Did The Stimulus Work?

Someone asked me whether the stimulus worked. The question is fast becoming a feature of the run up to this fall’s elections. Quite why I don’t know. Of course it worked. Here’s the article in the New York Times that discusses the consensus within the world of economics – just check the chart, it tells the entire story.

The reason why this discussion has resonance is that the benefits from the stimulus are nuanced: the impact was to stem job losses rather than reverse them, so the public sees continued unemployment and not improvement. Nonetheless the success was unequivocal and a huge affirmation of Keynesian theory. As you all know my problem with the stimulus was that it was way too small, I advocated a figure twice as large as that enacted.

Obama’s political problem is that it is hard to convince voters the plan succeeded when unemployment has risen since the stimulus was voted on. It will become more difficult next year after the major impact has ebbed – the plan’s effects are reaching their peak this summer.

So, yes, the stimulus worked. Of that there is no doubt. So the economics was great.

The politics? Lame. Obama should have gone for more and opened the possibility that unemployment would actually improve. Now he has a subtle argument to make. And subtle is not an easy sell when cable television gets involved.