The Stimulus Has Barely Started. Is That Good?

Republicans have slammed the stimulus for throwing $787 billion of stimulus money at the recession while unemployment has grown steadily. That's not a fair criticism, because less than half of the stimulus package has been spent in the first 9 months. But is the fact that the stimulus is spending money so slowly a good or bad thing?

On that issue, Atlantic Biz colleague Megan McArdle goes head to head one of my favorite business writers, Daniel Gross of Slate. Megan's point strikes me as a good one:

A stimulus is supposed to counteract a sharp contraction in aggregate demand when that demand is contracting, not wait until the economy is recovering, at which point its effect is much more likely to be distortionary and inflationary.

If Gross had a chance to counter Megan, I'm sure he'd point to this, his final paragraph:

"There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter," the CEA reports.

This echoes what Goldman Sachs' economists said: Without the stimulus the economy would be flat in Q3. With the stimulus, GDP is likely to grow by 3 percentage points.

I'm in no position to question the conclusion of a Goldman Sachs economist, but the fact that the stimulus helped the economy shouldn't displace the more pertinent question: Is the slowness of the stimulus spending an argument in favor of it? It clearly is not. Most analysis I've read of the Chinese stimulus has praised its size and the speed with which it was spent on infrastructure and special projects. As a result, the Chinese economy is roaring near 9 percent growth. To be sure our federalist system hurts our ability to stimulate the economy in a few ways: (1) The vast majority of early funds went to repair state Medicaid budgets and (2) China's centralization allows it to streamline infrastructure projects and command commercial lending. But it is no credit to the stimulus that it has struggled to spend a hardly a quarter of its budget before the recession ended.

So Gross is right. It's too early to say the stimulus has failed or succeeded. But Megan's critique wins the argument for me.