One-time stimulus supporter Samuelson now has his doubts

Showing an impressive ability avoid confirmation bias, one-time federal stimulus supporter Robert Samuelson explains for Washington Post readers why a five-year progress report for the American Recovery and Reinvestment Act of 2009 is “messy” at best.

Samuelson starts with the positive spin from the White House’s Council of Economic Advisers.

Together, the spending increases and tax cuts helped stop the free fall and propel recovery, says the council. At their peak in 2010, they created about 2.5 million jobs, the council estimates. Although their boost to employment has now faded, the stimulus provided support when support was needed. Human misery was also alleviated. Unemployment benefits went to 24 million workers and aided 70 million people, including their families. All in all, mission accomplished.

Not really, retorts Stanford economist John Taylor, a stimulus critic, on his blog. “It’s a tough case to make” that the stimulus jump-started the economy. Some numbers also support this skepticism.

Government stimulates the economy by spending more than it taxes. So deficits measure total stimulus. These were huge — $5.8 trillion from 2009 to 2013 — and vastly exceeded the stimulus packages alone. They reflected two other factors. First, “automatic stabilizers”: In a recession, the budget shifts toward deficit because income taxes fall and spending (unemployment insurance, food stamps and the like) rises. Second, the budget had a structural deficit — a gap between spending and taxes — before the Great Recession. Yet, despite unprecedented post-World War II deficits, the recovery has been weak. In its first three years, it averaged about half the growth of earlier postwar expansions. There’s the puzzle: monster stimulus, midget recovery. …

… The stimulus was a justifiable emergency measure.

But the emergency has passed. The economy, though struggling, is not failing. The administration attributes its sluggishness to many causes (household debt, Europe’s problems, Washington’s political discord). Maybe. But more stimulus won’t cure underperformance and may perversely contribute to it. By highlighting the economy’s weakness, it may magnify consumer and business caution. Pessimism becomes self-fulfilling. An economy dependent on periodic shots of stimulus is an economy in eclipse.

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