In what the Washington Post trumpeted as “the latest display of the breadth and strength of the economic recovery,” the unemployment rate was unchanged last month, marking “the first time in six months it didn’t fall.” Atlantic editor Derek Thompson strains mightily to spin this as evidence that President Barack Obama’s “stimulus” worked.
The estimated cost of the stimulus is now up to $825 billion (a $38 billion cost overrun from Obama’s original claim of $787 billion). This massive deficit spending would be worth it, Vice President Joe Biden assured us back in Feb. 2009, as it would “literally dropkick” us out of the recession (Literally, Joe?) Three years later, how are we to judge this claim?
The stimulus had nothing to do with ending the recession. As John Merline noted in Investors’ Business Daily:
“Monthly GDP … stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. … Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April.”
By the time the recession officially ended in June 2009, no more than $60.4 billion (7.3 percent) of stimulus funds had been spent — meaning that by the time Obama is done, at least 92.7 percent of this increase in debt will have been incurred after its alleged rationale had become moot.
As a result, according to the U.S Bureau of Economic Analysis’ revised estimate released Feb. 29, real GDP growth slowed to 1.6 percent last year, barely half 2010’s rate of 3.1 percent. After ten quarters of the Obama “recovery,” GDP is up just 6.2 percent from the bottom — less than half the median 12.8 percent for postwar recoveries, according to Federal Reserve data.
Even worse than its drag on GDP is the effect of this crippling debt on employment. Even before taking office, Obama claimed his stimulus spending would “likely save or create 3 to 4 million jobs.” He cited a report by Christina Romer, then head of his Council of Economic Advisors, dated January 9, 2009, which projected that the stimulus would hold unemployment to 7 percent, versus 8.8 percent without the stimulus (see Figure 1).
Source: Christina Romer and Jared Bernstein. “The Job Impact of the American Recovery and Reinvestment Plan.” January 9, 2009. Figure 1, page 4.
In reality, Obama’s spending spree “stimulated” unemployment up to 10 percent! Even 32 months into the recovery, employment has grown only 1.7 percent from the bottom, according to the Fed, far below the average 7 percent for postwar recoveries – or 10 percent for the Reagan recovery following the 1981 tax cuts!
Obama’s excuse for this performance is that he “underestimated” the depth of the recession, but this is clearly not true. In his first budget, he actually overestimated the recession, underestimating GDP for 2008 by more than $100 billion. His problem isn’t that he underestimated the recession, but that he overestimated the effect of his “stimulus,” promising $18 billion growth his first year, but delivering a loss of almost $400 billion.
Thanks to Obama’s spending, the White House overestimated last year’s GDP by more than half a trillion dollars. Meanwhile, the administration’s Romer-Bernstein report (Figure 1) projected that unemployment should now be 6 percent. Instead, it stands at 8.3 percent — exactly where it was when Obama signed the stimulus into law in February 2009.
That month, the President said, “If I don’t have this done in three years, then this is going to be a one-term proposition.”
That was three years ago last month.