Fallout: The Financial Crisis

Was the stimulus package successful?

Marketplace Staff Feb 16, 2010
Fallout: The Financial Crisis

Was the stimulus package successful?

Marketplace Staff Feb 16, 2010


Kai Ryssdal: Stimulus is economic word of the week around the White House. Vice President Biden and various cabinet members have been dispatched to celebrate the first anniversary of the American Recovery and Reinvestment Act. President Obama signed the stimulus package into law a year ago tomorrow. So one year, and hundreds of billions of dollars later, did it work? Well, as with many things economic, it depends on who you ask. Our Senior Business Correspondent Bob Moon has been asking around to get some answers. Bob?

BOB MOON: Hey, Kai. This could all boil down to who do you trust. To hear President Obama tell it during his State of the Union Address last month, leading economists and business leaders have pronounced the stimulus a big success…

PRESIDENT OBAMA: You don’t have to take their word for it. Talk to the small business in Phoenix that will triple its workforce because of the Recovery Act. Talk to the window manufacturer in Philadelphia who said he used to be skeptical about the Recovery Act until he had to add two more work shifts just because of the business it created.

RYSSDAL: And the president has some numbers he can point to, right Bob? I mean, the Gross Domestic Product is up — the biggest measure of the economy…

MOON: True.

RYSSDAL: And the number of jobs we’re losing is down?

MOON: True, but don’t look now: The all-important American consumer still isn’t spending all that much, the unemployment rate is still hovering close to 10 percent, and there’s a new wave of foreclosures right around the corner, they tell us. And some Republican critics say that shows it’s been a waste of money, or at least not worth all that we’ve been spending. But The New York Times did run a story at the end of last year citing what it called a “new consensus” of “more dispassionate analysts” who’ve been insisting, hey, we could have done even worse without the stimulus.

RYSSDAL: Could have. As in, we don’t know yet?

MOON: Uh huh. Let me set the mood for you here.

RYSSDAL: All right.

MOON: Can you name that tune?

RYSSDAL: Uh, no.

MOON: It’s an old standard: “How Little We Know.” And I’m dropping that in here because that’s how one economist I spoke to actually headlined one of his recent commentaries.

RYSSDAL: Wait, how little we know, as in he doesn’t know, as in he’s guessing?

MOON: We don’t know. Nobody can really know for sure, and that’s what this all comes down to.

RYSSDAL: We spent $787 billion on guesses?

MOON: Well, when the Obama administration was selling this plan, they pointed to their own economists who used formulas to say, “This is where we think the economy is headed.” Now, they’re using those same formulas to say, “This is where the economy would have been, and this is where we are now.” And then, along comes a respected Stanford University economist, Professor John Taylor, to complain that that’s like trying to prove a negative.

JOHN TAYLOR: You can always say things would be worse in a given situation. You get a new set of golf clubs and they don’t improve your game and you say, “Well, my game would have been worse without those golf clubs.” But sometimes it’s just not plausible.

MOON: In fact, Taylor says he actually saw signs of a nascent recovery even before any of the stimulus spending started, and he’s in the camp of free-market economists who worry that all the borrowing the government’s had to do might be “crowding out” business investment.

RYSSDAL: Crowding out as in what? Help me out here.

MOON: Well, remember how much investors, from China to mom-and-pop folks, have been buying Treasuries as a safe place to put their money? Well, that could actually be pulling investment away from the private-sector companies, who we keep hearing still find it hard to get financing for what they might otherwise be doing.

RYSSDAL: So that is to say, the stimulus package is actually preventing others from investing in this economy?

MOON: Well that’s what these critics suggest.

RYSSDAL: You and I could have another conversation along these lines, and instead of John Taylor, we could throw Paul Krugman’s name in here..

MOON: Uh huh, we could.

RYSSDAL: He’s on the more left side of the economic spectrum, and he would say, by God, you had to have that stimulus package, because it’s all about consumer confidence, as you mentioned, and how the people had to know the government was coming to the rescue.

MOON: You know what this brings to mind, Kai? That old joke, that if you laid all the economists in the world end to end, they’d never reach a conclusion.

RYSSDAL: So we don’t know what we don’t know, right?

MOON: We don’t know.

RYSSDAL: Our senior business correspondent Bob Moon. Thank you, Bob.

MOON: Thanks, Kai.

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