Is the Stimulus Package Working?

by Elaine Schwartz    •    Jun 14, 2010    •    656 Views

We will never know for sure whether the $787 billion stimulus package really made a difference. According to NY Times columnist David Brooks, President Obama’s economists predicted 3 million jobs would be created or saved while others suggest the impact will be much smaller.

How are we doing so far? Is the U.S. economy faring much better than it would have without massive spending? 

Looking at research by Harvard professor Edward Glaeser, we see the data from individual states provides no definitive answers. We cannot say for sure that unemployment numbers and the change in government spending are related. Also, even with the Recovery Act, we still have a 9.7% unemployment rate and I wonder how you can prove that government “saved” a private sector job. As Dr. Glaeser points out, because “there are too many moving parts,” we cannot identify definitive empirical evidence supporting or refuting a Keynesian approach. 

Even for the Great Depression, economists disagree. Some say FDR’s spending was crucial. Others believe that World War II was the answer. Meanwhile a third group asks us to focus on monetary policy problems. 

The Economic Lesson

British economist John Maynard Keynes (1883-1946) said that government economic intervention could be beneficial during a recession. “Prime the pump” through government deficit spending. Then, when the private sector regains its strength, government can reduce its spending.

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