On Friday there was some muted but important good news regarding the economy.
The Commerce Department reported today that gross domestic product (GDP) contracted at a 1% annual rate in the second quarter of 2009, following a 6.4% decline in the previous quarter.
Not a spurt of growth yet, but perhaps a recession bottoming out. Economist Josh Bivens argues that
Despite the overall contraction, the fingerprints of the American Recovery and Reinvestment Act could be seen in some aspect of today’s report. Federal government spending grew at an 11% rate in the quarter, adding roughly 0.8% to overall GDP. State and local government spending grew at a 2.4% annual rate, the fastest growth since the middle of 2007. It is clear that the large amount of state aid contained in the ARRA made this growth possible.
Furthermore, real (inflation-adjusted) disposable personal income rose by 3.2% in the quarter, after rising by only 1% in the previous quarter. A large contribution to this increase was made by the Making Work Pay tax credit passed in conjunction with the ARRA, as this was the first full quarter that the credit was in effect. Inflation-adjusted transfer payments (including a one-time payment to Social Security recipients) rose at an annual rate of over 6% in the quarter as well.
The consensus of macroeconomic forecasters is that ARRA contributed roughly 3% to annualized growth rates in the second quarter. This means that absent its effects, economic performance would have resembled that of the previous three quarters, when the economy contracted at an average annual rate of 4.9%. In short, the recovery act turned this quarter’s economic performance from disastrous to merely bad. This is no small achievement, but with even more public relief and investments, the U.S. economy could do much better.
In other words, Obama’s stimulus package is beginning to take hold.
When the stimulus package was passed back in February, I seem to remember Republicans telling us that government stimulus could not have a significant positive impact on the economy. And just recently, they have been arguing that high unemployment rates showed that the stimulus has failed.
Are they going to apologize to the public anytime soon for being wrong? I’m listening.
As Steve Benen said:
For about a quarter-century now, conservative Republicans have been wrong about every major economic turning point. They said Reagan’s tax increases would hurt economic growth, but they didn’t. They said Clinton’s tax increases would produce devastating recessions, but they didn’t. They said Bush’s tax cuts would generate vast wealth and balanced budgets, but they didn’t. And they said Obama’s recovery plan would be (and has been) a disaster, and that’s proving to be wrong, too.
It would be nice if the media would stop treating these people like economic experts.
And on a related theme,
Mark Thoma writes:
Economist’s View: Social Insurance and the Severity of Recessions: [O]ne thing… I don’t think is getting enough attention, is the effect that automatic stabilizers have had in helping to ease the impact of the recession for individual households on and for the overall economy.
What are automatic stabilizers? Automatic stabilizers are taxes and transfers (e.g. unemployment compensation and food stamps) that automatically change with changes in economic conditions in a way that dampens economic cycles. […]
How much worse would things be now if we had followed the advice of the hardcore rightwing and eliminated the welfare state programs that function so effectively as automatic stabilizers? It still wouldn’t be like the pictures you see of the Great Depression because we are a much wealthier nation than we were then and thus have more private resources to rely upon. But even so, not everyone has wealth to rely upon and the recession would be much more evident, and the amount of human suffering would be much greater, without the social insurance programs we put in place in the years since the Great Depression — programs that we, for the most part, now take for granted.
I am still waiting to hear an apology…
