Economists and the Stimulus

This survey by IGM Economic Experts Panel is brought up frequently in discussions about the stimulus.

In the survey, 40 economists were asked two questions:

• Question A: Because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill.
• Question B: 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.

The panel consists of 41 economists including the President's very own Austan Goolsbee.

Question A

Question A is silly. It sets a very low bar. One would answer affirmatively even if one believed it reduced unemployment by just one person compared to not having the stimulus.

Even with that artificially low bar, only 12 panel member strongly agreed with that proposition, and a further 21 panel members agreed with it. Five chose not to answer the question, and two disagreed with it, and one person was uncertain.

Here are some of the responses:

• Darrell Duffie, Stanford, Agree: Subsidizing employment leads employment to go up, other things equal. Adverse impacts through growth incentives might take time.

• Robert Hall, Stanford, Agree: All reasonable models have this implication, but there's enough the models are missing …

• Nancy Stokey, Chicago, Agree: Block grants to the states allowed them to cut education, health, and other services by less as state tax revenues fell.

• Edward Lazear, Stanford, Disagree The estimates are varied and the highest are based on ex ante models, not experienced-based data. The upper bound estimate is low.

• Anil Kashyap, Chicago, Strongly Agree, But this is an incredibly low bar.

• Caroline Hoxby, Stanford, Strongly Disagree, High confidence on an issue like this would be foolish. That being said, the depressing effect of future liabilities likely exceeded benefits.

Goldsbee's contribution was particularly ironic quit with the politics and just go read the official ARRA reports for a review of the evidence.

Clearly, when you read what these economists thought, even an agree vote does not necessarily imply that the responded endorsed the stimulus.

Question B

This question has real economic content. As economists, we do not care if a particular action has a benefit greater than zero. Most actions will create some benefit. The question for an economist is whether the benefits outweigh the costs.

And, here we see the differences better. In this case, 19 out of the 41 respondents agreed or strongly agreed that when all is said and done, the benefits of the stimulus would outweigh the costs.

Here are some responses to Question B:

• Bengt Holmström, MIT, Agree, Feedback effects too complicated to calculate. My best guess is that the program was marginally beneficial, but monetary easing helped more.

• Nancy Stokey, Chicago, No Opinion, How can anyone imagine this question is answerable, given the current state of economic science?

• Edward Lazear, Stanford, Strongly Disagree, The cost is the (sic) enormous and tough-to-reverse growth of government. This swamps even high estimates of benefits. See my op-eds. that explain.

• Anil Kashyap, Chicago, Uncertain, Payoffs to special interests (& associated political costs that paralyzed other efforts) made it far less effective than it could have been.

So, fewer than half of these economists believed that the benefits of the stimulus would end up exceeding its costs.

This survey cannot be used as some kind of proof that economists think the stimulus was the best thing since sliced bread.

In fact, a lot of us thought the whole thing was a waste. It is one thing to let automatic stabilizers kick in, have the government provide a calming guidance on markets. That wasn't the purpose of the stimulus: It went well beyond that.