February 6, 2009
CBO Stays Stimulus Bill Worse that Doing Nothing
The Congressional Budget Office, hardly a Republican bastion, has reported that the stimulus bill will lead to a lower GDP 5 to 10 years out than if Congress did nothing. The bill will crowd out private investment that has a higher chance of increasing GDP than the spending in the stimulus bill. Correction: Here is the cite to the letter. http://www.cbo.gov/ftpdocs/99xx/doc9987/Gregg_Year-by-Year_Stimulus.pdf
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One of the primary benefits that blogs offer is the ease with which interested readers can locate source material that allegedly support a position or statement taken in a blog posting. Thus, if a post links to source material, interested readers can determine for themselves whether the source material supports the position taken in the post. Your posting here, intentionally I think, omitted a link to the CBO report you relied upon because it doesn't support the overheated rhetorical point you wanted to make. I believe that the CBO report that your post refers to is here: http://tinyurl.com/apgacb.
If one goes to the document itself, one finds that the CBO statement is rather limited. For instance, it states that: "CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. H.R. 1, as passed by the House, would have similar long-run effects. CBO has not estimated the macroeconomic effects of the stimulus proposals year by year beyond 2011." (Emphasis mine.) In other words, it is possible that the macroeconomic effects of the stimulus bill might, over time, increase the GDP, but, even if that were not the case, the reduction in GDP is relatively small over the long run.
Significantly, the CBO report makes the obvious point that "[F]undamentally, many things that make people better off do not appear in GDP at all. For example, healthier children or shorter commute times can improve people’s welfare without necessarily increasing the nation’s measured output in the long run (though spending in those areas would still provide short-run stimulus). Even legislation explicitly intended to affect output may also seek to accomplish other goals and can be evaluated accordingly." Let me illustrate: Even if it reduces GDP by some small amount, money spent on prevention of STDs, for instance, is money well-spent.
And, of course, you did somewhat cherry-pick the single conclusion you chose to highlight. Imagine if the headline on the post were: "CBO concludes that proposals for reduction in taxes for the wealthy and changes in tax loss carrybacks don't even increase GDP by the amount of federal revenues lost." (See page 9 of the letter.) The post would then go on to show how proposals that the Republicans favor (even though contained in the Obama Administration's proposal) are essentially worthless.
It is perfectly appropriate to attempt to highlight one portion of a piece, such as the CBO report here, and to cite it in support of one's political or philosophical position. But candor requires that you provide your readers ready access to the source in order to be able to evaluate your claims.
Posted by: Stuart Levine | Feb 6, 2009 8:27:53 PM
Stuart: It is impossible for you to note that a spending bill even for laudable objectives is different that a "stimulus" bill intended to boost GDP? Transfer payments to address social goals do not boost the GDP over time.
Posted by: Joe Business | Feb 7, 2009 8:41:50 AM
Agree with Stuart - it's important to link to primary sources, particularly when the CBO study has now turned into the baldly false claim by John Kyl that the bill will "cause a recession in 10 years." See here:
The study predicts pretty sizable positive effects on GDP through 2011, but small average negative effects in the long run because of the additional debt. And even those effects appear to rest on assumptions about longer time horizons leading to an approach to average utilization of productive capacity.
In the long run, as they say, we're all dead. Even assuming that everything else remains the same and thus the long-term projection makes sense, why isn't a boost now worth a smaller drag later?
Posted by: Brett | Feb 7, 2009 8:57:01 PM
Apparently, "Joe Business" has not read the CBO report. Let me summarize the portion of the report dealing with the stimulus: In the period 2009-2011, the stimulus package will increase GDP. This conclusion is reached by taking into account macroeconomic effects of the stimulus. The reduction in GDP in later years is due to the fact that, for years after 2013, the CBO did not take into account macroeconomic effects. (See, top of page 6 "CBO has not estimated the macroeconomic effects of the stimulus proposals year by year beyond 2011.")
This means, of course, that Prof. Oesterle's statement that the CBO report concluded that "the stimulus bill will lead to a lower GDP over 10 years than if Congress did nothing" is also false.
Posted by: Stuart Levine | Feb 11, 2009 8:24:16 PM
@ Stuart--I am not following your logic. When you say "[t]he reduction in GDP in later years is due to the fact that, for years after 2013, the CBO did not take into account macroeconomic effects," that is false. You need to read the sentence you cite in support of your claim more carefully. I've taken the time to get it from the primary source and I added a bit of emphasis to clear something up for you. Here it is:
"CBO has not estimated the macroeconomic effects of the stimulus proposals YEAR BY YEAR beyond 2011" (emphasis added).
The CBO broke the macroeconomic effect of the stimulus into a year-by-year analysis for the years 2009-2011. The report then NETTED the macroeconomic effects of the stimulus for the time period from 2012-2019 ("CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net."). So by not showing a year-by-year breakdown of the effects, you claim that the CBO didn't take into account macroeconomic effects past 2013 at all???
But just in case you were wondering what those year-by-year breakdowns of the macroeconomic effects of the stimulus would be past 2011, the CBO came out with a "refined" report yesterday:
This time, the CBO has a range of GDP estimates in the long run: "Beyond 2014, the legislation is estimated to reduce GDP by between zero and 0.2 percent. This long-run effect is slightly smaller than CBO estimated in its preliminary analysis of the Senate stimulus legislation last week due to refinements in our methodology." So under this new report, the "high estimate" of the legislation is that the stimulus doesn't decrease the GDP in the long run, but in the "low estimate," GDP shrinks by -0.1% in 2014 and -0.2% in each year from 2015-2019.
Posted by: NR | Feb 12, 2009 11:50:11 AM
Let me make it eminently clear. The headline on the post ("CBO Stays Stimulus Bill Worse that Doing Nothing") is simply not true. The CBO report (I'm citing here to the subsequent draft) states unequivocally that:
1. "In contrast to its positive near-term macroeconomic effects, the legislation would reduce output slightly in the long run[.]"
Take a look at the numbers: The benefits of the legislation over doing nothing in short-run are dramatic; the downside in the more distant years is virtually 0. (See the GDP Gap figures.) One mistake that you make in your analysis is that you somehow assume that the GDP figures are cumulative. They're not. Thus, the significant GDP growth in the near years more than offsets the (worse case) trivial diminution in GDP in the out years. (I say "worse case," because in the best case scenario, GDP is flat in the out years.)
2. "[I]n the short run the stimulus legislation would raise GDP and increase employment by adding to aggregate demand and thereby boosting the utilization of labor and capital that would otherwise be unused because the economy is in recession. Most of the budgetary effects of the legislation would occur over the next few years, and as those effects diminished the short-run impact on the economy would fade."
Take a look at the chart on employment numbers. In none of the ten years shown does the legislation cause employment to fall; in the first six years, the legislation is predicted to add to employment. Thus, overall, the legislation is predicted to have a net positive effect on employment.
A more accurate headline would be "CBO Stays Stimulus Bill Helpful in the Short-Run, With Trivial Downside Affects in the Long-Run" or, better yet, "CBO Says That, On Balance, Stimulus Bill is Beneficial."
Posted by: Stuart Levine | Feb 12, 2009 3:14:09 PM
Dale, are ever going to correct this post and issue an apology to your readers. It is false and misleading.
Posted by: Palooza | Feb 19, 2009 7:59:16 AM