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The Stimulus Three Years On: Did It Help the Economy?

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Three years after President Barack Obama signed the American Recovery and Reinvestment Act (ARRA) of 2009–a jury of eminent economists is retrospectively voting its approval of the controversial stimulus measure. Still, a minority of the surveyed economists remain unimpressed with the spending bill’s economic effects.

The proposition that unemployment would be higher at the end of 2010 in the absence of the stimulus garnered the approval of fully 80% of the surveyed economists. Just 4% of the panel disagreed with the proposition, with others uncertain or not commenting.

An Internet-based think tank under the auspices of the University of Chicago Booth School of Business regularly surveys its 40 member economists, from a range of U.S. universities, on economic issues of the day. The current question set, timed for the stimulus measure’s anniversary, also tested a second proposition:

“Taking into account all of the ARRA’s economic consequences–including the economic costs of raising taxes to pay for the spending, its effects on future spending, and any other likely future effects–the benefits of the stimulus will end up exceeding its costs.”

While this second proposition generated greater uncertainty than the first, the response was still lopsided in its approval of the stimulus with 46% of economists agreeing or strongly agreeing compared to 12 percent disagreeing or strongly disagreeing.

Those respondents who offered their comments tended to state their positions in technical terms, some adding links to studies. For example, Stanford Professor Darrell Duffie, who agreed the stimulus lowered unemployment, said: “Subsidizing employment leads employment to go up, other things [being] equal.”

University of Chicago Professor Austan Goolsbee, until recently the chairman of Obama’s Council of Economic Advisors, introduced a little political tension with his comment: “Quit with the politics and just go read the official ARRA reports for a review of the evidence.” Goolsbee strongly agreed, and with high confidence, with the proposition that the stimulus lowered unemployment.

Stanford economist Kenneth Judd, who declared himself uncertain about the stimulus’ effect on unemployment, appeared less than impressed with the studies cited by his University of Chicago colleague, saying: “There has been no serious study of this. Most analyses that try to analyze 2008-2011 are too simple and/or plagued with mathematical errors.” His Stanford colleague Caroline Hoxby, who strongly disagreed that the stimulus lowered unemployment, offered that “the depressing effect of future liabilities likely exceeded benefits.”

On the second question as to whether the stimulus’ benefits exceeded its costs, Goolsbee, who agreed that it did, explained: “This all depends on how much you value avoiding short-run collapse versus the costs long-term.”

Robert Hall of Stanford, who was uncertain, commented: “I’d agree that the results are likely to be on the positive side, but I can think of future crashes caused by the accumulation of debt.”

His Stanford colleague, Edward Lazear, who strongly disagreed the stimulus had a positive overall effect, commented: “The cost is the enormous and tough-to-reverse growth of government. This swamps even high estimates of benefits.”