Leonhardt on Stimuluss


David Leonhardt has an excellent article in today’s Times making the case for the late, unlamented American Recovery and Reinvestment Act. Liberals haven’t loved to talk ARRA up because of the considerable evidence that it was smaller than it should have been, but looking back from 12 months later at how congress manages to screw everything up it looks like a small miracle that it took place at all. At any rate, as Leonhardt argues, despite talk to the contrary from Republicans (Scott Brown said ARRA hasn’t created “a single job”) there’s tons of data showing that it’s kept millions of Americans employed who’d otherwise be out of a job.

But people need not just stats, but stories:

In the early months of last year, spending by state and local governments was falling rapidly, as was tax revenue. In the spring, tax revenue continued to drop, yet spending jumped — during the very time when state and local officials were finding out roughly how much stimulus money they would be receiving. This is the money that has kept teachers, police officers, health care workers and firefighters employed.

Then there is corporate spending. It surged in the final months of last year. Mark Zandi of Economy.com (who has advised the McCain campaign and Congressional Democrats) says that the Dec. 31 expiration of a tax credit for corporate investment, which was part of the stimulus, is a big reason.

The story isn’t quite as clear-cut with consumer spending, as skeptics note. Its sharp plunge stopped before President Obama signed the stimulus into law exactly one year ago. But the billions of dollars in tax cuts, food stamps and jobless benefits in the stimulus have still made a difference. Since February, aggregate wages and salaries have fallen, while consumer spending has risen. The difference between the two — some $100 billion — has essentially come from stimulus checks.

But doesn’t everyone know that it’s business acumen rather than the government that makes jobs? And so it is, in a way. But if you’ve got a really good idea for a sandwich shop and you live in a town where nobody has any money to spend on sandwiches, then you’re never going to get your business off the ground and create any jobs for anyone. But if the local teachers, cops, and firemen don’t get laid off, they might buy sandwiches. If everyone who pays payroll taxes has an extra $70 in their pocket, they might buy sandwiches. Conversely, had the state government been forced to jack the sales tax up to 15 percent, people would be reluctant to buy sandwiches. It’s still your store, your business savvy, and your ideas that are making you the successful small businessman rather than someone else. But absent appropriate public policy, all the business sense in the world doesn’t let people expand their operations or start new firms.

For the data, note that partisan elected officials may say the stimulus isn’t working but private sector economic forecasters say it is. American Enterprise Institute economist John Makin also says the stimulus is working. Douglas Holtz-Eakin not only thinks the stimulus is working, but he’s in denial about the conservative movement’s view on this and says that “no one” thinks “stimulus has done nothing” even though it’s become mainstream on the right to make this view. Heck, even though Tim Pawlenty is relying on ARRA to fund one-third of his budget for Minnesota he’s out there pretending that it’s not making a difference.