The Dallas Fed Reminds That The Economy Is Doing Much Worse Than In The Administration's Worst Nightmare

Tyler Durden's picture

The Dallas Fed has released an economic paper titled "Keynes' Wet Dream"... just joking - the real titles is - "Can The Nation Stimulate Its Way to Prosperity" in which the author concludes wisely: "While the overall weight of the evidence suggests the stimulus plan has provided a short-term boost, it’s unclear exactly how large this boost has been. What is clear is that stimulus funds have exacerbated near-term fiscal imbalances." Mm hmm. More taxpayer capital well-spent. Yet in the paper is contained the following chart which we hadn't seen in a while, and which says all one needs to know about not only the real benefits from the stimulus (as opposed to those limited strictly to Wall Street), but also is the best grade card of the Obama administration's economic "prowess" to date.

This is how the Fed explains this damning divergence:

Compared with no stimulus, the stimulus plan in 2009 alone was expected to increase GDP by 1 to 3 percentage points, raise payroll employment by 500,000 to 1 million jobs and lower the unemployment rate by half a percentage point. At first glance, it doesn’t appear the stimulus achieved these  objectives.

In the year after the plan’s passage, the labor market continued to hemorrhage jobs and unemployment climbed above 10 percent. Indeed, the  unemployment rate is now higher than it was expected to be without the stimulus plan—and has been every month since the plan’s passage (Chart 5). This seems inconsistent with official estimates of the plan’s performance. The first quarterly report, including data through September 2009, found that the plan had created or saved about 1 million jobs and boosted GDP 2 to 3 percentage points in the second and third quarters.2 Subsequent analysis from the Council of Economic Advisers and several private forecasting firms found even more favorable results, seeing the stimulus on track to save or create the 3.5 million jobs that were originally forecast for the 2009–10 period. How can this be?

The key proviso is this: what might have been. Simply put, there’s no way to know how badly the economy would have performed in the absence of fiscal stimulus and no way to prove how many jobs would have existed without stimulus.

And that's the whole point - all assumptions about "alternate worlds" hypotheses are always flawed, starting at the very top, with the guarantee that the world would have ended if the TBTFs were left to fail. Newsflash - it wouldn't, and the economic situation would likely have been far better now, had we taken the bitter pill at the proper time two years ago, reset the system, and started afresh. Instead we are now preparing the latest stimulus which is Obama funding the digging of holes all across the country (soon to be used as a terminal repository for worthless US currency).

h/t Joel