The 2009 Stimulus Bill and Its Impact on Deficits and Unemployment – Who Can We Trust?

February 17, 2009

“The only function of economic forecasting is to make astrology look respectable.” John Kenneth Galbraith

The Stimulus Bill passed by both the House and the Senate (with very little little “bipartisan support”) looks to pump $787 billion into the economy, with the purpose of combating rising unemployment and decreased consumer spending. Will it work? The Democrats may say yes, but not the GOP, which continue to believe that only tax cuts can help a sick economy. Who can we trust to give us the straight scoop on whether any of this monumental spending will have any of the anticipated benefits it touts?

Enter the Congressional Budget Office (CBO).The CBO has concluded that the bill will indeed increase the federal deficit by $787 billion between now and 2011, and during the same span will increase employment by between 5 and 7 million jobs. But the CBO also says that in terms of a percentage of our gross domestic product (GDP) the Stimulus Bill will have no negative effect on our debt ratio.

Trust a congressional agency, you ask? Republicans and Democrats can’t even agree on whether pickup or delivery is best for pizza. How could you trust a congressional office dominated by Republicans a few years ago to warn about the dangers of deregulation, or a current Congress dominated by Democrats to warn about too much spending?

So who is the CBO? It is a congressional agency created in 1974 to provide Congress with “objective, nonpartisan and timely analysis” on pending and enacted legislation. The CBO responds to written inquiries of politicians from both sides of the aisle, utilizing a staff of 235 people. Its website carries a copy of all such inquiries.

How non-partisan? History does tend to show that the CBO gives straight answers to questions, rather than simply telling the party in power what it wants to hear. For example, despite the claims of proponents that the 2009 Stimulus package will carry an immediate “jolt” to the economy, the CBO reported to Republican Senate Minority Leader Mitch McConnell that Republican criticisms of the short-term ineffectiveness of the proposals were well taken.

When the CBO was first created, it received a lot of criticism as to its partisanship. In its early years, Democrats controlled Congress, and Republicans accused the CBO of liberal bias. After Republicans took power, however, they warmed up to the CBO. Over subsequent years, the CBO has generally been perceived as objective and non-partisan. By serving both the House and the Senate, and by responding to both Republican and Democratic inquiries, it has managed to avoid controversy.

But how competent is the CBO? Is it like those talk show pundits who are always very good at saying, after a crisis has occurred, “I saw it coming,” but who seem no better than a crystal ball at predicting what hasn’t happened yet?

A look at some of its past pronouncements are a mixed bag. Back in August 2006 the CBO projected that there was no recession in the country’s near term economic future, and that unemployment would stay at a 5% level. Wrong. The CBO also warned, however, that housing values would continue to plummet, losing 12% of their values by 2009.

In short, the CBO may continue to earn its reputation of non-partisanship, but at predicting our economic future it’s no better than the “Madame Zora” fortunetelling booth at the State Fair.