Critics and supporters alike have wondered if the stimulus really has been as effective as its advocates hoped it would be. The news that the economy declined at a 1 percent annualized rate last quarter -- lower than the 1.5 percent annualized rate that had been forecast and much lower than the previous quarter's 5.4 percent annualized decline -- should be taken as a sign that the stimulus was effective. We are approaching "recovery," consistent with predictions that we'll see (anemic) growth in GDP in the fall. 
Economist Dean Baker thinks so, writing that "in total, the stimulus probably added 2.5 to 3.0 percentage points to the growth rate for the quarter," pointing specifically to increases in government spending at all levels and an increase in disposable income thanks to the Making Work Pay tax cut. The fact that these effects are being felt now suggest that there will be even stronger effects in the next few quarters when more of the stimulus will be actually spent (most of the funding is scheduled to be paid out in fiscal year 2010, which starts in October 2009). GDP is all well and good, but unemployment continues to be the most important indicator of our actual economic health (and the president's political health). Economists expect that it will continue to rise when the new numbers come out this Friday, although the job losses will hopefully be slowing. Opponents of the administration love to portray the White House's promotion of the stimulus and its GDP effects as some kind of bamboozlement, designed to pull the wool over the eyes of people. But the Administration has always been clear that unemployment is its main measure of success, and continues to argue, correctly in my view, that job losses would be worse without the stimulus. But as we move towards economic "recovery," the administration is going to have to pivot towards policies that encourage industrial expansion. In a way, the energy bill is part of that. So yes, the stimulus is working for its intended purpose -- replacing failing private demand with government demand, boosting consumer spending and mitigating some job losses. But the stimulus is not the be-all, end-all of economic recovery policy, and both the administration and its critics shouldn't forget that.
Economist Dean Baker thinks so, writing that "in total, the stimulus probably added 2.5 to 3.0 percentage points to the growth rate for the quarter," pointing specifically to increases in government spending at all levels and an increase in disposable income thanks to the Making Work Pay tax cut. The fact that these effects are being felt now suggest that there will be even stronger effects in the next few quarters when more of the stimulus will be actually spent (most of the funding is scheduled to be paid out in fiscal year 2010, which starts in October 2009). GDP is all well and good, but unemployment continues to be the most important indicator of our actual economic health (and the president's political health). Economists expect that it will continue to rise when the new numbers come out this Friday, although the job losses will hopefully be slowing. Opponents of the administration love to portray the White House's promotion of the stimulus and its GDP effects as some kind of bamboozlement, designed to pull the wool over the eyes of people. But the Administration has always been clear that unemployment is its main measure of success, and continues to argue, correctly in my view, that job losses would be worse without the stimulus. But as we move towards economic "recovery," the administration is going to have to pivot towards policies that encourage industrial expansion. In a way, the energy bill is part of that. So yes, the stimulus is working for its intended purpose -- replacing failing private demand with government demand, boosting consumer spending and mitigating some job losses. But the stimulus is not the be-all, end-all of economic recovery policy, and both the administration and its critics shouldn't forget that. -- Tim Fernholz
