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.