Liberal economist Dean Baker does a pretty good job of trashing a George Will column on the stimulus, but he also serves up at least one Will-like misstatement of his own. Baker says that Will "claims that the stimulus packages passed in 2008 and in February of this year did not work." But what Will actually says, specifically with respect to the Obama stimulus, is that it "has not been the success its advocates said it would be."
That's a fair statement. Obama's economic team predicted that the stimulus would keep the unemployment rate from breaking 9 percent. It's currently sitting at 9.8 percent and will undoubtedly rise further.
But Will is on far shakier ground when he mocks the Obama administration's claims that the stimulus has "saved" jobs. Baker goes to town:
Will is either profoundly ignorant of economics, or being disingenuous, when he implies that the Obama administration is somehow making things up when it claims that is has "saved" [italics in original] jobs. Any effort to boost the economy will create some number of new jobs, but it will also prevent many existing jobs from being lost.
How many jobs is harder to say. But in the next few months we may get a much better picture. Late Friday, Paul Krugman looked at the new data for industrial production in the U.S. and concluded that the GDP growth rate for the third quarter of 2009 could be close to 4 percent. That is an astonishingly quick turnaround from the 6.4 percent decline in the first quarter. As UC San Diego economist James Hamilton observes, this is a far faster turnaround than we witnessed after the 2001 recession, and, most important, "That kind of growth is inconsistent with a jobless recovery."
It is very unlikely that the economy could grow at a 4 percent annual rate without that being reflected in new hiring. And it is inconceivable, to me at least, that the V-shaped swing from plummet to sharp ascent was not positively affected by government spending associated with the stimulus. Rather than worry about whether the stimulus worked, we should be worrying about what will happen when the stimulus boost starts to fade.
Hamilton says that there are "two separate feedback mechanisms operating" that may work at cross-purposes.
The first is that rapidly rising output will eventually bring hiring up with it. The second is that the high unemployment rates will bring more foreclosures and cause spending and output to sputter.
Which is it going to be? Nonfarm payroll employment is the key indicator to watch from here.
And on that note, some news from California. For the first time this year, California's unemployment rate actually declined, from a 12.3 percent rate in August to 12.2 percent in September. This is not yet cause for celebration (and, it should be noted, the new August estimate is an upward revision from the 12.2 percent number reported a month ago), but there's at least a chance that California's unemployment rate has peaked. And that, to borrow Krugman's blog post title, gives cause for "a smidgen of optimism."