Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan. The estimates, along with real unemployment rates, are posted below:
In May 2011, using the latest figures available from the BLS, the unemployment rate reached 9.1%. In contrast, the Romer and Bernstein projections estimated that the unemployment rate would be around 8.1% for this month without a recovery plan, or 6.8% with a stimulus plan (which was ultimately passed). The actual unemployment rate has been consistently below Romer and Bernstein’s worse case scenario for the economy – and by a considerable margin. They projected that the unemployment rate would never climb above 9%. As time has passed, it turns out that only two months out of the last two years have seen an unemployment rate lower than 9%.
And the unemployment trajectory appears to be getting worse, not better. The last two months have seen unemployment grow; again, against projections that unemployment would decline every single month after August 2009 with a stimulus in place.
Bigger (and what in the short-term may be less “gotcha”-style) questions are:
– What will the long-term impact of the stimulus be on growth? Will it cost the country long-term growth because of the added drag of future deficits on the economy?
– And, even in the short-term, has it proven to be more of a drag than a stimulus?
Back to the Economics21 team:
there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.
Perhaps the assumption by Romer & Company that the impact of a dollar of government spending would increase GDP by $1.55 (which struck many as inflated) was inflated…
