Here are the facts:
(1) The original estimate in early 2009 by the Congressional Budget Office (CBO) was $787 billion over 10 years.So currently it is $821 billion over 10 years, and about 70% had been spent by the end of September 2010. That is roughly $300 billion in 2009 and $300 billion in 2010. This was in a roughly $14 trillion US economy (or $14.25 trillion [2009 est.] and $14.66 trillion [2010 est.]), so that overall size of the stimulus in each year is roughly 2% of GDP .
(2) There have been subsequent revisions of the size.
(3) In January 2010, the CBO revised its estimate to $862 billion, partly because unemployment benefits were costing more than estimated.
(4) By August 2010, the January figure was revised downward to $814 billion over 10 years.
(5) In February 2011, the figure was revised to $821 billion over 10 years.
Meanwhile, one sees hordes of ignoramuses who bandy the figure of $800 billion about as if it was all spent in one year. That is false.
And, as always, we have the question of to what extent the stimulus was offset by
(1) state and local austerity, andThis will have to be taken into account.
(2) deleveraging (for example, many people got a tax cut: did they mostly use this to pay down debt or spend it on consumer goods?).
The effect of the stimulus was that the US emerged from recession in Q3 2009, and has not had a negative quarter of growth since:that the stimulus was not enough to close the output gap, and this is entirely correct. The US was in many ways one of the hardest hit by the financial crisis and demand shocks, so the high level of unemployment that has resulted is not surprising.
In my opinion, the New Keynesians have badly underestimated the potential GDP/GNP of the United States: the US is the largest economy on earth and has a vast unemployment problem. By U-6 (a better measure), unemployment soared to 18% in 2009. This, with massive unused resources and idle capacity (not to mention other nations ready and willing to sell goods to the US), makes for a huge aggregate demand deficiency.
By contrast, other nations have also used Keynesian stimulus, and have managed to keep unemployment levels relatively low with positive GDP growth: e.g., South Korea, China, Singapore, Australia, Germany, Sweden, Norway, and Belgium, to name a few. In fact, if there was any honesty to right wing, conservative or libertarian analysis of economic conditions over the past 3 years, they would be talking about the astonishing success of global Keynesianism. US libertarians and Austrian commentators in particular are contemptibly and laughably ignorant of what goes on outside the United States, where a vast number of other countries have used Keynesian stimulus with success.
There is no doubt whatsoever that global monetary and fiscal interventions have prevented a new Great Depression, which can be seen in the global data compiled by Barry Eichengreen and Kevin O’Rourke (comparing various relevant world statistics from 2008-2011 with 1929-1933). From 2008-2009, world industrial production, world trade, and the value of equity markets were falling off a cliff at a rate as bad as 1929-1932 (and in some cases at a rate even worse than 1929-1930). From 2009 onwards, there has been a remarkable recovery in world industrial production and world trade: the reason is that today we had governments that acted to stop financial systems from collapsing and to stimulate aggregate demand. In the 1930s, governments did not do this, and a global depression resulted.
Today, very few countries have had a depression in the proper sense of a contraction in real GDP/GNP of 10% or more. The only nations where this has happened are countries like Ireland, Greece, Latvia, Lithuania, and Estonia, in which savage austerity has been pursued and Keynesianism rejected.
Dean Baker, “Keynes and the Current Crisis,” 7 December 2011.
Paul Krugman, “On the Inadequacy of the Stimulus,” September 5, 2011
Economists Who Make the Third Stimulus Honor Roll