Americans for Tax Reform has consistently criticized the so-called ‘stimulus’ on the grounds that it has blown $850 billion dollars, and achieved precisely nothing.
But the reality is, the stimulus has achieved something. It has – directly – led to a 2% increase in the unemployment rate that would not have occurred had the government simply done nothing. Alan Reanolds from Cato explains
As the CBO explains, "five programs accounted for more than 80% of the outlays from ARRA in 2009: Medicaid, unemployment compensation, Social Security … grants to state and local governments … and student aid."In other words, what was labeled a "stimulus" bill was actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.
The American Recovery and Reinvestment Act of 2009 had extended federally funded unemployment benefits by 53 weeks, and another bill in November added 20 more — bringing the total up to 99 weeks in states with high unemployment.
As the Federal Reserve’s Open Market Committee minutes for January noted: "The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force. … Some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during this recession."
My own estimate, in past articles available at cato.org, is that the stimulus act added about 2 percentage points to the unemployment rate. The evidence that extended benefits have that effect is overwhelming, fully documented by the Organization for Economic Cooperation and Development and by at least two economists in the Obama administration. It turns out that raising the unemployment rate by a percentage point or two is the only clearly identifiable effect the stimulus act had on the jobs market. It stimulated unemployment.