November 20, 2014

Reports From Congressional Budget Office Shed Light on How Well Some Economic Stimulus Policies Work

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

The Obama administration sent a letter to Congress over the weekend requesting $50 billion in spending to support the economy. This request will likely affect negotiations in the Senate and House over legislation extending some current spending policies and tax cuts.

With so much discussion tying current legislation with claims of boosting the economy, it makes sense to go back and look at the most recent CBO analysis of the types of policies that are most effective as stimulus, as well as review what the CBO has found about the success of the large stimulus package passed early last year.

The CBO found that the 2009 stimulus clearly improved economic growth and employment levels from where they otherwise would have been, even as it added to the long-term debt. However, an important question is whether that trade-off was made for policies the CBO considered most effective. On that, it is clear the bill could have been designed better.

As policymakers debate how much deficit financing is appropriate for short-term economic relief going forward, they must choose carefully, rather than simply enacting or extending current policies that won't have the biggest bang-for-the-buck in positive economic effects short and long-term.