Yogi Berra famously quipped, “It’s like déjà vu all over again.” That is an appropriate response to the Congressional Budget Office’s (CBO) latest report on the 2009 American Recovery and Reinvestment Act, commonly known as the stimulus.
The law required that the CBO issue a report on the effectiveness of the stimulus every three months, and the CBO has dutifully complied with this requirement since the law was passed in February 2009. Now, six years since the stimulus went into effect, the law requires that the CBO only do a yearly analysis. The recent report fulfills that mandate, but, like the others before it, it is flawed.
The problem with this report and the previous reports is the faulty methodology used by the CBO. It uses the same models to evaluate the effectiveness of the stimulus package as were used to predict its effectiveness. Heritage has pointed out this circular logic before, comparing it to claiming that spinning around in place 1,000 times in the opposite direction of the earth’s rotation would reverse the rotation of the Earth, and then claiming that you’ve reversed the planet’s spin simply because you did in fact spin around 1,000 times.
The CBO’s evaluation of the stimulus was flawed from the beginning because it assumes deficit spending is stimulative. It does so because its method assumes a dollar can be spent twice. But in order to spend a dollar, the government must first remove that dollar from the economy, cancelling out any positive effect. To use another analogy, it’s like filling a bucket with water on one end of a pool, dumping it into the other end, and expecting that the pool’s water level will rise.
The CBO estimates that the stimulus raised gross domestic product, lowered the unemployment rate, and created 200,000 jobs in 2014. Despite what the flawed annual reports from the CBO say about the stimulus’s effectiveness, the American people know the stimulus was a failed policy because they lived through the terrible economic recovery that lingered for years after its passage. No report can change reality.
Alex Rendon is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.