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Clark asks:
What about this most recent CBO report thing? Supposedly, as the Washington Times reports it, the stimulus package will actually hurt GDP growth in 8 years. I've seen this reported on a ton of rightwing sites, and it seems like something is amiss, but I lack the expertise to directly refute it.As Clark suspects, something is amiss. Tim Fernholz had a nice post on this yesterday, and here's the basic deal: The CBO says two things in their latest report. The first is that the stimulus bill will work. "CBO estimates that the Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by between 0.4 percent and 1.2 percent by the fourth quarter of 2011." They also project employment gains in the millions.The second point is the argument that The Washington Times is so rudely and gleefully groping. "In contrast to its positive near-term macroeconomic effects," writes the CBO, "the Senate legislation would reduce output slightly in the long run...The principal channel for this effect is that the legislation would result in an increase in government debt." In other words: The stimulus bill will run up the government's debt. If that happens, and we do nothing about the government's debt, it will become more expensive for private businesses to borrow money, which could reduce GDP by .1 percent to .3 percent by 2019.But that's not really a function of stimulus policy. Rather, it's a function of "not paying back our massive debt" policy. And "not paying back our massive debt" policy would primarily require two separate policy decisions: That we refuse to reform health care -- thus refusing to reform Medicare -- and that we refuse to eventually increase taxes in order to pay for our increased spending. It will be interesting to watch The Washington Times editorial page in the coming years and see if they are for or against policies that would reduce our long-term output.
