On August 6, Christina Romer, the chairman of the President’s Council of Economic Advisers, gave a talk entitled “So, Is It Working? An Assessment of the American Recovery and Reinvestment Act at the Five-Month Mark.” United States Court of Appeals for the Seventh Circuit judge Richard Posner has posted a response a The Atlantic, reading in part:
Let me make clear at the outset that I support the stimulus, though I wish it had been better designed. … Romer argues in her talk that by the end of the second quarter of this year, $100 billion of stimulus money had been spent. That is a suspiciously round number, and it is unclear how it was arrived at; but let us assume it is accurate. She then argues that this small expenditure–about two-thirds of one percent of the Gross Domestic Product–is responsible for the fact that the decline in GDP fell (on an annualized basis) from 6.2 percent in the first quarter of the year to 1 percent in the second quarter (though the latter figure is likely to be readjusted upwards).
This assertion is groundless. No one has the faintest idea what effect the stimulus has had. My guess is that it has had some positive effect, because of its confidence-enhancing character that I mentioned earlier and because some of the $100 billion–though no one seems to know how much–has been spent rather than saved. But it is impossible to determine the net impact of the stimulus on GDP or employment because so much else has been happening to stimulate an economic recovery. Some people have had to dissave–turn savings into expenditures–because their income has fallen (maybe because they have become unemployed) below the level necessary to cover their basic expenses. Some people have had to replace durables that wore out. Foreign demand for U.S. products has risen some. (Dissaving, replacing durables, and export growth if the domestic currency loses value are standard nongovernmental spurs to recovery from a depression.) And the government has been doing a lot to stimulate recovery besides the stimulus–has in fact expended or guaranteed trillions of dollars in an effort to increase the amount of lending, which is essential to economic activity.
Disentangling the various factors that are responsible for the reduction in the rate of decline of output in the second quarter is probably impossible, but in any event has not, to my knowledge, been attempted–and certainly not in Romer’s talk.