The Congressional Budget Office, whose economic forecasts Brian Reidl is happy to cite as authoritative when it suits him, has a new report out on the impact of the American Recovery and Reinvestment Act which joins the chorus of voices indicating that it’s having a large and positive impact on the economic situation:

Looking at recorded spending to date as well as estimates of the other effects of ARRA on spending and revenues, CBO has estimated the law’s impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the fourth quarter of calendar year 2009, ARRA added between 1.0 million and 2.1 million to the number of workers employed in the United States, and it increased the number of full-time-equivalent (FTE) jobs by between 1.4 million and 3.0 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. CBO also estimates that real (inflation-adjusted) gross domestic product (GDP) was 1.5 percent to 3.5 percent higher in the fourth quarter than would have been the case in the absence of ARRA.

Thought you might like to know.

I don’t really know how I feel about the dispute between Jon Chait and Glenn Greenwald as to whether or not it’s correct at this point to say that the White House doesn’t “really” favor a public option. The metaphysics of the matter, however, aren’t really that important—faced with an uncertain-but-nonzero chance of getting a public option through congress, the White House has decided not to try.

I do think, however, that it’s important that people understand exactly which interest groups have been surrendered to. Greenwald writes that the public option “would provide real competition to the health insurance industry and is thus vehemently opposed by the industry and its lobbyists.” And of course it’s true that the public option is opposed by the insurance industry and its lobbyists. But it’s important to understand that everyone else’s lobbyists oppose it too. The American Medical Association opposes a public option as does the American Hospital Association, and as best I can tell all the other big interest group players.

I understand politics—if you want to attack people for doing the bidding of insurance companies and doctors, you castigate them for “doing the bidding of insurance companies” and just leave the doctors out of it. Which is fine, but the fact of the matter is that a public program’s biggest potential source of cost controls isn’t squeezing out insurance company profits, it’s the ability to reduce payments to doctors and hospitals by piggybacking on reimbursement rates. The only reason the public option is viable congressionally at all is that its proponents agreed to neuter it by creating a “level playing field” public option that can’t do the Medicare piggyback. Such a public option could still do a lot of good but it’s not a huge game-changer. What’s more, the interest groups all still oppose it anyway because a public option, once in existence, could be linked to Medicare down the road.

People need to understand this, because whether reform passes or not this basic fight is going to repeat again and again. If you want to create or expand new public insurance programs, you need to deal not only with the easily demonized insurance companies but also the harder-to-fight doctors and hospitals.

Brian Riedl attempts to respond to critics of his “stimulus can’t work” argument, by basically doubling-down on the money doesn’t grow on trees theory:

Matt Yglesias argued that, during a recession, government spending can put unused resources to work. The problem is that, even in a recession, the spending must be financed by borrowed dollars that would have otherwise been employed elsewhere in the economy. Congress can borrow $10 million from the residents of Anytown to re-open an idle factory in Flint, Michigan. But this leaves Anytown’s residents with $10 million less to spend, which (by the same logic) will cause the idling of resources there. So rather than create new economic activity and multiplier effects, the stimulus has merely transferred them to a new town (my report covers the case of foreign borrowing as well).

Not really, though. This would be true if both the supply and velocity of money were constant, but they’re not. We can empirically examine the interest rate the government needs to pay to examine whether government borrowing is crowding out private investment. Here’s twenty years’ worth of data:

In the early nineties, high government interest rates—the legacy of Ronald Reagan’s massive deficits—plausibly were crowding out private investment. This is why at the time there was a lot of focus on deficit reduction from sensible policymakers. Given that the government is borrowing a lot of money right now, and also that the baby boomers’ retirement and continued growth in health care costs are going to put a lot of stress on future government spending, it’s very plausible that at some point in the not-too-distant future we’ll be in that situation again. But right now we are not in that situation. Many resources are laying idle throughout the country. In principle, private investors could engage in the spending that would mobilize those resources. But they’re showing very little inclination to do so. So the government both can and should engage in deficit spending to try to ensure that the resources are mobilized.

Brad DeLong observes that in an earlier paragraph Riedl acknowledges the logic of stimulus:

Income, by definition, results from productive activity. When productivity increases (thus increasing employment and eventually wages), income increases and demand increases, all in tandem.

Precisely so. Sitting on your couch checking the classified pages for jobs is not productive activity. Having a “retail space for lease” sign in the window of your building is not productive activity. Idling your factory for two shifts a day is not productive activity. Fiscal stimulus aims at reducing the quantity of idling and increasing the volume of productive activity.

I suspect that conservatives would see the logic of this very clearly if, faced with a giant recession, a conservative president enacted a gigantic, deficit-financed temporary tax cut. In normal times this would be bad policy (though conservative think tanks would defend it anyway, as they did in 2001) since the extra borrowing involved would crowd-out private activity. But in a major downturn, it would be helpful policy (though by no means optimal) since it would encourage idle resources to be put to use.