White House Bad News: Stimulus Effect Will Stall in '10

The stimulus will not have much of an impact on the economy in 2010, according to Christina Romer, the chair of the Council of Economic Advisers. Hard to spin that one positively. We've spent less than a fourth of the stimulus in 2009 (including tax cuts, loans and entitlements), and we don't even have enough money left over to move the economy in 2010? And unemployment should remain near 9.6 percent through the '10 election? Sheesh, most depressing Congressional testimony ever.

Republicans are going to jump all over this. As I've written before, the gut-cynicism about the stimulus is flawed for at least two reasons. First it would be premature to judge the program when so little of it has been spent. That the impact of the stimulus will level off is natural. A Goldman Sachs economist (among others) predicted that the White House stimulus could represent the difference between no growth and three-percent growth in the third quarter. Its impact over the next few quarters won't be so dramatic. Second, as Justin Fox noted here, the WH stimulus represents just one part of the government's overall stimulus efforts, if you include the Federal Reserve's trillions and the TARP program.

Still I find this testimony worrying. The stimulus was designed to spend most of its money at the end of 2009 and 2010, after the recession was over. Now we're hearing from a top economic adviser that "by mid-2010 fiscal stimulus will likely be contributing little to further growth" and that the unemployment rate won't dip much below current levels for the next 15 months. Maybe Romer is setting a low bar -- an over-adjustment after the White House predicted that the stimulus would keep unemployment around 8 percent. But this is a lot worse news that I was expecting.