Stimulus Added Half a Million Jobs in the Second Quarter CEA Estimated

Thursday, the President’s Council of Economic Advisors issued its first quarterly report to Congress on the American Recovery and Reinvestment Act (P.L.111-5).  CEA reported that $151.4 b. of the $787 b. authorized had been outlaid as of the end of August and estimated that this increased second quarter real GDP by 2.3% and added about half a million jobs.   It estimated third quarter real GDP would rise an additional 2.7% and employment would increase by 1 million.  See Table 8 on page 26.  If these estimates hold up, which I expect them to, American taxpayers might feel better about where their $787 b. went.

I was pleased to see that the CEA carefully qualified its estimates and used several techniques that produced similar estimates to corroborate their analysis.  We’ll never know exactly what the economy would have looked like without the stimulus bill, so estimating its impact is difficult, especially so soon after its February 17, 2009 enactment.  CEA based its primary estimate on statistical projections of stimulus spending and tax cuts, but it also estimated the impact by using its own and several private macro models and by making cross country comparisons.  CEA emphasized that these estimates are preliminary and are subject to revision as more data becomes available.

CEA found that countries enacting the largest fiscal stimulus programs seemed to benefit the most and that those who enacted smaller stimulus experienced less benefit.  See pages 27 – 33.

CEA took a very close look at state and local spending of stimulus funds and found no evidence of hoarding.  To the contrary it found evidence that the states used the money quickly to avoid layoffs of state workers and to sustain crucial services.  See pages 33 – 39.

CEA also estimated that the “Cash for Clunkers” program boosted third quarter real GDP by between 0.1% and 0.4% and added between 40,000 and 120,000 jobs.  CEA was careful to point out that this “move[d] demand from the future.”  See page 40.

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About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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