Politics

To Know the Stimulus Worked, You Just Have to Believe In It With All Your Heart

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Andrew Sullivan warns that "it is important to resist the facile narrative that somehow Obama proved he was a radical leftist because he supported a stimulus package (after Bush's) in the face of the worst recession since the 1930s." Why? Because the stimulus, you see, it worked! Says Sullivan:

First imagine you can fly. The imagine that you can determine the multiplier effect of stimulus spending.

Unemployment, sans stimulus, would therefore now be between 10.4 or 11.6 percent without the stimulus. Now you can argue that the economy should have been allowed to collapse entirely and rise from the eventually settled ashes. But you cannot argue that and criticize the president for high rates of unemployment today. He did about as much as he could within the bounds of fiscal responsibility.

He acted not as a liberal or as a conservative, but as a responsible, pragmatic human being.

I don't know whether any of this proves or disproves that Obama or Bush or any of the other Hill-creatures who voted for stimulus are "radical leftists," or secret socialists, or Marxist-fascist-anarchist-anti-American-commie-Europhiles who probably don't even like baseball, or light beer, or whatever. Maybe it just proves that both Bush and Obama are cut from the same political cloth, and are both convinced that spending giant wads of taxpayer cash on grand efforts to save the economy is somehow heroic.

But it doesn't prove that the stimulus created a slew of jobs and brought the unemployment rate down—no matter what our pragmatic, responsible president and his administration claim.

Sullivan's evidence, like the White House's, comes from a summary of a recent Congressional Budget Office report on the effects of the stimulus. Here's the problem: Those CBO reports don't definitively prove anything about the real-world effect of the stimulus. That's because in order to produce those reports, the CBO effectively re-runs the same models that it used to estimate the effects of the stimulus before it started.

Robin Williams will show you how.

The reports aren't based on a detailed measurement of real-world output. Instead, they're based on measuring the input (how much money was spent), and then using models to project how big the multiplier effect has been. Measuring spending and modeling output means that you can believe the CBO when it says that the stimulus turned out to be more costly than expected, but you should remain wary about any claims made using the "real-world effects" side.

Indeed, CBO director Doug Elmendorf has explicitly made this point, agreeing at a speech earlier this year that that "if the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis."

So if in reality no jobs had been created, or only 10 jobs had been created, then the CBO's reports would not reflect those numbers. It's using the models that projected the stimulus would create lots of jobs to report that the stimulus did create lots of jobs. Color me unconvinced.

Models like the CBO uses can be useful to estimate a program's effects before they're passed. But they're hardly compelling evidence for a program's effects after it's been up and running for years. They're a way to make an informed guess about the future, but they can't tell us what's happened in the past.

I've made this point numerous times before, and Sullivan ought to be aware of it—if only because he's previously linked to one of my posts on the subject and noted that it's a good point. To which I say, "Thanks!" And in the interests of pragmatic policy judgments, I hope that it will instill, at minimum, some sense of caution into those who think we know what the policy's overall economic effects actually are.