George Will claims that the stimulus packages passed in 2008 and in February of this year did not work. How does he know this? Well, because the unemployment rate is still very high. That is an interesting logical leap. Suppose a person has been diagnosed with cancer and is treated with chemotherapy. Three years later the person is still alive and reasonably healthy, but the tumor has not gone away. By Dr. Will's logic, the chemotherapy did not work. The reality is that we are facing an enormous economic downturn because Will and the other people who occupy center ground in the nation's policy debates were unable to see an $8 trillion housing bubble. The inevitable collapse of this bubble virtually guaranteed a steep recession. The stimulus passed in 2008 helped to keep consumption higher than it would have been in the absence of the collapse. The same is true of the stimulus passed this year. Both kept employment higher than it would have been in the absence of the stimulus. Economists can test for the effect of the stimulus by using models that project what would happen in the absence of stimulus and compare this scenario with what actually happened. These models generally show that both the 2008 and 2009 stimulus strengthened the economy. Will is either profoundly ignorant of economics, or being disingenuous, when he implies that the Obama administration is somehow making things up when it claims that is has "saved" [italics in original] jobs. Any effort to boost the economy will create some number of new jobs, but it will also prevent many existing jobs from being lost. This is a very basic concept, and contrary to Will's assertion, we can measure the extent to which this is true. Will thinks it is "awkward " that the unemployment rate continued to rise after the stimulus was passed. Actually, this is exactly what the Obama administration, as well as independent forecasters, had projected. No one thought that the stimulus could immediately halt the economy's downward slide. The slide was faster than the administration had projected, and for this they deserve blame, although most independent forecasters made the same mistake. (This is not an excuse -- they get paid for getting the numbers right, not making the same mistakes as everyone else.) Will also fails badly in describing the spendout rate on the stimulus. He concludes his column by telling readers that: "But one-quarter of Stimulus II will be spent this year. Another quarter will be spent in 2011. Half will be spent in 2010, an election year. Which suggests that Stimulus II is, and Stimulus III would be, primarily designed to save a few dozen jobs -- those of Democratic members of the House and Senate." That's a cute story, but the problem is that Will's number refers to fiscal years. The 2009 fiscal year ended September 30th. The spending for calendar year 2009 will be roughly 36 percent of the stimulus, with another 50 percent to come in calendar 2010. Rather than being timed for the 2010 election year, the stimulus was designed to get money out the door as quickly as possible. That is what we want stimulus to do. Since the bill did not get signed into law until March, it should not be surprising that the spending for 2009 is somewhat less than 2010. It does take some time to spend money and given that the bill did not become law until three months into 2009, it certainly looks like the Obama administration is spending the money rapidly. One final point worth noting -- Will seems to be appealing to nationalist and/or racist sentiment in asserting that health care reform will be paid for by "by borrowing from China." The reason that the United States as a country borrows from China is because of the trade deficit, which is the result of an over-valued dollar. If the dollar stood at the same value, and the U.S. had the same level of GDP, but the budget was balanced, then the country would be borrowing the same amount of money from China, but it would largely take the form of Chinese purchases of private assets. Of course, if China opted to sell its private assets and purchase government debt, it could do so any day of the week. If someone is really concerned about U.S. borrowing from China, then their focus should be on over-valued dollar, not the budget deficit. It will be interesting to see Mr. Will's future columns on the over-valued dollar.
--Dean Baker