Did Obama's original stimulus package, aka the American Recovery ad Reinvestment Act, aka Porkulus I actually succeed? James Pethoukis says no and draws an intriguing rebuke from Ezra Klein. I am especially drawn to this:
To be sure, Pethokoukis’s second argument is far superior to his first: he quotes an analysis by John Taylor, a Stanford economist, which attempted to measure the extra spending — as opposed to the net paying down of debts — induced by the stimulus, and found little effect. Case closed?
Not really. A few months ago, Dylan Matthews and I attempted to do a comprehensive job on the subject, asking an array of economists from both sides of the aisle which studies they found most persuasive and then summarizing those studies, as well as their methodological strengths and weaknesses. We ended up with nine studies — including Taylor’s — and 4,877 words of summary. It was not an easy task.
And as far as I can tell, it’s not a task Pethokoukis even attempted. Dylan and I found that of the nine serious efforts to estimate the stimulus, six found substantial positive effects, two found no effect, and one found a slight effect. Taylor’s paper was nowhere near the most convincing of the bunch, and Taylor, a longtime spokesperson for Republican economic policies, is not the most convincing messenger, either. But Pethokoukis neither attempts to deal with the flaws in Taylor’s study — he gestures toward one of them and then misuses a quote Larry Summers gave me about “shovel-ready” infrastructure projects — or the contrary results in, say, Feyrer and Sacerdote.
A cross state analysis suggests that one additional job was created by each $170,000 in stimulus spending. Time series analysis at the state level suggests a smaller response with a per job cost of about $400,000. These results imply Keynesian multipliers between 0.5 and 1.0, somewhat lower than those assumed by the administration.
So we got less stimulus than the Administration promised. Already we have a baseline problem - if Team Obama predicted 3 million jobs "created or saved" and utterly credible outside analysts conclude the actual figure was 100,000, did the stimulus succeed? Critics claiming it cost the economy jobs are wrong, after all. On the other hand, 100,000 is a lot less than 3 million.
Mr. Klein does not explicitly address this quandary, but since he scores this paper among the "Stimulus Worked" set, I infer that he is setting a low bar. Certainly other critics have argued that, although the force of nearly $1 trillion surely created some jobs, the stimulus under-delivered (Mr. Klein quotes Douglas Holtz-Eakin to that effect). Since the Feyrer-Sacerdote paper does not describe the extent of the gap between their estimates and the Administration vision, I am withholding judgment.
The next "Success" story is Chodorow-Reich et al. From the abstract:
Abstract: The American Recovery and Reinvestment Act (ARRA) of 2009 included $88 billion of aid to state governments administered through the Medicaid reimbursement process. We examine the effect of these transfers on states’ employment.
What? The $88 billion of Medicaid is roughly ten percent of the total ARRA package. Even if this slice was stimulative, that hardly speaks for the whole package.
But the comedy continues. The next paper is by Daniel J. Wilson of the San Francisco Fed, and he includes this tidbit:
In contrast to Chodorow-Reich, et al., I find no evidence of a positive Medicaid multiplier for total nonfarm employment, even when using the same instrument (pre-ARRA Medicaid spending). The difference likely derives from the control variables that I include and the fact that in my regressions I am also simultaneously controlling for the other two/thirds of ARRA spending.
That bodes poorly for the previous "Success!" paper, whose value was suspect in any case. Mr. Wilson's broader conclusion:
This paper estimates the “jobs multiplier” of fiscal spending – by sector, by type of
spending, and over time – using the state-level allocations of federal stimulus funds from the American Recovery and Reinvestment Act (ARRA) of 2009. Because the level and timing of stimulus funds that a state receives is potentially endogenous, I exploit the fact that most of these funds were allocated according to exogenous formulary allocation factors such as the number of federal highway miles in a state or its youth share of population. The estimates suggest ARRA spending created or saved about 2 million jobs in its first year and over 3 million by March 2011.
OK, that sounds like a success. I found a website that noted a "fallacy of composition" problem with this statistical technique, but let's checkthe scorecard. Where Mr. Klein had three "Success" papers, I have one gray area, one discard, and one success. Shall we press on?
Let's not. The next three "Success!" papers amount to re-running macroeconomic models to verify that yes, the models said that when money is spent jobs will be created, and they still say that if the money was spent, jobs must have been created. Pretty convincing. Here is the CBO, and Mr. Klein's summary of the issue is well worth repeating:
b) Prediction versus evaluation: Some critics have discounted the CBO’s studies on the stimulus as, in Reason writer Peter Suderman’s words, “pre-cooked”, because the multiplier estimates are based on evidence known before the stimulus was passed, and thus are sure to produce similar results before and after the stimulus was enacted. However, this is arguably a strength of the CBO approach. Attempts to determine the effect of the stimulus by comparing spending and employment data have to control for other factors are affecting employment, which can be tricky. A modeling approach avoids these pitfalls.
In other words, the CBO didn't get bogged down with messy details or untidy reality. And that's a good thing!
The CEA plugged and chugged with its own multipliers and models and found that their advice was spot on.
Finally, Zandi and Blinder used Moody's econometric model and, after running different scenarios, concluded that more spending created jobs, just like their model says. Mr. Klein delivers another laugher in describing this model:
Federal spending is treated as exogenous because “legislative and administrative decisions do not respond predictably to economic conditions,”
So the model which assumes Federal spending is independent of economic conditions is being used to evaluate an increase in government spending triggered by weak economic conditions. Am I alone in being troubled by that?
So six "Success!" stories have, by my grim reckoning, been beaten down to one success, one fogbank, and four for the round file. Hard to believe Mr. Pethoukis didn't even address any of these.
IT FAILED! On the "Stimulus Fail!" side of the ledger, Timothy Conley of Western Ontario and Bill Dupor of Ohio State University paper's confidence intervals drew a No Confidence vote from Noahpinion.