Excellent, thorough commentary by Eduardo Porter:

Stimulus Is Maligned, but Options Were Few

It has three main shortcomings, though. 1) No mention of the Federal Reserve 2) no mention of aid to state and local governments. In the December 2008 Larry Summers memo to Obama, they mention Bush's 2003 aid to the states program as being effective. 3) Porter quotes Kenneth Rogoff as saying Obama was given an "'only move,' a move forced by circumstance." In one sense this is right in that government activism was required because of massive private market failure. People who hate government probably felt "forced." On the other hand, Obama should have done more. He should have had a plan B.

Despite these shortcoming, the commentary is more informative than usual:

It was the winter of 2009 and the United States economy was shrinking. In the last three months of 2008 the economy had contracted at an annual rate of 8.9 percent, the sharpest decline in more than half a century. It shrank at a 6.9 percent rate the next quarter. By February 2009 the country had lost more than five million jobs.

We know what President Obama did. In February, he pushed Congress to pass the American Recovery and Reinvestment Act, an $831 billion fiscal stimulus package aimed at creating demand for goods and services to reignite growth and stop the downward spiral.

Only three Republican senators voted for the bill — Susan Collins, Olympia Snowe and Arlen Specter (who as a result of the vote had to change parties). Since then, Republicans have condemned the legislation as an unmitigated disaster. “These policies have made our economic woes worse,” the House speaker, John Boehner, wrote earlier this month on the third anniversary of the bill’s enactment. They “left millions of Americans out of work and made the future of job-crushing debt even more daunting for our children and grandchildren.”

The attack hardly fits an economy that appears finally to be gathering steam. By the end of last year the economy had recovered to its peak size in 2007, before the recession. Employment is growing at a steady, though modest, clip. The jobless rate is 8.3 percent, down from 10 percent at its peak in October 2009.

Perhaps more intriguingly, the Boehner attack suggests a question: Were there other plausible choices? And would they have fixed the economy sooner?”

Around the world, governments were trying to stimulate their economies at the time — on the right as well as on the left, totalitarian autocracies and parliamentary democracies. By early 2009, China had announced stimulus policies amounting to 4.8 percent of its gross domestic product. The austere Germans put in place measures worth about 3.4 percent of their G.D.P. to bolster flagging demand. A study published by the New York Fed found the average fiscal stimulus in a group of some 40 developed and developing countries was slightly less than 3 percent of national output.

There were alternatives. After an initial experiment with government stimulus in 2009, many European countries reversed course and slashed their budgets to try to restore fiscal balance, in the expectation that this would reassure businesses and investors that government finances were under control, and give them the confidence to invest and bolster the economy. But so far, these policies have proved to be an unmitigated disaster.

Britain — which has its own currency and enjoys low interest rates — offers perhaps the best parallel to the United States. In 2010 the coalition government of David Cameron came into office promising to undo the stimulus policies of its predecessor. It cut spending across the board, asking government departments to slash budgets by 25 to 40 percent. And it shot Britain’s incipient economic recovery in the foot.

By the end of last year the British economy was still 4 percent smaller than it was before the recession started four years earlier. And it is expected to contract a little more this year. Even after budget cuts, the government’s debt is bigger, compared with the size of the economy, than when Mr. Cameron took office.

By comparison, despite criticism of its size and composition by both the right and the left, the stimulus by the Obama administration did add to jobs and growth. The nonpartisan Congressional Budget Office estimates it will have contributed at least 1.6 million jobs and perhaps as many as 8.4 million by 2013.

This month, the Booth School of Business at the University of Chicago surveyed a panel of economic experts of different political persuasions about the impact of the president’s stimulus package: eight out of 10 said it had contributed to lower unemployment by the end of 2010. There was less consensus on whether its benefits would exceed its long-term costs, including higher taxes to pay for the spending. Still, when asked if the policy was worth it, four times as many economists agreed as disagreed.

Regarding the children crushed by debt, no plausible economic strategy would have kept the budget deficit from mushrooming. President Obama’s fiscal stimulus package of February 2009 cost the equivalent of about 5 percent of the nation’s yearly output, most of which was spent over four years. Wrapping in other attempts by the Obama administration to ignite demand — from the payroll tax cut and extended unemployment assistance to the “cash for clunkers” program to encourage drivers to buy a fuel-efficient car — the cost rises to some $1.25 trillion, which amounts, on average, to about 2.1 percent of the nation’s annual output from 2009 through 2012.

While this is not cheap, it accounts for a small share of the budget deficit, which topped 10 percent of the country’s G.D.P. in 2009 and remained at 8.7 percent last year, swollen by plummeting tax revenue and mandatory expenditures as the country sank into recession and unemployment surged. (emphasis added)

International comparisons are explored. Empirical data considered. Republican politicians' claims debunked.

I first learned of the Booth School survey via DeLong. Maybe Porter got the info from the "Econosphere." If so, it would represent another triumph. 

The first instance of the econosphere's triumph is probably the fight against the privatization of Social Security during the Bush Presidency. Dean Baker recently discussed it here:

I recall an extreme version of this back in the debate over privatizing Social Security. I made what should have been a fairly simple point: it was impossible to get 7 percent real returns in a stock market with a price to earnings ratio well over 20 and a projected real growth rate of 2.0 percent. This was simple arithmetic, but all the big names in economics, including the non-partisan professionals at the Congressional Budget Office and the Social Security administration continued to write 7.0 percent real returns into their projections.

We were finally able to score some points on this issue with the “No Economist Left Behind” test, which asked economists to write out a set of dividend yields and capital gains that added to a 7 percent real return. (in other words, they had to write down two numbers that added to 7.) Using the Social Security trustees profit growth projections, 7 percent real returns would have required either paying more than 100 percent of profits out as dividends or having price to earnings ratios of 300-400.

 However, even our limited success in this case (no one in a position of authority acknowledged their error) was only accomplished after Paul Krugman wrote about the issue in his NYT column and the no economist left behind test caught fire in the blogosphere.

My point here is that anyone challenging the status quo is almost completely excluded from public debate. This was third grade arithmetic – the bad guys were just simply wrong – and we could not get people like the Washington Post editorial board and columnists to recognize this simple fact.

I don't remember the episode that well even though I was reading the econosphere back then. It seemed to be that Bush was lackluster in his efforts - which failed miserably - and that the econosphere put up a good fight but I don't recall how much of an effect it had.

Anyway there were three other recent econosphere victories which should be remembered.

One, NGDP level targeting. Christina Romer wrote an editorial in favor of it and Bernanke was asked about it by Binyamin Appelbaum at a press conference.

Two, St. Louis Fed President James Bullard responds to Tim Duy about the econosphere's discussion of the "output gap."

Three, worksharing. Dean Baker writes about the worksharing measures in the new payroll tax law here. Baker has blogged regularly about Germany's success with worksharing (I believe Thoma has linked to him.) I've read mentions of it in the NYTimes and Wall Street Journal in the German context.) The provision is based on a bill introduced in the Senate by Jack Reed and in the House by Rosa DeLuaro. It's possible they got the idea via the econosphere or by journalism inspired by the econosphere.

There has been much discussion about David Graeber's Debt, some of it focused on his unworkable anarchist policy prescriptions. Some of these criticism may be right, but I do think the econosphere demonstrates a successs of the anarchist principle even though many members may not see themselves as anarchists and are quite critical of Graeber.