Where is the “Recovery”? Where Did the “Stimulus” Go?


The new BEA figures about economic activity continue to point to a replay of a Japanese-style lost decade or, even worse, a 1937 scenario. The current expansion has been the weakest on record since World War Two and the trend since the early 1980s does not provide much comfort. Figure 1 shows that each economic expansion since the 1980s has been weaker and weaker and the rate of decline has accelerated.

The current debate in Washington does not provide any comfort for the short run or the long run with both political parties willing to jeopardize whatever economic growth we have left over a fictitious ceiling that serves no economic purpose. All this suffering is supposed to help in the long run because of the good that will come from “reforming” (read “dismantling”) pillars of economic progress like Social Security.

The 2009 Obama “stimulus” is long gone and all levels of government negatively contributing to economic growth. Since the third quarter of 2009, the contribution of the government to economic growth has been nil on average. 
Figure 1. Economic growth and its sources
Source: BEA (NIPA Table 1.1.2), NBER.
Note: Last period is an on-going expansion.


All this provides one more clue that the current large deficits have nothing to do with government spending running wild. This also provides a clue about how little has been done in terms of productive spending by the government since the beginning of the expansion. Most of the help provided by the government was to hopelessly insolvent institutions that should have disappeared from the face of the earth a long time ago.

10 Responses to Where is the “Recovery”? Where Did the “Stimulus” Go?

  1. I don't mean to be rude, by why mention the Japanese lost decade at all as a possible point of comparison? Going into its slump, Japan had huge savings, a strong safety net, employers who accepted something along the lines of noblesse oblige as the rule to guide their business choices, and politicians who do not depend on corporate funding for election money. It didn't have, and probably never will have, unemployment levels similar to those the US does, and I similarly doubt that its population is being terrorized by a banking sector that is similarly hell-bent on extracting as much rent as it can from whoever it can ensnare as the US banking sector is.

  2. I think people quote the number $3.7 trillion for 2010 which is much higher than $2.6T for 2005, to support the claim that spending is out of control etc. The numbers are from the Fed's Z.1 Table F.106 – I don't like NIPA too much. Lot of the increase is from "Government Social Benefits" (Line 12)However F.6 (Line 26) shows a lower number and obviously because social benefits are not included. Bailing out operations is a slightly different matter IMO…TARP is not included in expenditures. Its included in "Net Acquisition Of Financial Assets", Corporate Equities (Line 37 in F.106), which turns non-zero in 2008, though negatives don't seem appear in later years. TARP is financed by more incurring liabilities – issuance of Treasury Securities and there was a large increase in issuance due to TARP. Normally one would have Deficit=Net Incurrence of Liabilities but due to TARP, the right hand side increased. In the end, I guess TARP was profitable (?)

  3. Perhaps it's not a matter of financial manipulations, but a matter of increasing corruption and micro-management

  4. So what is the answer to the headline question? Where did the stimulus go?

  5. Lost decade my ass. The greatest industrial power the world has ever known has been busted out,just like the mob does to businesses, in less than 50 years by a relative handful of treasonous 'capitalists'.

  6. It's mostly sitting in bank reserves doing nothing but solidifying the belief that he current administration was bought and paid for by "Wall Street".

  7. Ramanan, it seems to me there's a continuous line between (consolidated) government lending activity, purchase of financial assets (investment?), conventional purchases and spending on social benefits and that any number representing any part of these activities will necessarily be incomplete. Often the decision which to mention, indeed the economic terms for the different parts themselves, seem more politically convenient than economically complete to me.

  8. Where did the TARP money go? How about answering where did all that home equity go? How do you explain to the average guy that it was all accounting gimmicks from the banks and at the time you could borrow against it because the financial firms could sell it to suckers!But when it was crunch time because the suckers wised up you couldn't give your house away to pay the debt off because all that "wealth" disappeared.And the clowns in Washington wonder why the tea party is so powerful and the fly over crowd is "clinging to their guns and religion".But sell a bond in their name and credit their checking accounts with 20 thousand or so and all is forgiven. (Isn't that what the government did for the gang on Wall Street adding a few zeros?)

  9. From Eric Tymoigne (I am in China now where NEP is blocked so expect a delay in responses):@0spinBoson. Lost decade only refers to a long period of anemic economic activity. Yes the US is in a worse position going into a potential lost decade.@Ramanan. BEA figures only refer to spending on goods and services. They exclude entitlements and other transfers, and any other emergency programs provided by the government to the economy (TARP, etc.) because those expenditures are not part of the GDP measure. Leaving aside the fact that the US federal government cannot go broke on US-denominated debts (and so, from that strict view point, deficits do not matter), the point here is that the current hysteria about deficit and spending is unwarranted because the current increase in total expenditures (including entitlements and co.) and rise in deficit is crisis-related. There has been a huge loss of taxes because of a decline in economic activity. There has been a huge increase in expenditures, not because the government has decided to take over the economy, but rather because of a reactive response to occurring events through automatic stabilizers and temporary emergency policies like TARP. Transfer spending and deficit will decline has the economy recovers, which may take a while of course.@Dan The stimulus is gone. Currently, the federal government and the state and local governments are decreasing their spending on goods and services and so creating a drag on the economy.@Marley. Yes it is Government Sachs remember.

  10. Eric,Agree with most of your points and is not inconsistent with what I was aiming at. On page with the BEA numbers and what it includes and what it doesn't. Plus most of your comment. I had two points. My first point was that government expenditures were indeed higher but for that you need to look at Fed Z.1 Table F.106. The stimulatory impact of the government has to be seen with all expenditures. The second point was that TARP can hardly be called and included in "expenditures" from a flow of funds viewpoint. The US Treasury calls it "expenditures", though but the CBO corrected this. (Of course, not claiming TARP was not stimulatory)http://www.cbo.gov/ftpdocs/99xx/doc9941/12-2008-MBR.htmThe Fed's Z.1 seems to do it correctly. I understand other things such as the rise in deficit being due to the recessionary environment and automatic stabilizers.