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Economic Stimulus Works

Feb 26, 2010 | By: Mr_Blue | Tags: economic stimulus, arra, keynesian, neoliberal

The heads of neoliberal/conservative economists and politicians are exploding all across the country because contrary to what they preached fiscal policy - government spending and tax policy - can help economic growth. The American Recovery and Reinvestment Act of 2009 (ARRA), despite its poor design and lack of size because of politics, still helped preserve jobs and help the economy. It’s time to extend fiscal policy to achieve full employment for our economy.

Senator Judd Gregg trotted out this whiny statement regarding the economic stimulus in an interview with Financial Times:

The facts are wrong. I can understand how a Keynesian would make that argument. I find them absurd on their face.

LOL. Senator Gregg and other conservatives will whine like this but will not provide any evidence to the contrary. But it’s not just Keynesians that are making the argument that ARRA helped the economy. A majority of economist surveyed by USA Today said that ARRA helped the economy when it needed it. The Congressional Budget Office even estimated that in 4th quarter 2009 ARRA had the following impact:

Raised real GDP by between 1.5 percent and 3.5 percent,

Lowered the unemployment rate by between 0.5 percentage points and 1.1 percentage points,

Increased the number of people employed by between 1.0 million and 2.1 million,

Increased the number of full-time-equivalent jobs by 1.4 million to 3.0 million compared with what those amounts would have been otherwise.

Oh, BTW, the least effective aspects of ARRA according to CBO report: tax credits for first-time homebuyers and tax cuts for higher-income people.

Just think if the ARRA was designed properly and its goal was Full Employment instead of just to get something done. What would a better designed economic stimulus look like. First, no money for tax cuts - there is not a lot “bang for the buck” with them. Second, more money on infrastructure investment - especially new schools. Third, a Direct Jobs Program like the New Deal Era WPA and CCC which would lead to a Job Guarantee Program. An economic stimulus plan along these lines would eliminate the need to ask for more like Democrats are doing now with this new “Jobs Bill”.

And as for the federal budget deficit - economic growth does wonders for people’s concern about the budget deficit. The biggest thing affecting the budget deficit right now is the lack of tax revenue. We can address this with FULL EMPLOYMENT economic policies.

Good luck.