Tale of Two Stimuli

Two notable progress reports were released last Wednesday. The first is an essay by economists Alan Blinder, a former vice chairman of the Federal Reserve Bank and Princeton economics, and Mark Zandi, chief economist for Moody’s Analytics and former advisor to presidential candidate John McCain, on the impact of the federal stimulus program:

…without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

Meanwhile, a report by the Iowa Department of Management released a report on I-Jobs, an Iowa stimulus projects, and its impact on employment:

A telephone survey conducted this month of contractors and subcontractors doing work for Gov. Chet Culver’s I-JOBS program shows that at least 7,079 people were employed in June because of the public works program…

The count targets only direct jobs, meaning actual people on hundreds of construction sites across the state.  Indirect jobs were not factored in the total. An example of indirect jobs: employees hired by a contractor’s supplier to produce materials such as asphalt used for an I-JOBS road project.

Conservative estimates show another 1,769 people were employed in indirect jobs, for a total of 8,848 jobs, as determined by the point-in-time snapshot.

While both sound positive, only one seems to have a meaningful impact on the economy.

Start by considering the estimates by Messrs. Blinder and Zandi. First, their estimates show the economy would be 6.5 percent lower this year without the stimulus and other stabilization programs.  The $14 trillion economy would then stand to have benefited $910 billion.

In addition, there would be 8 million fewer jobs with another 8.5 million already lost. The latest BLS estimates show there are 140 million jobs, so rough calculations show only 124 million would exist currently without the stimulus. Assuming the civilian labor force remained the same (which is somewhat unlikely), unemployment would be closer to 20 percent. That is, the stimulus lowered unemployment by over 50 percent.

Meanwhile, the I-Jobs program is far more underwhelming. Around 9,000 jobs were either directly or indirectly created with the stimulus. June is an active month in the economy, and approximately 1.6 million are in the workforce, with 113,000 unemployed. Rough math shows I-Jobs may have only reduced unemployment by seven-tenths

Messrs. Blinder and Zandi have yet to release their full report in all its technical glory, so the above estimates may shift when they release their more sophisticated calculations.

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