Why some of the arguments about the stimulus miss the point

[ProSense]

Kevin Drum: Did a Small Stimulus Doom the Democrats?

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There's something about this argument that bugs me. It's not that it's wrong, it's just that it's exaggerated. A bigger stimulus almost certainly wouldn't have saved the Democrats' bacon. Here's what I mean:

• The actual stimulus bill that was passed in Feburary 2009 amounted to about $800 billion. The biggest bill anyone was talking about at the time was $1.2 trillion. That's 50% bigger, and presumably would have been about 50% more effective.
  
  
• For calendar 2010, CBO estimates that the stimulus bill reduced unemployment by something between 0.7 and 1.8 points. Split the difference and the consensus average is about 1.2 points. A stimulus bill that was 50% bigger would therefore probably have reduced unemployment by 0.6 points more than the actual bill.

If this is in the ballpark, it means that with a bigger stimulus bill unemployment today would be 9%, not 9.6%. That would have been well worth the price, but just because it was worth doing doesn't mean it would have made a big electoral difference. Unemployment of 9% is still enormously high, and almost certainly well above the point at which voters start to freak out. You can make similar arguments for GDP growth, disposable income, or any other economic statistic. A bigger stimulus might have made a difference, but it just wouldn't have been big enough to change the dynamics of next week's elections other than very modestly.

Now, if Democrats end up losing control of the House by three seats, the potential for even a modest improvement will seem like a pretty big deal. Still, modest is modest. It's most likely true that the stimulus was too small, but like every other electoral just-so story, it probably doesn't explain as much as you might think.

UPDATE: In comments, several people suggest that the real issue is that the stimulus should have been bigger and better. About 40% of the stimulus was in the form of tax cuts, which have a low fiscal multiplier. So if the stimulus had been $1.2 trillion, and all of it had been spending, we might be talking about a difference of two points of unemployment, not 0.6 points.

That might be true. It depends a lot on estimates of fiscal multipliers, which are pretty tricky because there's so little empirical evidence available on the subject. Still, the argument for a bigger and better stimulus is definitely stronger than the argument for a merely bigger stimulus.

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Exactly. The notion that an umemployment rate of 9 percent (or 8.5 percent to account for a different allocation or even larger package) would have meant a huge difference in this eletion doesn't add up.

What does one percentage point in the unemployment rate have to do with the fact that people are willing to allow Republicans an opportunity to return to power?

[JuniperLea]

1. It's really very simple...

Trickle down voodoo economics never work because it puts the money into the hands of those who don't need it, and won't spend it.

Give it to the people and they will spend it very quickly. Credit card bills will be paid, freeing up credit. Mortgages will be paid, homes will be saved. Food will be purchased, appliances replaces, homes and autos repaired and purchased, that gets people working too because it ups the demand.

Republicans never get the big picture... or they do and don't want anyone else to see it.

[ProSense]

2. No other comments? n/t