Thursday, June 7, 2012

Did the stimulus work? Here's unequivocal proof

I put together a chartbook with all the major metrics on the economy, such as GDP, employment, household wealth, personal income/savings, inflation, industrial production, capacity utilization, housing starts, etc, comparing the "pre-stimulus" period with the "post-stimulus" period. This should put to bed any questions about whether or not the stimulus worked. Feel free to use this as a resource when arguing with your friends, relatives and colleagues at work.

Here are two sample charts. Get the full chart book here: Mike Norman pre/post stimulus chartbook.


DustinM said...

What I think would be awesome is if you could point to a couple dips and see if they correspond to up-to-the-last-minute budget and debt ceiling fights.

Jonf said...

Pretty dramatic. I'm surprised the administration isn't showing this and asking for more stimulus instead of cuts.

paul said...

With an MMT perspective, just based on the arithmetic, there should be no doubt that this is the case.

The charts are useful for non-MMT'ers, assuming you can get thru to them.

The more tools we have at our didposal, the better chance we have of changing the narrative.

Seems to me this site is becoming one of the go-to places for the best aggregator of ideas for a sustainable prosperous future.

Or maybe I'm just delusional. +2 Blue Moons at lunch.

Tom Hickey said...

"Seems to me this site is becoming one of the go-to places for the best aggregator of ideas for a sustainable prosperous future."

I think that is is what MMT is essentially about as a macro theory. While it is focused more narrowly at the moment due to the number of MMT economists that have been produced or converted, the developing focus of MMT economist is to coordinate with Post Keynesian economists on presenting a more complete theory and policy formulation based on it. Time to cease sniping about marginal differences and focus attention, intelligence and energy on the monumental task at hand of putting globalization on a sound economic and institutional track, since this is the world of humanity in this century.

Matt P. said...

You show when stimulus was enacted. I think what needs to be shown is that AND when programs started actually spending. I think the argument is harder to make in that the economy already started to level off due to automatic stabilizers. That is my sense.

Mike Norman said...

Actually, the downturns in many of these metrics correpsonded to when the Republicans took control of the House and won governorships.

Anonymous said...

nice work ... can we get a projection for the upcoming "fiscal cliff" too please?

(i know, so needy)

JK said...

I'm interested in the point Matt P brought up… I wonder how much of the recovery is due to stimulus and how much is due to stimulus spending. Is there even a way to measure that? (since they both have the same net-effect on the non-government sector)

It seems there ought to be a way to determine what percentage of deficit spending was via automatic stabilizers and what percentage was stimulus spending.

by the way MNE, it's getting increasingly difficult to prove that I'm a human when i try to post :)

Come to think of it, I remember an article a few months back showing that the majority of the increase in the budget deficit following the crash was due to automatic stabilizers. I can't remember where I saw that.

JK said...


What I just said should read… "I wonder how much of the recovery is due to AUTOMATIC STABILIZERS and how much is due to stimulus spending."

Tom Hickey said...

Probably resolvable in terms of amounts and multipliers.

Josh said...

Nice charts - always best to keep them simple.

Dave Thomas said...

Mike, Could you please post a chart of the recoveries from out last three recessions before the 2008 recession? Those three recessions did not use a stimulus and their charts are much better than this one.
Your reasoning is akin to someone seeing rain clouds and quickly doing a dance, and when it rains they take credit for it. A real economic recovery creates jobs. We have record numbers of Americans on food stamps and extended unemployment. This is the most anemic recovery since the Eisenhower administration. It would be nice to see a chart comparing the recovery that resulted from Reagan's tax cuts and the claimed recovery caused by Obama's stimulus. You should also show a chart of the "success" of the New Deal stimulus that left unemployment in double-digits.

Government spending has never produced self-sustaining growth anywhere at anytime. If it did the Soviet Union would never have collapsed and the Communist Chinese would never have abandoned Maoist economic policy.

Tom Hickey said...

@ Dave Thomas

You seem to be saying that all recessions are alike. If so, this disregards the difference between the culmination of business and financial cycles, e.g., as described by Hyman Minsky.

Ordinary business cycles are brought to an end when consumer price inflation spurs wage pressure, and the cb raises interest rates, which results in unplanned inventory and lay-offs, decreasing wage pressure and prices, until the Fed decides that enough has been accomplished and begins lowering rates again to stimulate the economy.

IN a financial crisis, Ponzi finance leads to a bubble in assets, which when it bursts results in falling asset prices, putting borrowers and lenders involved in those assets in a balance sheet bind. What results is a "balance sheet recession that lasts until those balance sheets are rebuilt and a new credit cycle can begin.

Here the problem is not inflation but incipient debt-deflation that can lead to depression if not addressed through "loose" economic policy to offset the demand shortfall due to saving/delevering. The amount of fiscal offset required is given through sectoral balance analysis. Monetary policy becomes ineffective at the lower bound.

Wade Brown said...

Yes, what proof: An increase of 8% in GDP from Jun 1, 2009 to Sep 1, 2010 while during the same period debt increased by 17.5% (from $11.4 trillion to $13.4 trillion per U.S. Treasury "Debt to the Penny", see The stimulus proved that every dollar increase in GDP came at the cost of two dollars f additional debt. Math has no agenda: the stimulus was (and is) a disaster.


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