How the Stimulus Fattened Our Wallets

The debate over the jobs bill revolves partly around the larger question: did the first stimulus work, or not? Briefly: I think it did a lot more good than bad, but defending it can be difficult. It probably added to GDP growth, but to prove that would require a counter-factual that we don't know -- GDP growth without the stimulus. It probably reduced unemployment, but to prove that would require another counter-factual that we don't know -- the unemployment rate without the stimulus.

That's one reason I'm indebted to EPI economist Josh Bivens for what I think is the most illuminating point about the stimulus' effect I've heard:


In a podcast with The Nation's Chris Hayes, Bivens explains how we can measure the effect of the stimulus on disposable income and, indirectly, to consumption, which makes up between 60 and 70 percent of our GDP. If you look at personal income minus government transfers -- this is a good proxy for how the private sector is doing at generating income growth without counting government assistance -- that measure has fallen by 8 percent since the recession began. But disposable personal income -- what people have the ability to actually spend, due to tax breaks and government transfer payments like unemployment insurance -- is actually up one percent. One reason consumption hasn't fallen off the cliff, he suggests, is that Recovery Act has extended billions of dollars of transfer payments and tax credits as the private sector suffered.

Here's the graph showing "the difference in year-over-year growth in personal income minus transfers versus disposable personal incomes":

[Figure C]


The problem with the stimulus, Blevins concludes, it that it might end to soon. In the second half of this year, the White House expects it to add almost nothing to GDP growth, just as unemployment is finally falling. That's one reason why Blevins thinks that despite the Recovery Act, we're still in for a "long, ugly muddle."

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In