I’m on the road all week, so blogging will be sparse. Yet I couldn’t let this one go.
In this post, Dean Baker lectures Joe Scarborough for attacking the Obama stimulus package. Baker writes:
The best evidence here is the assessment of the Congressional Budget Office (CBO) from March of 2009. The reason this analysis is useful is that it is a look at what the economy was expected to do and the impact of stimulus at the time it was passed. CBO was looking at the actual stimulus as passed. It also in an independent agency with no motive to cook the books. [sic!]
Here’s the picture that CBO drew compared to what actually happened.
There are two points which should jump out at anyone. First, even as late as March of 2009 CBO hugely underestimated the severity of the downturn. The actual drop in employment from 2008 to 2009 was 5.5 million. The predicted drop was just 3.8 million. In other words, CBO underestimated the initial hit from the downturn by 1.7 million jobs, even after it was already well underway.
If anyone wants to blame the greater severity of the downturn on the stimulus they would have a hard story to tell. Most of the hit was before a dollar of the stimulus was spent. Employment in March of 2009 was 5.4 million before its year ago level. [Bold added.]
It’s one thing for Dean Baker to say he disagrees that the stimulus was what made the economy suddenly get worse than what even the nonpartisan straight-shooters at the CBO saw coming. But to say it’s a “hard story to tell”? Like, he can’t even imagine how one might entertain this notion?!
How about: The government announces a $700 billion stimulus package, and rich people realize their taxes in the future are going to be higher to pay for it? Is that really so crazy that Baker can’t even come up with that theory? That should be the baseline theory, and the burden of proof should be on Baker to explain why people are idiots and think government borrowing money today, won’t have any future consequences.
BTW, I’m not advancing full-blown Ricardian Equivalence. But Baker is doing the opposite mistake.
In case you’re not seeing my point: Suppose the government announced in January 2009, “In 5 months we are going to ban ammunition.” Then ammunition sales go through the roof in the 1st quarter. Would it make sense to say, “It’s hard to even tell a story that the government announcement had anything to do with the ammo sales, since not a single bullet had been confiscated by this point” ?