Stimulus “Absolutely” Working

On Thursday morning, Christina Romer, the chair of Obama’s Council of Economic Advisors, painted a rosy picture of how February’s “Recovery Act” is working. Calling fiscal stimulus “a well-tested antibiotic, not some newfangled gene therapy,” Romer rattled off statistics: As of June, over $100 billion had been spent, and by the end of the next fiscal year, 70% of the package is expected to be out the door.

Her bottom line: the Act is “absolutely” working, because job loss is slowing—from 700,000 in this year’s first quarter to 436,000 in the second quarter—and GDP is not falling quite as quickly as before.

But, Romer said, it’s not over yet:

As is always the case, especially around a turning point, there is substanial uncertainty to this forecast. There is even greater uncertainty about how strong the recovery is likely to be. The strength will depend on a range of factors, including how fast the economies of our trading partners recover; whether American consumers decide to increase their savings rate even more than they already have; and how quickly financial markets and business confidence return to normal levels. 

Romer also seems confident that the Recovery Act’s investment incentives and tax relief for businesses are responsible for slower investment decline in this year’s second quarter. Also, perhaps not surprisingly, states that received more stimulus funds have lower rates of job loss. And to top it off, most analysts estimate that GDP growth, which is now at -1 percent, is likely to become positive by the end of the year. But don’t get too excited:

The U.S. economy had problems even before the current crisis. For this reason, the Administration is working with Congress to help rebuild the economy better. It is as if, when you went to the doctor for that strep throat, he discovered you had high blood pressure as well. The antibiotic was great for the infection, but he prescribed other medicine, a better diet, and a good dose of exercise for the blood pressure.

There’s a whole lot of optimism here. But that’s unsurprising coming from an administration official. The economy is still getting worse, but it’s not getting worse as quickly as it was. It’ll be nice when Romer can point to some real positive numbers, not just smaller negatives.