a service, which should and must be limited.

September 04 2010 at 1:52 PM Report abuse +1 rate up rate down Reply
mysticwolf011

Why people blaming Obama? BECAUSE IT"S ALL HIS FAULT !

September 02 2010 at 9:39 PM Report abuse +2 rate up rate down Reply
2 replies to mysticwolf011's comment
change to englis

seems that everyone is pulling out a card lately. I wonder what will happen at Christmas time when religious symbols are again denied.

September 04 2010 at 1:54 PM Report abuse +1 rate up rate down Reply
Robbert T Copper

Why are people blaming Obama for what the republicans got us into? How stupid is that? If you think things are bad now, put the republicans back in charge and see what happens to the working class here in America. The only people who are doing well, in America, are the very rich and the drug dealers (legal and illegal). Am I angry with Obama and the democrats? Yes I am. Why, because they are not the fighters I thought they would be. They let FOX NEWS ENTERTAINMENT BROADCASTING NETWORK tell them when, and how high to jump! However, I'm angry with the republicans, the party of "NO," ten times as much.

September 02 2010 at 5:24 PM Report abuse rate up rate down Reply
rhythmguitarist

Come on!! Nobody see's that both the republicans and the democrats are doing the same damn thing to the tax paying citizens? Give me a break. Both parties have failed over and over and over, it's time for a new party to give it a shot in congress, the senate, and the White House. If they do the same as the republicans and the democrats have done, then we'll know for sure that we're never going to be safe from the corrupt federal government. It's all about the rich 1% having it their way. I'm sure many of you posters are veterans like myself. And look how us veterans have always been treated. The Feds kept their word with us veterans just like they have with the American Indians. The economy is what it is and has been for many decades. We're all riding this sinking ship together. Say what you want, both the republcan party and the democratic pary are thieves, and always will be. It's all about them getting as much money into their individual bank accounts and owning their many homes and vacation spots and private airplanes and so on. It blows my mind how 500 plus rich individuals can control over 300,000,000 citizens so easily. Wake up America, I know this phrase has been worn out over the past 40 odd years, but really, WAKE UP!!!!!

September 02 2010 at 9:54 AM Report abuse -2 rate up rate down Reply
ELLEN

Let's see what happens in Nov, I am voting for a Dem for the first time. Rep are so negitive always trying to keep everyone stired up.

September 02 2010 at 9:17 AM Report abuse -8 rate up rate down Reply
1 reply to ELLEN's comment
nos2001

america has finally woken up......these loons are going down. we will take back our country for the sake of our children and grandchildren.

September 02 2010 at 6:59 AM Report abuse +7 rate up rate down Reply
Changling

If you look around the news articles and opinions, there must have been many more people unemployed than reported. I see the CBO says the stimulus package created 3.3 million jobs and I see these kinds of numbers thrown out constantly. According to all the reports there have been more jobs create from the stimulus package than our whole population. All to say that it has been found most statistics are made up on the spot so how can you believe any of it? I conclude this is 99% accurate.

September 02 2010 at 6:18 AM Report abuse +3 rate up rate down Reply
Changling

At the heart of the furor, an angry electorate has questioned the effectiness of the Obama Admininistration stimulus program. And with these elegant words Mr. Watson has nailed the real reason we are all so unhappy. It seems everyone but rich Liberals knew this was a money grab and would not bail out anyone except the already rich. Maybe they didn't care. But this is what happens when you ignore the people you represent. Just because we don't make a lot of noise on a daily basis doesn't mean we are not watching. Now the rest of us are in the same boat with those needy folks the dems are suppose to represent. Not!!

September 02 2010 at 3:48 AM Report abuse +7 rate up rate down Reply