Newsflash! Economists Agree

Posted by White House

The old adage goes that Presidents often wish for one-handed economists, to avoid all that “on the one hand, sir, we could be looking at X; though on the other hand, it could be Y.”

So when economic consensus forms around the outcome of a policy like the Recovery Act, it’s worth taking note. That’s why this article from USA Today, entitled (online) “Economists Agree: Stimulus Created 3 Million Jobs” is worth noting.

The piece cites various analyses from a wide variety of private sector economists as well as from the non-partisan Congressional Budget Office that all reach a similar conclusion: the Recovery Act was a key factor in preventing recession from becoming depression, and along the way, it has created or saved about three million jobs while making historic investments in clean energy, education, and upgrading the nation’s infrastructure (re these longer-term investments, this article from Time magazine reveals another important dimension of how the Act is helping).

There are lots of ways to validate this finding—the article cites the results of a recent study by former Federal Reserve Vice-Chair Alan Blinder and independent economist Mark Zandi, who find that the stimulus:

“…created 2.7 million jobs [so far] and…unemployment would be 11% today if the stimulus hadn’t been passed...”

The article also makes a point about timing that hasn’t been stressed enough. The President signed the Recovery Act on February 19 of last year, less than a month after he got here. Shortly thereafter, loss rates of GDP and job growth began to slow, with GDP turning positive in the third quarter of 2009, and net job growth following shortly thereafter.

Just consider what we view as one of the most important benchmarks of an economy that’s delivering for working families: private sector job growth. Over first seven months of last year, the job market hemorrhaged almost four million private sector jobs. Over those same months this year, the private sector added 630,000 jobs.

That result partly flows from the consumer spending that the Recovery Act helped to support, a point noted in the USAT article:

Stimulus outlays first topped $100 billion in the third quarter of 2009, which is when the economy resumed growing…Likewise, personal consumption spending began to increase in the third quarter after four consecutive quarterly declines.

This important point (remember, 70% of the US economy rests on consumer spending) was underscored in another recent and noteworthy analysis of the Recovery Act by economist Gary Burtless. Check out Figure 2 from his piece, which clearly portrays the impact of the Act on disposable income, leading Burtless to conclude that, “Another tangible sign of a payoff from the ARRA stimulus is the continued strength in consumer spending.”

We know more needs to be done to build on the momentum attributable to the Recovery Act. After all, this terrible recession cost the economy more than 8 million jobs. That’s why we’re continuing to push hard for more help for small businesses, forward looking infrastructure investment, and continued support for the jobs of teachers, police, and firefighters.

But amidst a lot of politically motivated noise intended to fog the issues, it’s important to appreciate the building consensus that the Recovery Act has done what it was intended to do: helped to stabilize the economy and save jobs.

And that’s true both on one hand AND the other.

Help Where It's Needed

Posted by White House

To get the correct answer, you’ve got to ask the right question.

An article in USA Today mistakenly concludes that Recovery Act benefits are not reaching the communities that need the help. Now you might reasonably ask whether the 3 million or so people working because of the Recovery Act live in places where they don’t need those jobs – kind of an absurd proposition. And it’s also the case that USA Today reaches this conclusion using some incomplete data to begin with - but the article also makes two mistakes: First, USA Today fails to separate out programs directly keyed to joblessness, and second, they conflate state unemployment with need.

Before going into the details, it’s important to reflect on this second shortcoming, because it’s a fundamental flaw in their analysis. We put recovery projects where they’re needed, regardless of a state’s unemployment rate. We build roads where roads are needed, we clean up superfund sites where they are located and we repair schools where schools need fixing.

To put this point in historical context, think back to the New Deal. One of the most memorable and lasting projects from that era was the Hoover dam. This project was built in a region where the unemployment rate was probably around zero, because it was in the middle of the uninhabited Nevada desert! But using USA Today’s analysis, the Hoover dam would have been a mistake because it was built in an area with only “below-average” unemployment.

Delving into some details, the article claims that per capita spending is more likely to go to communities where the state unemployment rate is below the national average. But, as we’ve argued before, if you look at the Recovery Act programs that are targeted toward reaching the unemployed—not just Unemployment Insurance, but food assistance, training services, aid to states, and more—it’s simply not true that state Recovery spending is uncorrelated with state unemployment.

The graph below plots this relationship, showing that when we look at the set of programs directly linked to joblessness (using complete, up-to-date data), the positive correlation is clear and strong.

The correlation is generated by obvious factors. Some programs, like unemployment insurance benefits, are linked directly to unemployment. Other programs, like aid to states to help offset the costs of their Medicaid programs, also give weight to state unemployment rates, so there too, we expect a significant correlation.

So, contrary to the thrust of the USA Today piece, much of the Recovery Act spending is higher in places with higher unemployment, and that’s no accident: it reflects the Act’s design. But that’s not the whole story.

As noted above, the fact that the correlation between state unemployment and total ARRA spending isn’t perfect is an important and positive attribute of the Recovery Act.

There are a lot of Americans who both need help and live in states with below-average unemployment. In fact, there are incredibly hard-hit communities in low-unemployment states and communities doing better than average in higher-unemployment states. For example, there are communities in North Dakota with high double digit unemployment (where the state unemployment rate was 3.6% in June) and communities in Florida doing better than the rest of the country (where the state unemployment rate was 11.4%).

And there are highly worthy projects—roads that really need fixing, water systems that need repairs, schools that need resources—in every state across America. It’s smart economics to fix these problems where they exist, regardless of the unemployment rate.

Bottom line, where Recovery Act components are directly keyed to job market conditions, they are clearly reaching those areas (keeping in mind that some of those communities may reside within low-unemployment states). And where there are infrastructure and investment needs—whatever the unemployment rate is—the Recovery Act is there too, helping to upgrade our schools, our highways, our airports, while planting seeds of opportunity in sectors like clean energy, high-speed rail, and the smart grid.

Most importantly, the Recovery Act is putting Americans back to work, approximately three million people so far. And that’s not just our view. Outside analysts from the non-partisan Congressional Budget Office to independent economists, Mark Zandi and Alan Blinder, whose recent work concludes that the Recovery Act played a key role in turning this economy around.

Remember, in the first quarter of last year, when President Obama signed the Recovery Act, over two million private sector jobs were lost. Now, in the first six months of this year, we’ve added just under 600,000 private sector jobs.

That’ s movement in the right direction, but it’s not fast enough. We’ve got to do more to build on the momentum the Recovery Act helped to generate. But along the way, let’s be sure to get the facts right about how the Recovery Act is working and who it’s reaching.

There They Go Again: Two Senators Continue False and Misleading Attacks on Recovery Act

Posted by White House

This morning two senators—John McCain and Tom Coburn—released their third report critiquing 100 Recovery Act projects. And just like the last two, this one was an inaccurate and misleading attack on programs that are putting Americans to work across the nation. I’ll present some details in a moment, but it’s very unfortunate that, once again, instead of trying to help create the conditions for stronger growth, to help build on the momentum of the Recovery Act, McCain and Coburn spend their valuable time cooking up phony critiques and, with their Republican colleagues, blocking votes of even bipartisan measures to help small businesses.

Let’s start with the bigger picture. Just last week two prominent, independent economists released a rigorous study on how actions by the government (and the Federal Reserve), including the Recovery Act, helped to end the Great Recession. One of the authors—Mark Zandi—was one of McCain’s top advisers during his presidential bid. He and Alan Blinder (a former vice-chairman of the Federal Reserve) found that the Recovery Act has created or saved about 2.7 million jobs so far, and shaved about a point and a half off of the unemployment rate.

These jobs are the result of over 70,000 projects in action around the country, of grants to states supporting jobs of teachers, police, and firefighters, of tax cuts for working households, loans to small businesses, and investments in innovative new industries producing advanced batteries, clean energy, and much more. They’ve helped reverse a situation where last year, we were losing millions of private sector jobs; in the first half of this year, we’ve added 593,000 private sector jobs.

Now, we’re always glad to take a second look at projects when concerns are raised. In fact, there’s never been a stimulus program of this magnitude with anywhere near the amount of oversight that’s been brought to bear on the Recovery Act. And when we find a problem, we fix it. We’ve shut down hundreds of projects that weren’t delivering the goods.

But the inaccuracy of McCain/Coburn in this regard renders this report just as unreliable as the last two. We followed up the projects in those reports, and found half of their claims to be flat-out false or misleading. Many of the others criticized worthwhile, job-creating projects. Check out this link and you’ll see that news outlets like CNN have debunked their claims in the past, often by simply going to the folks who were working on the project and learning about it:

In the current report, our review so far finds that five of the 100 projects are not even Recovery Act projects. And others are just blatantly wrong on the facts. Take for example an award that McCain and Coburn describe as “funding a WNBA Practice Facility,” when in fact the award is building a tribal government center that will create education and health facilities while also creating hundreds of jobs. Moreover, the tribe has agreed to disallow any commercial use of the facility.

One of their top critiques in the new report is a clean energy program in California that’s put about 50 people to work so far, expects to create 1,500 construction jobs, and then 500 permanent green jobs after that. Gov. Schwarzenegger praised the program, as did the Chamber of Commerce. What would McCain and Coburn say to these workers? That they shouldn’t have this opportunity? That they should go back to the jobless roles? That building a clean energy future is the wrong way to go?

What ideas does Senator Coburn have to offer to the 35,000 people working in Oklahoma who wouldn’t be there without the Recovery Act? What about the 64,000 Arizonans at work because of the Act?

Instead of answers, we’re left with a partisan attack contradicted by one of the author’s own former advisers. But that’s not all. We’re also left with a choice.

The President has shown he is willing to work with anyone who will join us to figure out new ways to create more jobs. The Vice-President spends each week making sure we’re squeezing job out of every Recovery Act dollar. Meanwhile, Republicans are blocking an up or down vote on a package of bipartisan proposals that would cut taxes for small businesses and allow them access to capital through community banks. It’s incredible, when you think about it: last week as they were working to turn out this hit-job of a report, these same two senators were voting against helping small businesses expand and create jobs.

Yes, we must carefully evaluate our progress, but we must do so without partisan thumbs on the scale. In that regard, the report these two senators are touting today is not a road map forward. To the contrary, it is one back to the failed policies that got us into this mess. We’ve tried that route. We cannot afford to go back there again.

Democratic and Republican Economists Agree: Intervention Was Imperative to Avert Depression

Posted by White House

The New York Times ran a compelling piece today on a report written by Alan Blinder and Mark Zandi which found that the policy response to the economic downturn was “highly effective” and that without the fiscal stimulus and the financial measures the Administration and the Federal Reserve took last year there would be 8.5 million fewer jobs.

With the hard-fought passage of Wall Street Reform last week, the President ensured that Wall Street will be held accountable, and that the American taxpayer will never again be on the hook for their actions. As the President had said repeatedly, he was just as angry with having to take steps to shore up our financial system as all Americans were. But when the President came into office, the economy was falling off a cliff, and this report demonstrates just how deep and disastrous the valley below truly was had he not done everything possible to pull it back. The report particularly emphasizes the effectiveness of financial stability measures including the bank stress tests, the actions of the Fed and the TARP program and it highlights the potential cost to the taxpayers had policy makers not acted at all.

• Read the full story.

The depth of the crisis required decisive and historic action. While the steps we took were not always politically popular the results become more indisputable each day. We went from losing 3.7 million jobs in the first six months of 2009 to gaining more than 600,000 jobs in the first six months of this year, and as this report demonstrates, it could have been much, much worse.

But the President needs no reminder that there is far more work to be done. That’s why he was in Edison, New Jersey this afternoon meeting with local small business owners about the importance of lending assistance for small businesses. The Senate is expected to move forward in the coming days on a vote on the small business bill that strengthen the capacity of small businesses to create jobs and lead economic recovery. The legislation includes several key Administration initiatives – including the Small Business Lending Fund (SBLF), the State Small Business Credit Initiative (SSBCI), extension and expansion of key SBA loan programs, and small business tax cuts including zero capital gains for key small business investments.

In addition, we can’t let the recovery of the financial sector distract from what led to this crisis which is why we are focused on protecting consumers, reining in Wall Street, ending bailouts and too big to fail through the implementation of the Wall Street reform bill the President signed into law last week.