Effects of the Stimulus Package: in Which the Usually Sharp-Eyed Felix Salmon Is Wrong!
Felix Salmon:
Why I’m unconvinced by calls for a second stimulus package: Let me try to hazard an answer to that. Start with the guiding assumption, as stated by Larry Summers when the stimulus bill was going through Congress, that the risks of spending too much paled in comparison with the risks of spending too little. And because the effects of government spending on GDP and unemployment are hard to predict with any accuracy, there was a strong case that a monster $800 billion stimulus bill was in many ways the prudent course of action.
Since then, however, the economy has done much worse than anybody thought it would. Which is one way of saying that the stimulus has not done as well as people thought it would. This is a useful datapoint — and one way of looking at it is to conclude that the stimulus was so big that the last few hundred billion dollars have had virtually no positive effect at all. And that any extra stimulus would similarly achieve very little...
Ummmm.... No.
Jared Bernstein and Christy Romer constructed extremely crude estimates of the delta-effect of the stimulus package on the economy by taking when they thought the different components of the $787 billion would be spent and how long it would then take for the government spending to have an impact on the economy. Their estimate is that we saw the effect of $0 (zero) (none) (nada) dollars of the stimulus package on the economy in the first quarter, that we saw the effects of only $14.5 billion in the second quarter, and that we are about to see the effects of $38.6 billion now in the third quarter as the effects of the ackage ramp up to their peak in the fall of 2010, when we will see $82.1 billion of stimulus spending hit the economy.
To say that what happened in the second quarter means that "the last few hundred billion dollars have had virtually no effect" is like sticking your toe into the ocean and pointing out that your hair is still dry...
