CBO: Stimulus Package Adds Up to Artificial GDP Improvement

The Congressional Budget Office says that in the second quarter the effects of $787 billion package added 1.7% to 4.5% in GDP, cut the unemployment rate by .7 to 1.8 percentage points, and increased the number of people employed by 1.4 million to 3.3 million people. The CBO report is part of a regularly scheduled set of updates on the impact of the stimulus.

If the data is true, it is an indication of how much GDP could have been down in the second quarter. There are already concerns that the 2.4% initial reading could be revised as low a 1% because of the traded deficit. Without the stimulus package, the drop in GDP could have easily been 2%.

The question that the report raises is what will happen when the federal aid runs out. A number of economists have insisted that a second stimulus package is necessary to keep GDP from becoming negative again. The economy is already moving in that direction with harsh data from the housing market and rising weekly jobless claims. The political drive for austerity may well do more harm than can be imagined.

Douglas A. McIntyre