I had earlier referred to the possibility of US recovery being investmentless.
John Taylor in his recent blogpost says that Q4 2009 growth of 5.7% was mainly investment driven. He looks at various graphs showing growth in GDP with investment, consumption, exports and government expenditure.
- In the first chart the red line shows the contribution from investment. It explains most of the recession and the rebound.
- In the next chart you see the contribution of consumption, which plays a noticeable but considerably smaller role.
- The third chart shows the contribution of net exports, which explains some of the smaller movements in early 2008.
- The fourth chart shows the contribution of government purchases. I have focused on non-defense federal plus state and local purchases because defense spending was not part of the stimulus (adding in defense does not change the story). Note that none of the action in real GDP growth is due to government purchases.
- In other words during the entire first year of the stimulus package, the contribution of government purchases to change in real GDP growth is virtually nil. There is no evidence here that the stimulus has worked either to raise GDP growth or to create jobs.
Now, CEA’s second quarterly report on the economic impact of ARRA-2009 gives a completely different picture. The act looks at the impact of ARRA or fisal stimulus in Q4 2009. The key findings are:
- As of the end of December 2009, $263.3 billion of the original $787 billion, or roughly one-third of the total, has been outlayed or gone to American households and businesses in the form of tax reductions. An additional $149.7 billion has been obligated for projects and activities, which means that the money is available to recipients once they make expenditures.
- The two CEA methods of estimating the impact of the fiscal stimulus suggest that the ARRA added between 2 and 3 percentage points to real GDP growth in the second quarter of 2009; between 3 and 4 percentage points in the third quarter; and between 1½ and 3 percentage points in the fourth quarter. These estimates are broadly similar to those of a wide range of other analysts.
- The CEA estimates that as of the fourth quarter of 2009, the ARRA has raised employment relative to what it otherwise would have been by 1½ to 2 million.
- For the third quarter of 2009, we now have direct reports on jobs created or saved from a subset of recipients of ARRA funds. These reports identify 640,000 jobs that would not have existed but for the Recovery Act.
Who is right? All I know is I am terribly confused. But yes, it does not look like an investmentless recovery. In 1991 and 2001 recession recovery was investmentless but here we see a V shaped recovery likw we saw in 1970 and 1980s recessions.
The role of government stimulus is where the confusion is. I guess it will remain for many years to come. The answers will change depending on the research methodology.