It is premature to say that the nearly $890 billion stimulus package is not working, purely based on the latest unemployment data. Yet some economists and others are raising the specter that with unemployment hitting 9.5 percent, the stimulus has been a waste of money. That viewpoint lacks perspective.
First, let’s remember that the economic crisis was inherited by the Obama administration — and a major cause of the crisis was a failure to regulate the financial sector correctly in the prior eight years, especially in the final years of the Bush administration. The new administration, students of the Great Depression, reacted correctly and decisively by enacting a major stimulus package, and they have also worked to complement the work of the Federal Reserve, which moved aggressively to sustain the banking system.
Second, it is very difficult to forecast how the economy will perform. Certainly very few economists saw this crisis coming and its severity. Council of Economic Advisers Chair Christina Romer made a good estimate of the impact of the stimulus package, looking at the number of jobs that would be added by the package compared to the counterfactual of the number without a stimulus package. As we all know, it is not only very hard to forecast the future path of the economy, but also very hard to forecast the impact of any stimulus package. Because economic policymakers have to make decisions under uncertainty, economists do the best they can to say what will happen if no policy is enacted and the impact of policy if it is enacted. No one should expect the predictions to track exactly the actual outcome, especially in this extremely uncertain time.
Overall, the administration’s stimulus package was a good one. It makes perfect sense to have the government step in and circulate funds through the lifeblood of the economy when the private sector is contracting. Unfortunately, the stimulus has been rolled out more slowly than would have been ideal because government programs often take time to ramp up, but the good news is that its main impact is still to come, and it is still needed because the recession is far from over. Economic policies take time to work. Let’s give the current policies a chance. It is far too soon to think about enacting another stimulus package, as some have suggested, until we see if this one was enough.
Sniping at the Obama administration’s policies after they have been in office six months and are dealing with the calamitous recession bequeathed by the previous administration seems a bit much.