The transition team has just released a report that analyzes the potential effects of the stimulus package, written by incoming Council of Economic Advisors Chair Christina Romer and Vice-President-elect Biden's Chief Economic Advisor, Jared Bernstein. Because I like you guys, I have put the report here [PDF] for your perusal. Incidentally, for progressives, Bernstein is exactly the right economist to have working on this bill, and it's good to see some direct evidence that he has a seat at the stimulus table. Though now, I suppose, we should start referring to the stimulus as the "American Recovery and Reinvestment Plan" -- just like in the fall when the "bailout" became a "rescue."
The analysis, which Obama discusses in his weekly radio address, looks at the multiplier effects of government spending and tax cuts to get a sense of how many new jobs will be created, where they will be, who will get them, and what the overall effect on the economy will be. Here's a graph that should be of interest:
Some economists will question whether the projections for unemployment without the recovery plan are large enough and, thus, whether the projections for recovery are too optimistic, although the two authors use relatively conservative multiplier effects in their estimates. But even with this plan, you can see that unemployment will remain appreciably high through the 2010 election, which could be problematic for Democrats in congress even if it seems that the economy is moving in the right direction. The new administration's expectation is that every percentage point increase in GDP is equal to about 1 million jobs, and they project a 3.7 percent increase in GDP and 3.6 million new jobs by the end of 2010. The report also argues that the plan will help move people from involuntary part-time work back to full-time employment, increasing overall productivity.
In their analysis of the components of the plan, the two economists predictably join the consensus in noting that bang-for-buckwise, food stamps, unemployment insurance and investment have a much more powerful effect than tax cuts. In fact, they write, "tax cuts, though they have no direct jobs effect and generally affect consumer and firm spending only gradually, also have important job creation benefits by the end of the two-year window." Nice to hear them admit that, even if they don't go into what those "important job creation benefits" are.
Happy news, though, for feminists who have been calling on the new administration to make sure this plan works for women, or rather, gets women to work. Part of the report is dedicated to looking at the distribution of these new jobs, and the two authors estimate specifically that approximately half (1.5 million) of the new jobs the plan aims to create will go towards women. They also note, somewhat slyly, that unions will benefit from this job creation plan, since two sectors directly targeted -- manufacturing and construction -- have higher average union representation than the rest of the private sector. "Private sector," incidentally, is a key phrase in the report, which goes to great lengths to reassure that this isn't a government jobs program, although it will add 244,000 more workers to the government payroll.
In his radio address, Obama talks about how the jobs plan will reinforce his stated goals; many of the jobs will be in the clean energy sector, for instance, and others will come out of his plans to computerize medical records and, of course, rebuild roads, bridges and schools (still no direct mention of mass transit, unfortunately).
We still have to ask, is this enough? I'm not sure Paul Krugman will be pleased, if that's the benchmark. But one thing I do expect is for Democratic members of congress to look at that graph above, consider their reelection prospects, and wonder if maybe they ought to make the bill just a bit bigger so that unemployment line will drop just a bit lower as voters head to the polls; nothing like seeing self-interest and good public policy go hand-in-hand. I'd also note that other measures, such as the Durbin foreclosure mitigation measure and plans to repurpose the remaining TARP funding ($350 billion!) towards broader investment could help accelerate recovery if properly implemented; though the media is focusing on this legislation as the primary response to the recession, there will be other government programs that drive economic growth.
That's about as much stimulus as I can take on a Saturday morning, but I'll be soliciting more expert opinions on this report soon.
-- Tim Fernholz
UPDATE: Nobel-quality reaction.