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Unemployment Rate Calls Stimulus Claims Into Question


Early this year, as the U.S. Congress prepared to debate a $787 billion spending bill that's better known as the stimulus plan, President Barack Obama claimed that immediate action was necessary to prevent unemployment from skyrocketing.

"Experts agree that if nothing is done, the unemployment rate could reach double digits," Mr. Obama said in a January 24 radio address. "If we do not act boldly and swiftly, a bad situation could become dramatically worse." The same month, his economic advisors released a report saying that, without the stimulus, unemployment would hit around 8.5 percent by April 2009, and 7.8 percent with it.

We know what happened next: a Democratic Congress quickly approved the legislation. But what may not be as obvious is that even with the stimulus, current unemployment is far worse than the Obama administration had predicted: it's already 8.9 percent.

In the last few days, a marked-up version of that chart has rocketed around economics and public policy blogs, with some administration critics arguing it showed the stimulus was unnecessary. (For perspective, the stimulus' generous $787 billion is roughly 60 percent of the total revenue that the IRS collects each year from Americans' personal income taxes, or almost seven times the entire GDP of New Zealand.)

Harvard University economics professor Greg Mankiw wrote on Sunday: "In light of the shifting baseline, it is impossible to hold the administration accountable for whether its policies are achieving their intended effects." The conservative Heritage Foundation dubbed it "Obama's growing credibility gap."

Ed Morrissey, a conservative blogger and radio host, argued: "Not only did the stimulus plan not work, the unemployment actually rose faster with the 'recovery plan' in place than the Obama administration predicted unemployment would rise without it."

In fairness to the administration, it's possible that the economy simply was in worse shape in January 2009 than report authors Christina Romer (now chairman of the Council of Economic Advisors) and Jared Bernstein (the vice president's chief economist) believed it to be. While economists are used to dealing with uncertainties, nuances tend to be lost in Washington's political process.

This points to another problem, which is the virtual impossibility of judging whether the stimulus is working or not. Mr. Obama said in February that the legislation "will save or create 3 million to 4 million jobs over the next two years."

The problem: If unemployment rises, the administration can claim that it would have been worse without the stimulus package. If unemployment falls, it can claim that the stimulus worked. That's called having your $787 billion and spending it too.

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