Fox News Still Pushing Myth That Stimulus Failed

From Media Matters

Fox News' Stuart Varney is citing revisions to economic projections for 2012 to revive the myth that the 2009 stimulus failed. In fact, independent economists agree that the stimulus significantly raised employment and increased GDP, and experts say it is the winding down of stimulus spending that is causing a "fiscal drag" on the economy.

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Fox's Stuart Varney: Unemployment Forecast Proves The Stimulus Failed

OMB: Unemployment Expected To Average 9 Percent In 2012. The White House Office of Management and Budget released its mid-session budget review on September 1, projecting that the average monthly unemployment rate in 2012 would be 9 percent. [Fiscal Year 2012 Mid-Session Review, Office of Management and Budget, 9/1/11]

Stuart Varney: OMB's Updated Forecast Proves That The Stimulus Failed. On Fox & Friends, Fox Business host Stuart Varney said:

VARNEY: Look, there's a lot of pressure on the president to come up with something big, bold and new come next Thursday evening. And there's a lot of skepticism that he can do it. Is he going to propose a brand new trillion dollar stimulus program? I mean, this forecast of nine percent unemployment is an admission that the first stimulus program did not work. [Fox News, Fox & Friends, 9/2/11]

But Economists Have Said It's A Decline In Stimulus Spending That Is Causing A "Fiscal Drag" On The Economy

CBO: 85 Percent Of Stimulus Funds Spent By End Of June. In its latest report on the effects of the American Recovery and Reinvestment Act, the Congressional Budget Office reported that 85 percent of the stimulus had been spent by the end of June 2011. [Congressional Budget Office, August 2011]

Krugman: "When The Spending Begins To Tail Off, The Effect On Growth Turns Negative." Paul Krugman, a Nobel prize winning economist and New York Times columnist, wrote in December 2009 that stimulus spending was projected to peak in 2010. He added:

And when the spending begins to tail off, the effect on growth turns negative. [The New York Times, The Conscience of a Liberal, 12/27/09]

Deutsche Bank: "As Stimulus Programs Wind Down" In 2011 "We'll Then Have A Straight Four Quarters Of Fiscal Drag." According to a November 2010, Business Insider report, Deutsche Bank projected that "the real effect of lost stimulus will start to hit" in the first quarter of 2011. The report continued:

We'll then have a straight four quarters of fiscal drag. [Business Insider, 11/5/10]

Mark Zandi: "The Benefit [Of The Stimulus] Is Fading, But This Is By Design." According to Talking Points Memo, Mark Zandi, Moody's chief economist, explained that the American Recovery and Reinvestment Act "was never intended to be a source of long-term economic growth," and that the stimulus provided "a significant benefit to the economy's performance over the past more than two years." Zandi added:

This benefit is fading, but this is by design. [Talking Points Memo, 7/5/11]

And The Stimulus Was An $825 Billion Plug ...

CBO: Cost Of Stimulus Is $825 Billion. In its latest report on the stimulus, the Congressional Budget Office estimated that the recovery act would cost $825 billion over 10 years. [Congressional Budget Office, August 2011]

... To Fit A $2 Trillion Hole

Krugman: Economic Gap Was Over $2 Trillion. Krugman wrote in a January 8, 2009, column:

Even the C.B.O. says, however, that "economic output over the next two years will average 6.8 percent below its potential." This translates into $2.1 trillion of lost production. "Our economy could fall $1 trillion short of its full capacity," declared Mr. Obama on Thursday. Well, he was actually understating things.

To close a gap of more than $2 trillion -- possibly a lot more, if the budget office projections turn out to be too optimistic -- Mr. Obama offers a $775 billion plan. And that's not enough. [The New York Times, 1/8/09]

NYT's Leonhardt: "The Recession Is Likely To Idle Almost $2 Trillion Of Resources." From David Leonhardt's February 4, 2009, New York Times analysis:

The recession is likely to idle almost $2 trillion of resources -- buildings, equipment and people -- this year and next, yet the current stimulus will fill only $700 billion of the hole. Several liberal economists, the forecasters at Goldman Sachs and Mark Zandi (an economist whose forecasts the administration has used) all argue for a bill of at least $1 trillion. [The New York Times, 2/3/09]

And The Stimulus Still Lowered Unemployment And Boosted GDP

CBO: Economic Stimulus Increased Employment By Over 1 Million Jobs. An August 2011 report by the nonpartisan Congressional Budget Office (CBO) estimated that the American Recovery and Reinvestment Act "[l]owered the unemployment rate by between 0.8 percent and 2.5 percent and that the recovery bill "[i]ncreased the number of people employed by between 1.0 million and 2.9 million" during the second quarter. [Congressional Budget Office, August 2011]

CBO: Economic Stimulus Raised GDP. The same CBO report estimated that the recovery act "raised real (inflation-adjusted) gross domestic product (GDP) by between 0.8 percent and 2.5 percent." [Congressional Budget Office, August 2011]

Private Analysts Estimate Stimulus Increased GDP By 1.8 To 2.7 Percent. In its seventh quarterly report on ARRA, the president's Council of Economic Advisers (CEA) estimated that the stimulus "has raised the level of GDP as of the first quarter of 2011, relative to what it otherwise would have been, by between 2.3 and 3.2 percent." CEA also provided a chart showing that private analysts estimate that the stimulus boosted GDP between 1.8 and 2.7 percent:

[Council of Economic Advisers, 7/1/11]

Private Analysts Estimate Stimulus Increased Employment By 2.4 To 2.5 Million. In its report, the CEA provided the following chart showing that private forecasters estimate that as of the first quarter of 2011, the stimulus increased employment between 2.4 and 2.5 million:

[Council of Economic Advisers, 7/1/11]

While Meeting The Administration's Projections

2009: Obama Economic Advisors Predicted Stimulus Will Boost GDP By 3.7% And Increase Employment By 3.675 Million In The Fourth Quarter Of 2010. In January 2009, economic advisors to then President-elect Obama projected the effects of a fiscal stimulus based on economic conditions as they were understood at the time. They estimated the relative effects on employment and gross domestic product, predicting that during the fourth quarter of 2010 the stimulus would increase gross domestic product by 3.7 percent, increase employment by 3.6 million, and reduce unemployment by 1.8 percent. [Job Impact of the American Recovery and Reinvestment Plan, 1/10/09]

2009 Projections Are In Line With Actual Data From 2010. From Congressional Budget Office's August 2011 report on the estimated impacts of the stimulus: