On August 24, 2010, the CBO released its estimate of the number of jobs funded through the American Recovery and Reinvestment Act of 2009 (ARRA) in the second quarter of calendar year 2010. The estimates are based on the number of jobs funded by ARRA reported by most grant and loan recipients, contractors, and subcontractors.
By way of background, the Great Recession cost the U.S. economy 7.88 million jobs between July 2007 and July 2010, while the adult population grew by 6 million.
CBO’s estimate of the increase in the budget deficit due to ARRA during fiscal years 2009-2019 is $814 billion, a modest increase of $27 billion in the projected deficit of $787 billion when ARRA was being considered. (Readers may recall that Senator Susan Collin’s vote was secured by agreement to reduce ARRA’s size by some $100 billion.)
The Director’s Blog summary can be read here and the full report here. The CBO estimates are qualified for several reasons stated in the blog and report, producing a wide spread in each result.
ARRA raised the real level of GDP between 1.7%-4.5%.
ARRA lowered unemployment between 0.7-1.8 percentage points.
ARRA increased the number of people employed between 1.4-3.3 million.
ARRA increased the number of full-time equivalent jobs by 2.0-4.8 million compared with what would have been otherwise in its absence.
The effects of ARRA are projected to diminish during the second half of 2010 and beyond.
For purposes of discussion, assume that ARRA produced the maximum result in each of the four preceding estimates. This means that about $800 billion or so of stimulus increased employment by 3.3 million jobs. News reports state that some in the government, such as CEA head Christina Romer, wanted a larger stimulus package of $1.2-1.4 trillion, but were advised that $800 billion was the politically feasible maximum.
Suppose the stimulus had been doubled to $1.6 trillion. Assuming a linear response, a double-sized ARRA could have increased employment by as many as 6.6 million jobs. A tripling to $2.4 billion could have yielded 9.9 million jobs. The latter number would have recovered almost all the jobs lost in the last three years and produced an unemployment rate as low as 5.9%. Even taking the midpoint of each estimate would have produced a large improvement in employment and output.
Given the tens of trillions of dollars cited as the long-term unfunded liability of the federal government for such entitlements as Social Security and Medicare, $2.4 trillion in one-time stimulus pales in comparison.
Let me be clear on one point. I’m not recommending a fresh stimulus package of another $1 trillion and more. Neither I nor anyone else can predict how the bond market would respond to such legislation. But, and it’s a big but, if the bond vigilantes were to remain quiescent during another big stimulus, who’s to say....