Dean Baker of the Center for Economic and Policy Research in the US was interviewed for Radio 4′s Today programme by Mark Mardell, where he argued that stimulus spending had created jobs and growth, in direct contrast to the UK’s austerity programme which has seen growth fall and unemployment increase.
Obama has to make the point forcefully in an election year, when the stimulus was devised, he told his advisers he wanted spending on what he called a moonshot project, something big and memorable like the New Deal’s Hoover Dam. Instead he got small scale instantly forgettable plans with little political impact. But Dean Baker from the Center for Economic and Policy Research says it’s worked and it’s a pretty cut and dried case.
Well it seems to me it’s a text book Keynesian story that when you’re in the middle of a downturn, if you cut back, if you have austerity, as the UK has done, then you have slower growth or recession depending on how far they’ll actually go but in any case its really dampened growth there.
In the United States we haven’t had the same sort of austerity, we haven’t had as much stimulus as some of us would think would be appropriate but the economy is still growing. Most put the stimulus as having created three million jobs, adding around 2 percentage points to GDP growth and that looks pretty much right to me, so he certainly made a big difference and I think he deserves credit for it.
But UK fans of cuts would argue the US has been saved from a profligate stimulus by its system of government. There has been austerity. There have been many cut backs in individual states from California to Illinois. Just as fast as Obama pumped money into the economy, they pumped it out. But Dean Baker doesn’t think that helped…
States have been a drag on growth, so if you look we lost probably 3-4 tenths a percentage point of growth because most of the states have been forced to cut back to balance their budget. Also, the fact that the stimulus ended. The bulk of the stimulus took place in the year 2009-2010. The economy slowed to a crawl in the first half of 2011, when the stimulus was winding down, so all this fits the Keynesian story really to a T.