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Economic Myths Debunked Debunked

Several Facebook friends of mine continuously post articles from Mother Jones, a progressive non-profit news organization. I do appreciate some of the stuff posted as there are occasional graphs, suggesting an attempt at real analysis instead of blathering ideological rationalizations. This MJ post presents a case against six economic “myths” being perpetrated by the corporate media (or something along those lines). Here’s my take:

Myth 1: “The Stimulus Failed”

Everyone from the nonpartisan Congressional Budget Office (PDF) to private-sector forecasting firms have concluded that the 2009 stimulus package increased economic growth, reduced unemployment, and put millions of people back to work. It just wasn’t big enough, or long-lasting enough.

I looked into both the private-sector and CBO reports, and both use economic modeling to reach their conclusions. Here’s what the CBO said about their methods:

If you happen to be skeptical of the magical Keynesian multiplier effect, these reports are useless. Instead, there needs to be some empirical analysis. Counting things. What do these studies suggest? That the stimulus bombed. Here’s what the AP found:

The Obama administration has argued that it’s unfair to count construction jobs in any one county because workers travel between counties for jobs. So, the AP looked at a much larger universe: The more than 700 counties that got the most stimulus money per capita for road construction, and the more than 700 counties that received no money at all.

For its analysis, the AP reviewed Transportation Department data on more than $21 billion in stimulus projects in every state and Washington, as well as the Labor Department’s monthly unemployment data. Working with economists and statisticians, the AP performed statistical tests to gauge the effect of transportation spending on employment activity.

There was no difference in unemployment trends between the group of counties that received the most stimulus money and the group that received none, the analysis found.

Here’s another empirical analysis using slightly different methods:

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic–not the fiscal stimulus program–deserves the lion’s share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

And another:

For our analysis, we looked at the 435 congressional districts in the United States plus the District of Columbia, but excluded Puerto Rico, the U.S. Virgin Islands, and foreign stimulus recipients, such as Canada. The average number of awards per district is 128, and the average dollar amount awarded per district is $355,103,891.

There are 177 districts represented by Republicans and 259 represented by Democrats. On average, Democratic districts received 1.6 times more awards than Republican ones. The average number of awards per Republican district is 94, while the average number of awards per Democratic district is 152.

Democratic districts also received 1.89 times more stimulus dollars than Republican districts. The average dollars awarded per Republican district is $232,047,857, while the average dollars awarded per Democratic district is $439,200,100. In total, Democratic districts received 73.47 percent of the total stimulus funds awarded. In terms of numbers of awards, Republican districts received 29.77 percent of the total, while Democratic districts received 70.22 percent.

Controlling for the percentage of the congressional district that was employed in the construction industry, we find that there is no statistical correlation between the median income in that district and the unemployment rate. This is true for all relevant unemployment indicators. (See Figures 1 and 2.)

We found no correlation between economic indicators and stimulus funding. Preliminary results find no effect of unemployment, median income, or mean income on stimulus funds allocation.

Then, we checked for the correlation between political indicators and stimulus funding. With the exception of the district’s party affiliation (whether the district’s representation was Republican or Democrat), we found no effect of political variables on stimulus funds allocation.

Stimulus funds were not allocated equally throughout the country. Some congressional districts got more money, some counties got more money, others less and this information was public. Thus, the Obama stimulus bill (ARRA) was a natural experiment. If you went out and tracked down the actual numbers, instead of using economic models, you failed to find a real effect.

I prefer those analyses actually counting outcomes, rather than the analyses using textbook equations to come to politically convenient conclusions. Thus, we can confidently conclude the stimulus failed.

I’ll be taking a look at the rest of these “myths” over the coming week.

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One Response

  1. [...] introduce this series in the first post here. Basically, I’m tackling a Mother Jones post that I believe exemplifies the differences in [...]

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