Archive for August 26th, 2010
Posted in CBO, Fiscal Policy, JCT, Joint Committee on Taxation, Keynes, Keynesian, Republicans, tagged CBO, Congressional Budget Office, Fiscal Policy, JCT, Joint Committee on Taxation, Keynesian Economics, Republicans on August 26, 2010| 25 Comments »
…on Tuesday the nonpartisan Congressional Budget Office issued a report showing that the American Recovery and Reinvestment Act of 2009 increased the number of people employed by between 1.4 and 3.3 million people in the second quarter of 2010 and lowered unemployment by 0.7 to 1.8 percentage points. CBO concludes that without the Recovery Act unemployment, which stood at 9.5% in July, might exceed 10% and possibly be above 11%. There’s just one problem. CBO’s latest figures are inconsistent with its claims of the effects of the stimulus bill when it was passed in February 2009. If its models failed to accurately predict the effects of the stimulus bill then, why should we believe the models now? This is important because some are taking the CBO report as proof that the stimulus bill is working and so we need…more stimulus. …After passage of the stimulus bill, in a March 2009 letter to Iowa Senator Chuck Grassley, CBO predicted that the unemployment rate in the last quarter of 2009 would rise to 9% without the stimulus package, from its then-current level of 8.2%. With the stimulus, CBO said, the unemployment rate would range from 7.8% to 8.5%. The actual rate in December, 11 months after enactment of the stimulus, was 10%, far higher than CBO said it would be absent the stimulus. …If Americans had known in February of 2009 that the $787 billion stimulus package (whose cost CBO later raised to $862 billion) would not lead to declines in unemployment, but instead a substantial increase in the unemployment rate to 9.5%, opposition to the spending would have been practically universal. Put it another way – if Americans were asked now whether they would prefer today to have back the February 2009 unemployment rate of 8.2% and the $862 billion spent on stimulus, they would say yes. Some say things would have been worse if the stimulus funds had not been spent. They assume that more government spending, including the $862 billion stimulus, must be good for the economy. This form of Keynesian economics fell out of fashion decades ago everywhere, except in the halls of power in Washington. If more government spending always helped the economy, why stop at $862 billion? Why not give each American an unlimited bank account? Then the unemployment rate would likely rise to 100%. But some economists would still offer unverifiable models to “prove” the benefit to the American public.
GOP Members of Congress who think they can return to business as usual if they regain the majority should pay attention. The biggest shock came in Alaska, with incumbent Senator Lisa Murkowski trailing unheralded challenger Joe Miller by roughly 1,700 votes with as many as 16,000 absentee ballots still to be counted. …Though heavily outspent, Mr. Miller was helped by former Governor Sarah Palin’s endorsement and especially by Ms. Murkowski’s failure to understand the anti-Washington mood. When he asked Senator Murkowski in a debate which part of the Constitution permitted Roe v. Wade and bank bailouts, she responded that the nation might suffer if the government only funded things explicitly authorized by the Constitution. Bad answer. Ms. Murkowski opposed ObamaCare but Alaskans punished her for her 2009 refusal to rule out a government-run health-care plan. She is learning the lesson that ousted Utah Senator Bob Bennett did: GOP voters don’t want their representatives to negotiate with President Obama. They’re looking for people who can defeat his agenda.