WSJ reporter told his blog readers that: "stimulus can’t take credit for slower GDP contraction." His argument is that most of the growth in spending at the federal level came from higher defense spending, which is not part of the stimulus. This is true, but hugely misleading. The stimulus was directed primarily at state and local spending and also at increasing disposable income through tax cuts and benefit increases, thereby increasing consumption. S&L spending added 0.3 percentage points to growth after subtracting 0.2 percentage points in the first quarter. Without the stimulus money from government, S&L governments almost certainly would have subtracted even more from growth in the current quarter. The stimulus also put money directly in consumers' pockets. As a result of the tax cuts and benefits increases disposable income rose at a 4.6 percent rate, even though wages fell at more than a 5.0 percent rate. This boost undoubtedly kept consumption from falling more than it otherwise would have. So, there is clear evidence of an impact of the stimulus, as long as you don't look where you shouldn't expect to find it.
--Dean Baker
