Yes, the stimulus still probably worked

I just wanted to quickly point out that the Congressional Budget Office released one of it’s regular reports this week on the effects of the American Recovery and Reinvestment Act:

Estimates of ARRA’s Impact in the Fourth Quarter of 2011

CBO develops estimates of ARRA’s effects on output and employment by looking at recorded spending to date along with estimates of the other effects of ARRA on spending and revenues, by using evidence about the effects of previous similar policies, and by drawing on various mathematical models that represent the workings of the economy. Using such analysis, CBO estimates that ARRA’s policies had the following effects in the fourth quarter of calendar year 2011 compared with what would have occurred otherwise:

  • They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.2 percent and 1.5 percent,
  • They lowered the unemployment rate by between 0.2 percentage points and 1.1 percentage points,
  • They increased the number of people employed by between 0.3 million and 2.0 million, and
  • They increased the number of full-time-equivalent (FTE) jobs by 0.4 million to 2.6 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)

I took a look at the report (pdf) itself and threw together some quick graphs on the annualized average estimated changes from the stimulus:

And this:

And finally this:

This is all a fancy way of saying that the best guesstimates show that the stimulus had positive effects. Of course these models are based off of multiplier assumptions that stimulus opponents insist do not exist. But I’ve grown weary of people assuming that such assumptions only apply to this form of stimulus and not others.

Now the Center for Budget and Policy Priorities has much prettier graphs comparing the effects of the stimulus compared to no stimulus:

And this one:

Derek Thompson has probably the most well-grounded post on this subject as it stands now, but I wholeheartedly embrace this statement (my emphasis in bold):

Here’s the catch. We don’t know how well the stimulus worked beyond a doubt because we can’t compare this world, where the stimulus happened, to a make-believe world, where it didn’t happen. One cannot board one’s time machine and travel to a parallel universe where the Recovery Act was never passed, and then another where the stimulus was 100% payroll tax cuts, and yet another where it was $2 trillion of government spending combined with massive public hirings.

This is what we call the counter-factual, something woefully missing from the partisan debate about the stimulus. It isn’t enough for someone to tell me it didn’t work, “just cause.” I’ve seen some thoughts on why multiplier assumptions and the ARRA could result in incorrect modeling (Ex: Tyler Cowen), but this is not the same as saying it had no net positive benefit on the economy in 2009, 2010, and 2011.

Which is to say that I’ll tend to believe in the professional consensus that it did work because I haven’t seen or read a convincing counter-factual argument.

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