Scott Sumner Latest Strike in His Holy War Against the ARRA

     George Zornick is right-liberals need to push back at the zombie arguments against fiscal stimulus.

     "Republican animus toward the American Recovery and Reinvestment Act of 2009, popularly known as the stimulus, hasn’t decreased over time. Today marks five years since President Obama signed the legislation into law, and Republicans from Marco Rubio to John Cornyn are using the anniversary to bash not only the bill but also the very idea of government spending."

     "It’s important to knock down these conservative claims about the stimulus, which haven’t gotten any more factually accurate over time. And it’s not just a matter of correcting the historical record — people shouldn’t be made to be afraid of proactive government intervention, which the economy undoubtedly needs more of."

     http://www.washingtonpost.com/blogs/plum-line/wp/2014/02/17/the-stimulus-act-was-a-success-and-we-need-another/

     However, Zornick isn't aware of the biggest zombie arguments against FS these days-those of Sumner and the Market Monetarists. Over at his new gig at Econolog, Sumner claims that the Administration's analysis of the effects of the stimulus is not just wrong but 'embarassing.'

      "The Administration has released a report defending the ARRA program, and it's every bit as embarrassing as you might expect."

     http://econlog.econlib.org/archives/2014/02/bastiat_just_ro.html

    So yes, Sumner decides to do what he usually does on the subject-he greatly overstates and exaggerates his case. If there was anything embarrassing about the Administration's report. Sumner forgot to include it in his post. Right away, he goes for the low hanging fruit-the prediction that employment would top out at 8%. 

    "1. The report seems to ignore the fact that fiscal stimulus failed to produce the effects the administration claimed it would produce. Now I'm willing to cut them some slack on that point, as ceteris is never paribus. They claimed that the recession turned out to be more severe than they expected, although to be honest it was very clear by early 2009 when Obama took office that the recession was extremely severe. But let's give them the benefit of the doubt."

   "2. In 2013 the Federal government switched to a policy of fiscal austerity, which should have slowed growth. Instead growth in 2013 accelerated. This time there was no "the recession of 2009 was deeper than we thought" excuse. The fiscal multiplier model simply failed."

   "3. Instead of comparing actual to predicted results, they have lots of graphs showing the success of fiscal stimulus based on models of the economy that simply assume the policy was successful. How is that supposed to convince anyone?"

    Classic Sumner: in 1, he claims that he will cut them slack on the on this erroneous prediction-while Sumner says it was obvious, not many economic forecasters were predicting that it would go on so long. No question the Romer-Bernstein predicting was wrong but it had a lot of company. Yet in 3 he chides them for not comparing actual to predicted results. So after saying he was going to give them slack, he in fact didn't give them slack. 

   On the other hand, number 2 is a rather odd place to start. At this point he hasn't showed that the stimulus failed-all he has done is point out that the predictions were wrong. However, as clearly R-B were wrong and the recession would be much deeper than they predicted-as Sumner evidently knew already in 2009, then the real comparison is between how the economy performed after bottoming out in June 2009, with 10% unemployment and where it plausibly would have gone without the stimulus. Zornick provides this context. 

   

• Gross domestic product and total payroll employment were at historic lows when the stimulus passed, and private-sector layoffs were peaking. All three of these very important indicators began to turn around almost exactly the moment the stimulus passed. (The Center for American Progress has some great charts here.)
• The Congressional Budget Office concluded that the GDP in the fourth quarter of 2009 was as much as 3.8 percent higher than it would have been without the stimulus.
• At the end of 2010, there were approximately 2.5 million more jobs in the country that wouldn’t have existed without the stimulus, according to Mark Zandi of Moody’s Economy.com.
• The bill kept nearly 6 million people out of poverty in 2009, according to the Center on Budget and Policy Priorities (CBPP).

     http://econlog.econlib.org/archives/2014/02/bastiat_just_ro.html

   Without this context, his immediate juxtaposition of 2013 doesn't really show much. Was 2013 a better year than 2010? Even if it were this is hardly the relevant comparison-we were 4 years into a painfully slow recovery by then. It's not clear why comparing 2013 to 2010 proves anything 'embarassing' for the Administration. It's the wrong comparison and by not pointing out the facts that Zornick gives us, we have no basis to say much of anything about 2010. What we did see in the second half of 2009 and 2010 is a sharp recovery. What have we seen since? A continually slow recovery. 

   Mark Sadowski claims that those who criticize MM always say something obviously wrong so he has to run to its rescue. Sumner himself always says many obviously wrong and silly things himself. This is just totally boneheaded:

    "Elsewhere they suggest that ARRA might have actually reduced the national debt. I guess "voodoo economics" is OK if done by liberals. And note that the standard supply-side model does allow for Laffer-curve type effects, whereas the standard Keynesian model does not. That's right, even the absurd hydraulic 1960s Keynesian model does not allow for fiscal stimulus to reduce the debt. To get that result you must add on even more absurd assumptions."

   Actually, although he's always trying to brandish the 'voodoo' word against liberals-I guess as payback for using it on Reagan, he wants to avenge Reagan still, though H.W. Bush was the first to use that phrase against him back in the 1980 GOP primaries-there is nothing absurd. You just have to realize that that the debt ratio has a denominator as well and that if a stimulus raises growth it will result in higher revenue. Where's the voodoo?

   He also points out that most of the stimulus was tax cuts as if this somehow is a point against Keynesianism whereas most Keynesians thought that the ARRA was entirely too skewed towards tax cuts in a futile bid to please Republicans. He finishes as he so often with a correlation that is supposed to cinch his argument with no attempt at causation in sight. 

    "This is by far the weakest economic recovery in my lifetime."

   It is, but why is this? Would it have not been had there been no ARRA? We've also had unprecedented monetary expansion with 3 rounds of QE. I could as soon suggest that's why it's the weakest recovery in my lifetime as well-and the worst since the Depression.  When you remember that MM is two things:

   1. Monetary expansion

   2. Fiscal consolidation

   You realize that this weak economy is much more embarrassing to MM than to Keynesians. After all we had one year of fiscal expansion and then three straight years of fiscal contraction. On the other hand we've had three rounds of QE. So starting in 2011 we've done MM-QE and fiscal consolidation-not to mention all the austerity at the state and local level. If this recovery is as week as Scott says it is-and who can deny it?-wouldn't the picture have been far better with less fiscal contraction at all levels of government?

  For MMers who want to answer this try starting by answering this question. Would we have had a weaker recovery still with less fiscal contraction? As Scott keeps spiking the ball over 2013, would we have had less growth last year if there were no contraction? 

  I notice that MMers never want to answer this question. They just gloss over it and then return to some Sumner talking point that has nothing to do with anything. Let's see if this changes.