American Elephants

CBO: Obama’s Stimulus Gets an “F.” by The Elephant's Child

The American Recovery and Reinvestment Act of 2009 (ARRA)

Full Title: An act making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, State and local fiscal stabilization for the fiscal year ending September 30, 2009 and for other purposes.
Enacted by 111th Congress         …………………….  Effective: February 17, 2009

Better Known as “The Stimulus”

The Congressional Budget Office (CBO) issued its quarterly report on Feb. 22 on the impact of ARRA from October 2012 through December 2012, as required by law. CBO estimates that ARRA will increase budget deficits by about $830 billion over the period. Close to half that impact occurred in fiscal year 2010 and more than 90 percent of ARRA’s budgetary impact was realized by the end of December 2012.

In the long run, ARRA will reduce output slightly in the long run, by between zero and 0.2 percent after 2016, CBO estimates. ARRA’s long run impact on the economy will come primarily from the resulting increase in government debt. To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates.

To translate, when the government borrows, it is selling debt (government bonds). The money that goes into financing the debt is unavailable for private investment. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital.

Over the long term, the output of the economy depends on the stock of productive capital, the labor supply, and productivity. The less productive capital there is as a result of lower private investment, the smaller will be the nation’s output over the long term.

To grow the economy, you need private spending, not government spending.

The lasting effect of the $878 billion stimulus which has been 90% spent, compared with what would have occurred otherwise, CBO estimates:

  • Real, inflation-adjusted, gross domestic product raised by between 0.1 percent and 0.6 percent.
  • Unemployment rate lowered by between 0.1 percent and 0.4 percent.
  • Number of employed increased by between 0.1 million and 0.8 million.
  • Number of full-time-equivalent jobs by 0.1 million to 0.8 million.

After four years and almost a trillion dollars in stimulus payments, all we have to show for it is 113,691 full time equivalent jobs, $16 trillion in debt that will never be repaid, 7.9% unemployment (14.9% real unemployment), negative GDP, and continuing record deficits.

Wasted billions. Ongoing false rhetoric. No 3.5 million jobs created or saved. False hope. Continued fierce demand to spend  more, lots more, to little effect.

%d bloggers like this: