The Washington Times has drawn a lot of attention from the conservative blogosphere with an article on a Congressional Budget Office (CBO) report that the Obama stimulus will supposedly hurt the economy “in the long term.”
In an article misleadingly titled “CBO: Obama Stimulus Harmful Over Long Haul,” Stephen Dinan writes that “President Obama’s economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.” The key to understanding the gross distortions at play in this article is the word “actually,” as in “Obama thought the stimulus would do X but it’s actually going to do Y.”
Evidence to support this remarkable claim, imputed falsely to the CBO (which actually has a deserved reputation for nonpartisan analysis, which is of course why so-called conservatives ignore its findings on a regular basis)? Try this:
CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.
This account of what the CBO report says isn’t wholly inaccurate, but the word “but” works much the same way as the word “actually” did above: as in, “Obama thinks that he’s getting something with all this short term growth, but in the long term we’ll be worse off than we started,” a fundamental misunderstanding of what the stimulus is for (more below). Also, in a curious non sequitur, the WT then quotes Republican criticism of the stimulus:
But Republicans and some moderate Democrats have balked at the size of the bill and at some of the spending items included in it, arguing they won’t produce immediate jobs, which is the stated goal of the bill.
Not only does the CBO report actually refute the claim that the stimulus “won’t produce immediate jobs,” which the WT fails to mention, but the WT is apparently unable to dig up a single Democrat (they’re hard to find these days) to contradict this interpretation of events.
Let’s forget the baseline bad reporting for a moment: In order for the WT to achieve its desired ideological claim — and to make its dodgy lede seem plausible — it has to omit the fact that the CBO’s primary claim is that “Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by between 0.4 percent and 1.2 percent by the fourth quarter of 2011.” The CBO blog reports:
The negative effect of crowding out could be offset somewhat by a positive long-term effect on the economy of some provsions [sic] — such as funding for infrastructure spending, education programs, and investment incentives, which might increase economic output in the long run. CBO estimated that such provisions account for roughly one-quarter of the legislation’s budgetary cost. Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output), CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net.
In other words, the CBO letter on the macroeconomic effects of the stimulus reports that the stimulus is likely going to do exactly what it is designed to do: stimulate short-term growth and prevent the economy from getting worse. The anticipated reduction in GDP (in 2019) is built on top of the growth of a normally functioning economy, which can probably absorb a tiny decline in GDP.
Putting aside the fact that long-term economic forecasting is an inexact science, subject to all sorts of contingencies, the report implies that when adding together the long and short term effects of the stimulus plan there will be an overall improvement in the economy when combining short and long term effects than would otherwise have existed (more discussion of the math here). In short, the WT has completely misrepresented the nature of the CBO’s report, either for ideological reasons or out of incompetence; there is a good reason why the WT has earned a reputation as “the Fox News of the print world,” to quote Gene Grabowski.
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Here’s what the WT says about the stimulus and job creation: “CBO did project the bill would create jobs, though by 2011 the effects would be minuscule.” But look at the actual chart from the CBO letter:
Notice what the WT doesn’t say: Obama has the jobs figure exactly right. In the short term, there will be as many as three million additional jobs created by the stimulus package. That’s three million additional people working in 2009, spending money, preventing more businesses from going bankrupt or having to lay off additional workers. That number is not some economic abstraction: it refers to real working human beings, people with families, people who will be able to keep their dignity and have a slightly enhanced sense of security, a better quality of life, people not taking public funding in the form of unemployment or food stamps or other forms of welfare, in many cases people who will retain vitally necessary health care plans.
By 2011, the CBO reports that there are only up to two million additional jobs that can be attributed to the stimulus. If you want to split the difference between the high and the low job-creation estimates, that’s a “mere” one million additional people working rather than mooching off the unemployment system. Yeah, WT, miniscule indeed.
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To add icing to this lovely cake of mendacity, take a look at the other chart from the CBO report (h/t to No More Mr. Nice Blog):
What does this chart say?
A one-year tax cut for high-income people will have a relatively small cumulative impact on GDP (because of its low multiplier effect); the purchase of goods and services by the federal government will have the largest multiplier effect, and thus the largest cumulative effect on GDP. The WT does not see fit to mention this part of the CBO’s analysis, for some reason.
I’m not sure if there are subtle economic arguments about why this isn’t the case — I can’t think of any offhand — but doesn’t this chart imply that Republicans should be railing to eliminate tax cuts on high-income people if they’re really so very concerned with the size of the GDP in 2019?
Even if there is a downturn — because of the debt-created “crowding” the CBO refers to — the baseline GDP will be much larger if weakly multiplying tax cuts for the rich go out the window. Remember: every dollar in taxes given to a high-income person carries with it a terrible opportunity cost: additional Americans will be out of work because of that policy choice, and those out-of-work Americans will be on unemployment, part of the vast army of entitlement kings and queens American conservatives so revile.
Any journalist or pundit who reproduces the WT’s ridiculous interpretation of the CBO’s report — that the stimulus will “actually” hurt the economy in the long term or that there will be short term growth “but” we’ll eventually be worse off — is guilty of journalistic malpractice and deserves to be fired for gross incompetence.
Will the WT story be shot down, as it so richly deserves to be, or will it become a capsule of conventional wisdom during the next news cycle? The answer is in the hands of Congressional Democrats and Barack Obama.
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While we’re talking about economic journalism it’s probably worth noting that, yes, the NYT does still employ some real reporters, who take their professional responsibility to inform the public seriously, and who are apparently capable of doing real journalism on economic matters; Martin Fackler has written what seems to me to be a very fair assessment of the problems Japan faced when it tried to climb out of its own deep recession in the nineties.
This article actually manages to give both sides of the stimulus debate, in considerable detail. Japan’s problem, according to those whose arguments I find most persuasive? Japan’s stimulus wasn’t fast or large enough, so it ended up stagnating for a decade, accumulating debt and initiating infrastructure projects in a piecemeal fashion. At least Japan has a decent social safety net, which mitigated the human suffering of this slump, but there’s a reason people call the nineties “the lost decade” for Japan.
Will the two-thousand tens be a lost decade for America?