Over the last 18 months, we’ve heard Paul Krugman of the New York Times repeat how the $789 billion stimulus was too small to have any real impact on the economy. For instance, trying to explain what happened and why the recovery didn’t kick in as the administration said it would, Krugman wrote a blog post called “Nobody could have predicted” (well, except for all of us who said it wouldn’t work). Among other reasons:
But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.
That’s well and fine, but if I remember correctly, back in January 2009 Krugman was praising the administration for Christina Romer’s report on how, if passed, the stimulus would prevent unemployment from reaching 8.8 percent. The best line in this blog post is:
Kudos, by the way, to the administration-in-waiting for providing this — it will be a joy to argue policy with an administration that provides comprehensible, honest reports, not case studies in how to lie with statistics.
Megan McArdle also explains how it’s nonsense to claim that Congress would have been able to pass a bill big enough to restore full employment — even if we assume that the Republicans didn’t get in the way.
But let’s take the CBO’s estimates as representing a rough consensus of those who favor stimulus: for our $800 billion, we got a reduction of 0.7 to 1.8 percentage points. Full employment is perhaps 4.5-5%. If we assume that stimulus benefits increase linearly, that means we would have needed a stimulus of, on the low end, $2.5 trillion. On the high end, it would have been in the $4-5 trillion range. I’m going to go out on a limb and say that even if Republicans had simply magically disappeared, the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4-5 trillion. The political support for that level of government expansion simply wasn’t there among Democrats, much less their constituents.
This is a great point. Let’s not forget that even if they did spend it all, it’s still at best a short-term solution with dramatic longer-term repercussions. For one thing, the jobs created with stimulus jobs will go away once the government funding goes away. That would be true of further funding allocated the same way. So I really wish Krugman and others would stop repeating that the stimulus wasn’t big enough. I know, I know, they won’t, but one can always hope.