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The Stimulus Wind-Down

Friday, February 22, 2013

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The Congressional Budget Office today released its update to its estimates of the effects of the American Recovery and Reinvestment Act – popularly known as President Obama’s stimulus program. The CBO estimates that more than 90% of the stimulus’ impact has been felt by now, and that its greatest effect was felt in the middle of 2010.

In the fourth quarter of 2012, the CBO estimates, stimulus effects caused between 100,000 and 800,000 people to be employed over what would have happened absent the stimulus. By the end of 2013, the CBO’s low-end estimate shows that the stimulus’ effect on economic activity will be gone.

Last year, the CBO revised its economic modeling to account for the possibility that the stimulus was far less effective than they had previously estimated. In doing so, they cut their low-end estimate for the stimulus’ effectiveness in half. This report has left the CBO’s stimulus multiplier estimates effectively unchaged.

As the stimulus’ effectiveness dies down, attention turns to the estimates of long-run effects of the legislation. And this is where the CBO’s warnings take a dark turn. CBO’s estimates are that ARRA will depress economic activity in the long run, by between zero and 0.2% of GDP. “ARRA’s long-run impact on the economy will stem primarily from the resulting increase in government debt,” the report warns. “In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital.” Still, the CBO is optimistic about some of the stimulus’ effects, hoping that road and infrastructure investments will pay off.

Post Continues on townhall.com

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