Real Effects of the Stimulus Package for the Second Quarter of 2012 and the Future

We are almost two full years removed from the passage of the stimulus package.  As an homage to the passage of the bill, I decided to take a look at the CBO’s report on what exactly the act has accomplished, in particular, the months of April through June.  There is a lot of great information released in this report.  Perhaps some of the most telling data is which fiscal tools was most successful and what Congress should use to attack high unemployment.  

Looking at the data, the act funded 550,000 jobs in the three-month span.  In the history of the bill, it has accomplished:

• Raised real (inflation-adjusted) gross domestic product (GDP) by between 0.8 percent and 2.5 percent,
• Lowered the unemployment rate by between 0.5 percentage points and 1.6 percentage points,
• Increased the number of people employed by between 1.0 million and 2.9 million, and
• Increased the number of full-time-equivalent jobs by 1.4 million to 4.0 million

These numbers provide some insight on the past performance of fiscal policy.  However, the CBO provides insight on which fiscal tools added the most to the gains in employment. 

Below is data for the multiplying effect of the contents of the stimulus package.  Any number over 1.0 is a positive gain:

 

This nifty table provided in the report shows which programs contributed most to economic growth resulting from the stimulus package.  This shows us what programs we can cut spending from, and where we can add investment.  As you can see from the right hand column, government investment in energy related research has a huge multiplier effect.  The same applies to Federal government money transfers to states for infrastructure.  What does not contribute to economic growth are tax benefits for high income earners.  The increase in the individual Alternate Minimum Tax exemption amount, and the first-time homebuyer credits, both which are designed for use among higher income individuals, has little effect on creating jobs and increasing economic growth.  The true growth comes from investment in infrastructure, and the middle and lower class.  Housing assistance, highway construction, education for the disabled, unemployment insurance, and clean water and drinking funds are some of the programs (which many are public goods which all people benefit from) that have helped grow the economy during the past few years. 

My thoughts: Lawmakers will be coming back after the summer recess and immediately address the issue of jobs (2 years late is better than never, right?...) .  There is empirical data that shows what can be used, and what can be done to improve the economy.  One of two two things will happen.  The first is Congress will attack the unemployment problem head on, invest in public goods that will benefit the people in many positive ways.  While at the same time, look at the tax code and other areas where there is useless spending, and make the country more efficient.  The second and more realistic scenario, Congress will have a bitter fight about what not to do, continue to fund tax credits that have no positive economic impact, and wait for full employment to return sometime after the next financial crisis.  The Republicans will have successful defeated Obama’s “jobs plan” and declare victory, while the Democrats call “compromise” victory, and we all lose.

HOORAY!