Thursday, February 12, 2009

Karl Rove Misrepresents CBO Estimate of the Fiscal Stimulus

Can’t the WSJ find someone other than Karl Rove to write op-eds on economics?

They also asked the Congressional Budget Office if the Democratic Senate bill was actually stimulative. The nonpartisan CBO found it would have a "negligible" impact on jobs by 2011 and hurt economic growth and prosperity over the next decade.

My most estimates, the bill that will finally be hammered out will be less stimulative than the original Senate bill. Brad DeLong has a nice summary of the short-term impacts as estimated by the CBO. Without the stimulus, CBO estimates that the GDP gap in 2011 will be 4.1% and the unemployment rate will be 7.5%. With this somewhat less stimulative bill, the estimated gap will be between 2.9% and 3.7% and the unemployment rate will be between 6.5% and 7.2% - all depending on whether one uses the low estimate of the effect of the plan versus the high estimate. That is not a negligible short-term impact.

Steve Benen has more on the political nonsense being peddled by Mr. Rove. As far as the long-run impact of the current fiscal stimulus - Tim Fernholz is on the right track especially as he notes that the rightwing pundits have been misrepresenting what the CBO is saying but didn’t we cover this one already?

Even the most ardent Keynesian would concede that long-term fiscal stimulus leads to long-term crowding-out. Only those pseudo-economists who were apologists for the Bush43 fiscal stimulus would try to deny this. In my view, the ideal fiscal stance would be short-term stimulus followed by long-term fiscal restraint once the economy approached full employment. This was the policy of the Clinton Administration as I understand it – it is what is being recommended to President Obama by his economic advisors.

Update: Ed Rollins joins in the criticism of this fiscal stimulus by suggesting that the President has not been exactly truthful. Why? Because Rollins thinks that the Federal government is too much in debt to be going for fiscal stimulus. Somehow – the stupidity of certain rightwingers have given them license to call the President a liar?

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