Did the 2009 stimulus work?

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Economics21.org provides a graphical representation of the stimulus and reality. Certainly, this figure shows that the stimulus was not even close to successful according to the benchmarks set by the Administration.

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:

updated unemployment stimulus graph

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…