Navigation

Stimulus Contributes to GDP Growth

Last week marked the 80th anniversary of the stock market crash of 1929.  While parallels can be drawn between the Great Depression and the lingering repercussions of the most recent recession -- high unemployment and foreclosure rates, steep decline in tax revenue, and the need for massive government spending -- the United States posted positive economic growth in the third quarter of 2009.  The Bureau of Economic Analysis (BEA) released an advance estimate last Thursday, reporting that in the third quarter, real gross domestic product (GDP) increased 3.5%

After four consecutive quarters of decline, this uptick in growth gives many economists hope that the recession has ended, although job growth may be extremely slow.  Christina Romer, Chair of the Council of Economic Advisers, citing "the two-quarter swing in the rate of growth of 9.9 percentage points," finds that the stimulus has had an immense impact on national economic performance and added up to 4% to growth this quarter.  A report by the Economic Policy Institute, entitled, How We Know the Recovery Package is Working, confirms the stimulus' effect on GDP growth and additionally finds that it is responsible for creating or saving from 1.1 to 1.5 million jobs since its passage.

These larger numbers of jobs created or saved by stimulus spending helps put in context the somewhat smaller number officially reported at the Recovery.gov site. ProPubilca notes that the 640,329 jobs reported by Recovery.gov involve complicated estimates by governments and contractors, only account for jobs directly funded by stimulus dollars, and does not include those indirectly created or maintained due to spending by consumers or firms receiving federal funds. 

Nevertheless, as a columnist bluntly writes, "you can't eat GDP or pay your mortgage with it."  While the GDP growth is undoubtedly positive news, the country is a long way from a full recovery and families are still reeling from the effects of the downturn.  Paul Krugman affirms this in a recent column, Too Little of a Good Thing.  He points out that while the stimulus has spared the country from continued economic decline, high unemployment rates will persist without further action and it is unclear whether it will foster growth at a similar rate in the future.  To truly achieve significant self-sustaining growth, a second round of massive federal spending is necessary. Unfortunately, Krugman notes that "sound-bite politics" compromise the feasibility of another stimulus.  Yet, without such an effort, the country is headed for a "prolonged jobless recovery," that will translate to even more pain for working families.

Resources:
Bureau of Economic Analysis - Gross Domestic Product: Third Quarter 2009
Christina D. Romer, Chair, Council of Economic Advisers - Back from the Brink
Christina D. Romer, Chair, Council of Economic Advisers - On Today's GDP Numbers
Economic Policy Institute - How We Know the Recovery Package is Working
The New York Times - U.S. Economy Started to Grow Again in the Third Quarter
ProPublica - Unofficial Guide to Recovery.gov