Yesterday, the Congressional Budget Office released a report examining the effects of the 2009 stimulus bill on the economy. According to the CBO's analysis, the stimulus increased GDP between 1.7 and 4.5 percent, lowered unemployment between .7 and 1.8 percentage points, and increased the number of people employed to between 1.4 million and 3.3 million. Not bad! More interesting, though, is that the independent wonks felt the need to add an extensive appendix defending their analytical methods.
Many critics of fiscal stimulus point out that much of the information we have on the efficacy of the program comes from macroeconomic models, since gathering the data necessary to know how the program works empirically would be nearly impossible (the CBO does use data provided by the recipients of stimulus money, but those only provide a snapshot of one section of the program and don't include second-order effects of the law). Since the bulk of the CBO's analysis comes from economic modeling, stimulus opponents feel free to just discount it. That's unfortunate, since economic modeling is how we analyze all kinds of policy decisions; whenever conservatives talk about the economic efficacy of tax cuts, or employ a CBO report to criticize legislation, they're relying on the same models.
The CBO's appendix on modelling [PDF] is interesting reading for wonks. They explain how their model works and how alternate methods rely on outdated microeconomic assumptions about people's rationality as economic actors -- they expect everyone to adjust their current spending to a constant calculation of their lifelong tax burden, something I'm guessing few, if any, people actually do. Nota Bene: these alternate models don't even take into account involuntary unemployment!
Given all this, I'm inclined to discount most stimulus critics who argue that its success can't be measured. We use the same yardstick to measure all our economic policies, good and bad.
Update: Dylan Matthews made some useful graphs displaying CBO's analysis; one is posted above.
-- Tim Fernholz
