Zandi Claims Stimulus Didn’t Do Squat

[UPDATE: Nada EcMajor pointed out a rather large mistake in this analysis: I had used compounded quarterly growth rates to back out the quarterly data, when I should have been dividing the annual data by 4X. This makes the stimulus look much better. On the other hand, I used a value for the stimulus spending from one of Blinder & Zandi’s tables, when I should have been using a more complete number provided in another table. This makes the stimulus look worse. The updated numbers are provided in the post.

Thanks to Nada EcMajor for the correction.]

I don’t think it’s what he meant to claim, but that’s the way it works out.

You see, Alan Blinder (Princeton Univ.) and Mark Zandi (Moody’s Economy), recently released a report titled “How US Policy Ended the Great Recession.” While a few articles have criticized the report, by and large the media reporting has looked like Ezra Klein’s “Zandi: Financial rescue and stimulus responsible for saving or creating 8.5 million jobs” article. Lots of cheerleading and high fives over the success of the stimulus and the immense wisdom of the Obama administration.

That’s a nice spin, but if you read the report, does it truly say that the “financial rescue and stimulus” were responsible for “saving or creating 8.5 million jobs?” Not really. The report actually places most of the credit on the changes in financial policy & TARP.

And in fact, though the authors wax enthusiastically over the ARRA stimulus, the calculations in the report show that the stimulus package was hugely inefficient and wasteful. I backed out some numbers from the report – numbers that Blinder & Zandi didn’t see fit to present. I’m using their numbers to compare the situation as it is (“Stimulus+Policy”) with the prediction for financial reform+TARP but no stimulus (“Just Policy”) Take a look at what I found:

	Stimulus+Policy	Just Policy
GDP (1Q09 – 2Q10)	$19,558 Billion $19,631 Billion	$19,218 Billion $19,197 Billion
GDP Boost From Stimulus	$340 Billion $434 Billion
ARRA Stimulus Spent (1Q09 – 2Q10)	$391 Billion $472 Billion

That’s right. According to Blinder & Zandi, we’ve spent $391 billion $472 billion in stimulus money in “now” dollars, to get a GDP increase of $340 billion $434 billion (in 2005 dollars), so we lost $51 billion $38 billion. Lost $51 billion $38 billion. If you adjust for inflation, it only cost us about $10 billion it’s a wash, but the point is that rather than spending the money in a way that has a big economic multiplier, it’s been spent with a economic multiplier less than of only 1.

They also tell us that their modeling predicts that the stimulus itself was responsible for 2.5 million jobs. If you simply take that at face value, and divide it into the $391 billion $472 billion spent thus far, you find that each job cost us more than $150K $185K. Yep – each job over that 18 month period cost us $100K/yr $125K/yr.

Liberals like to set up a strawman, saying that critics claimed that no jobs would be created. That’s nonsense – you can’t dump the better part of a trillion dollars into the economy and not create jobs. The real claim was that the stimulus was too slow, too inefficient, and would have adverse consequences in the long-term.

Here we are 18 months later, having spent $150K $189K for every job created and seeing a negative impact on GDP. Not to mention amazingly high unemployment. I think we can be forgiven our criticisms.