Stimulus works

May 26, 2010

The   independent non partisan Congressional Budget Office has released an excellent detailed analysis of the American stimulus which shows that through the first quarter of this year the stimulus has created and saved more jobs than it was expected to and also increased the GDP by more than was expected. The multiplier for the stimulus turns out to be as much as 2.5 if one takes the best assumptions. Using very pessimistic assumptions about possible leakages and crowding out the multiplier is still one.The highest multiplier appears to occur when the program monies were spent directly by the Federal government on infrastructure.
Total employment was boosted by between 1.3 and 2.8 million additional jobs which would not have existed without the stimulus. This amounts to 1/4 to 1/2 as many jobs as were expected. The GDP was between 1.7 and 4.1 percentage points higher than it would have been in the absence of the stimulus.So contrary to conservative claims the stimulus was effective   but clearly not large enough to dramatically lower unemployment except in a slow and gradual fashion. It needs to be supplemented and the sooner this happens the better because stimulus works. With proper central banking and appropriate monetary policy crowding out is a myth.