Did the stimulus bill fail? Not really, but that may not matter anymore.

Who's winning, who's losing, and why.
July 8 2011 7:30 PM

Stimulus, RIP

Did the stimulus bill fail? Not really, but that may not matter anymore.

US Vice President Joe Biden stands behind US President Barack Obama as he signs the American Recovery and Reinvestment Act. Click image to exand.
President Obama signs the stimulus bill

The stimulus bill passed more than two years ago, when Dave Obey still chaired the House appropriations committee. Obey's now retired from Congress, working as a lobbyist, but he talks about the stimulus fight as if it's still going on. Which, in many ways, it is—only now the battle is to convince people that it wasn't failure.

David Weigel David Weigel

David Weigel is a reporter for Bloomberg Politics

"This is the era of 24-hour news cycles," said Obey, who represented Wisconsin's 7th district for 42 years before retiring in 2011. "You can have 95 percent of what you do make perfect sense, but when networks are starved for news, and politicians are starved for attention, all you need is one example of something going wrong and it's easy for demagogues to discredit what you're doing. It's like what Donald Rumsfeld said about terrorism. In order to be successful, we had to stop 100 percent of terrorist attacks. If you're a terrorist you only need to get it right once."

Veterans of the stimulus wars talk about it that way—as a war. They lost. The implication of the loss is that Keynesian economics are, arguably, as discredited with voters as neoconservative theories were discredited when the invasion of Iraq failed to turn its neighbors into vibrant democracies, highways clogged with female drivers.

This week, we got a concrete example of what it meant to lose. The Weekly Standard published a back-of-the-cocktail-napkin analysis of the seventh quarterly report on the stimulus, stipulating that every job created by its spending has cost $278,000. Republicans, who'd previously said the stimulus created no jobs, immediately started repeating the $278,000 figure. They kept doing it even after the magazine followed up, suggesting that the cost-per-job could have been as low as $185,000. $278,000, $185,000. $0.00? It didn't really matter, because the White House and liberal response was perfunctory. As the stimulus winds down, with most of the money spent, everyone knows that it failed.

This is a little strange. Yes, the economy is rotten, so voters can be excused when they pan the government's response to unemployment. But there's a lot of data that isn't terribly hard to read suggesting that the stimulus did create jobs. The analysis that the Weekly Standard tore apart found that the stimulus increased employment by about 400,000 jobs in the first quarter after it went into effect, and increased it by about 2.7 million at its peak. If you're deriding the price tag for those jobs, you're acknowledging that the jobs exist.

Did the stimulus do less than President Obama said it would? Absolutely. In the first months of 2009, when the president sold the bill, got it passed, and defended it, he tossed off predictions for job growth that got progressively higher and were never matched. At his most optimistic, he said the stimulus would be a success if it "created or saved" 4 million jobs. It fell far short of that. But ambitious, expensive bills have fallen short before, and it hasn't discredited their reasons to exist. George W. Bush's tax cuts were supposed to balance the budget by 2010. That hasn't happened, obviously, but tax cuts have not been discredited—in fact, they're central to the discussion about how to dig out of the recession now. Tax cuts are popular. When CNN polled public opinion of the stimulus in January 2010, it found that 56 percent of Americans flat-out opposed it, and 63 percent of them thought most of the funding had been included for "purely political reasons." A little while later, a CBS poll found that only 6 percent of people thought the stimulus created any jobs.

The people who wrote and defended the stimulus blame bad messaging.

"The president was never able to explain to the public that the debt and deficits being run up were not an accident," said Obey. "It was purposeful, but the administration never took on the core debate of why we had to borrow money in the short term, even though in the long term we had to pay it back. They didn't explain it, which led people to believe we were throwing money at a wall and seeing what stuck. The country needed to be re-educated about the Great Depression and the role deficit spending played in getting out of it. It needed to be told the story of 1937, when FDR prematurely pulled back from stimulating the economy."

This is what people who lose a political argument always say: We didn't get our message out. But in this case it's true. The demand-side spending argument was part of the stimulus sales pitch, but not the biggest part. When House Republicans unanimously voted against it, Democrats attacked them for their crime against "bipartisanship," and for opposing the tax cuts that made up about $280 billion of the package. Those tax cuts allowed Obama to fulfill a campaign pledge to give "a tax cut to 95 percent of Americans." The spending was more stimulative than the tax cut. The White House just didn't convince people of that.

So Keynesians started the stimulus debate in a hole, and it got deeper as watchdogs and Republicans looked for waste, frivolity, or anything that sounded like waste or frivolity. It didn't really work. When Obey uses the 95-percent-of-what-we-did-was-good line, he's hinting at how the worst-sounding stimulus projects defined the enterprise.

"Our Waterloo on this was the quote-unquote 'non-existent congressional district' problem," said Ron Klain, the former chief of staff to Joe Biden, who helped manage the effort to spot dumb-looking spending. A few hundred of the first reports on how money was being spent—a few hundred of about 90,000—misreported the details, showing spending in congressional districts that did not exist. The projects were real, the jobs were real, but there is no 57th district in Minnesota or 22nd in New Mexico. Someone had put the wrong number on a form. Still, those fictitious districts were the story. "We had a week of stories taking us apart on TheColbert Report and what not," sighed Klain.

The end result of stories like that has been a virtual collapse in the belief that government spending can spur economic growth. This week, which ended with a jobs report that points in big, flashing arrows to more recession, will change nobody's mind about the need for spending cuts. When I asked Sen. John McCain whether spending cuts should be approached with caution about the impact they'd have on employment, he rejected the premise.

"The people I rely on say that spending cuts are vital to the future of our country," he said, "because we don't want to emulate Greece. If we emulate Greece, then we have huge unemployment."

But was it a problem that the stimulus money was running out?

"We just learned, apparently, that the stimulus package was only $278,000 per job," said McCain. "We certainly can't keep that up."

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