State of the Economy: Part II

Over the past several weeks, the writers of Conflict Revolution have been exchanging a series of emails on the state of the US economy.  This is Part II of an ongoing debate that seems to have some serious legs - see where it takes us, and share your own thoughts, below:

Also see: State of the Economy: Part I

Matt: Stephen, you've conceded that the stimulus created some jobs.  Are you accepting it as an Obama accomplishment?

Stephen: I’m not going to argue that spending does nothing, that’s a bit absurd. But let’s look at your math. The average of 3.6M, 1.97M, 2.1M and 1.5M is definitely not 3.9M… my numbers say its 2.29M – which I’ll still give you is significant. But, like I said above, all of these studies are done on economic models which basically assume that the inputs always work (which is how we get the saved number – the group is saying it should give us this, so if they didn’t really exist then they must just be saved jobs). So at best, we can say that these numbers are fuzzy; econometric models, which also have problems, think it was either entirely useless or helped about 2M jobs.  If your point was that the recession could have been worse, I’ll concede you the point. However, what I see as the real issue is effectiveness of the stimulus and if it’s actually helping to “stimulate” the economy. It seems to me like it was more of a Temprapetic bed than a Viagra.

Matt: On those numbers, you took the low baselines for all the analyses and I took the median, which seems fairer, and yields 3.9 million jobs created between 2009 and 2011.  Even if it was your number, I thought any job created was a good thing?  Either way, I'm not arguing that stimulus should fuel our economy forever.  In fact, if you were actually going to make an honest argument, you would acknowledge that the stimulus was only through 2010.  But the fact is, where else do you expect demand to come from in an economy where everyone is losing their job?  Give me a better answer than government stepping in to help out and maybe I'll consider it.

Stephen: Let’s look at the expenses: by Obama’s optimistic 3.6M it cost $218k/job, my less optimistic numbers peg it at more than $500k/job.  So at the start, this seems kind of expensive. Second, let’s face it, we can’t go on indefinitely with stimulus. That’s why it needs to be a “little helper” rather than the whole thing (more Viagra than a pocket rocket). But it wasn’t a Viagra, and how do I know? Well like you said March’s job numbers were weak – looks like the recovery is getting droopy again. Stimulus, may have been short and “effective”, but nevertheless failed to really get the job done for the big O (for Obama). 

Matt: I like your analogy, but where would the economy be without those jobs, even if they were costly?  Would the recessed - and nearly depressed - free market have shelled out $218k/job as that work kept our economy afloat?  The less optimistic numbers, as we've discussed, are a low-ball estimate. 

Stephen: Matt, the Politifact article you posted on stimulus jobs gave the numbers I cited.  And maybe you didn't understand me: I accepted that it may have prevented things from being worse, but it seems empirically true that it has not stimulated nor was very cost effective. So now we have all this extra debt but what for? Finally, like I said the economy is getting sluggish again thus further adding to my claim that no we are not better off. 

Matt: The stimulus put a small bandage on a gaping economic wound when an even bigger one was needed - it wasn't supposed to lead us to robust growth on its own, and no one ever said it was.  But it sustained demand in a time of crisis and prevented things from becoming even worse than they were.  I'm really interested to hear what we should have done in 2009, with the economy shrinking by 9 percent at the time, instead of the stimulus.  Really interested.  Because without it our slow-growing economy might well be fully depressed, and the road back to prosperity would be even longer.  I'm not saying we're doing well right now, but in my view it's straight up asinine to argue that Obama has made things worse.  As for the stimulus jobs numbers, this is getting a bit semantic but I used the average 2009-2011 projection from all four analyses, with the median number from CBO because theirs was the only one to give a range.  You took the low ball estimate from CBO.  Either way, 3.9 million jobs or 2.29, the stimulus did what it set out to, but the economy is still weak because WE JUST HAD A MASSIVE RECESSION.  We should be looking at what to do next, not engaging in demagoguery on legislation that did its job.

Stephen: Why he has made it worse: stimulus was not as effective as it should have been since the projects were not ready to go like advertised; instead of fixing business and consumer confidence (the real way to rebuild both labor and consumption demand) he focused on ObamaCare which scares the shit out of millions of people. Instead of creating certainty around the future of taxes he kept uncertainties and continues bellicose language towards the banks for no other reason than political gains.  

Matt: Or perhaps, in an alternate history, a newly-elected President Obama would have nominated the former Chair of the New York Fed to be his Treasury Secretary, re-nominated a Fed Chairman installed by his Republican predecessor, and tapped as his chief Economic Adviser a former Treasury Secretary who helped lead the charge to repeal the 60-year separation between investment and commercial banking activities (Glass-Steagal).  Oh wait, that all happened.  I'm not sure what kind of language a new president, whose opponents are already testing him, should employ toward banks that take millions of dollars in taxpayer bailouts and then use it to pay out massive bonuses to their executives, but you're welcome to tell me.  As for consumer confidence, it's hard to have any when you don't have any money with which to consume things. The stimulus put money back in people's pockets, thus rebuilding that confidence in a tangible, rather than imaginary, way.  

Stephen: Matt, the entire problem with your argument is your complete and utter failure to understand that business cycles exist and are also an underlying factor. Thus, they must at some level account for something that is happening. Yet you find any positive measure to be the result of government intervention. Meanwhile all negatives are clearly not the result of government intervention but from business. It is this exact failure to comprehend the economic and business world that leads you, like President Obama, to so poorly handle the economy. But I think it's time to close this debate out since you've clearly conceded the original point (are we better off than four years ago) and drifted off into a fairyland debate about whether or not the economy would be worse off without the dear leader's economic guidance. We can have that debate next but this one appears over.

Matt: Well, I see you've returned to that classic conservative crutch - since we liberals do not place an irrational amount of faith in the free market, we must not understand it at all.  You vaguely say that business cycles must, at some level, account for something that is happening.  I agree.  But the "business cycle" does not exist in a vacuum, nor does it explain everything.  And since you conservatives know so much more about the economy, I'm sure you would also agree that it's awfully hard for the business cycle to rebound without any consumer demand for its goods and services.  The 2009 stimulus, at worst, helped prevent a bad situation from becoming worse because it helped to preserve jobs and prop up demand during a period that saw wealth destruction of historic proportions.  If you want to use May 2008 as a baseline for "are we better off," fine.  But that says absolutely nothing about President Obama's leadership during and after a crisis that started under his predecessor's watch.  The facts are the facts: a president inaugurated during a month when the economy lost 700,000 jobs and had just contracted by 9 percent has overseen nearly 3 straight years of slow but steady GDP growth, 26 consecutive months of job growth, and a broader economy that isn't nearly back yet but is strengthening and poised to continue its rebound.  If you were a fan of a sports team whose last GM completely screwed up and left the franchise in a state of complete disarray, with massive debts, aging veterans, and no promising younger players, would you fire the new guy for turning the ship around before he has a chance to finish the job?  

Matt and Stephen have a lot more to say on the economy, so stay tuned for Part III to this debate later in the week.  In the meantime, the comments section beckons...