Myths and falsehoods surrounding the economic recovery plan


During their coverage and discussion of the economic recovery bill supported by President Obama, the American Recovery and Reinvestment Act, media figures have advanced several myths and falsehoods relating to the details and effects of the plan. These myths and falsehoods include: the assertion that a Congressional Budget Office (CBO) "study" found that the majority of the money in the bill will not be spent for a year and a half; that provisions in the bill to extend food stamps and unemployment insurance payments are "not stimulus"; that President Franklin Roosevelt's New Deal policies failed to reduce unemployment during the Great Depression; that Japan's fiscal stimulus policy during the "lost decade" of the 1990s failed to help it recover from recession; that the bill would spend at least $217,000 for every job created; that the Association of Community Organizations for Reform Now (ACORN) would receive $4.19 billion from the bill; and that former Labor Secretary and Obama adviser Robert Reich proposed white males should be excluded from jobs created by the bill.

1. CBO analysis found the majority of stimulus won't take effect for a year and a half

Several media outlets and figures, including The Washington Post, CNN White House correspondent Ed Henry, and NBC senior White House correspondent Chuck Todd, have falsely suggested that a partial CBO analysis of the economic recovery plan -- reported by the Associated Press on January 20 -- was in fact a full analysis of the bill and falsely suggested that in that analysis, the CBO found that, in the words of the Post, "the majority of the money in the Democratic plan would not get spent within the first year and a half." In fact, the CBO report the AP highlighted initially conducted only a partial analysis and therefore did not reach a conclusion with respect to "the majority of the money" in the bill. Office of Management and Budget director Peter Orszag -- who formerly headed the CBO -- stated in a January 22 letter that the analysis addressed only "a component of the economic recovery proposal" and "did not address the overall package." CBO Director Douglas W. Elmendorf also wrote in a January 26 blog post that the "preliminary estimate that has been widely cited addressed only the budgetary impacts of an earlier version of the provisions contained in Division A, at the request of the House Committee on Appropriations."

The CBO subsequently released its "Cost Estimate" of H.R. 1, an analysis of the entire recovery plan as introduced in the House of Representatives, and concluded that 64 percent of the package would be spent by the end of the fiscal year 2010: "Combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period."

2. Food stamps, unemployment payments are not stimulus

On the January 27 edition of CNN's Campbell Brown: No Bias, No Bull, host Campbell Brown and CNN chief business correspondent Ali Velshi repeatedly claimed that provisions in the economic recovery bill that extend food stamps and unemployment insurance payments are, in Velshi's words, "not stimulus." But the same day, Elmendorf stated in congressional testimony: "Transfers to persons (for example, unemployment insurance and nutrition assistance) would also have a significant impact on GDP. Because a large amount of such spending can occur quickly, transfers would have a significant impact on GDP by early 2010." Additionally, in 2008 congressional testimony, Mark Zandi -- the chief economist and co-founder of Moody's, who was reportedly a McCain campaign economic adviser -- stated that "extending food stamps are [sic] the most effective ways to prime the economy's pump" and cited extending food stamps and unemployment insurance payments as having a greater "Fiscal Economic Bank for the Buck" than any other potential stimulus provision he analyzed, including temporary and permanent tax cuts.

3. The New Deal did not lower unemployment

During Fox News' coverage of Obama's January 20 inauguration, anchor Chris Wallace falsely claimed that "unemployment in 1937, 1938 was higher than it was in 1933." Wallace's assertion followed statements by numerous conservative media figures, who have responded to Obama's proposals for large-scale stimulus spending by denouncing Roosevelt's New Deal policies as ineffective or damaging. In fact, unemployment fell every year from 1933 until 1938, and according to several prominent economists, the unemployment rate rose in 1938 not because New Deal stimulus spending failed but, rather, because Roosevelt did not go far enough in pursuing those policies and because his attempts to balance the budget hindered recovery. In advancing the claim, some, including Washington Post columnist George Will and syndicated columnist Mona Charen, have cherry-picked data from the Bureau of Labor Statistics (BLS) -- which, at the time, counted those employed by the New Deal's emergency work programs as unemployed -- to assert that the New Deal failed to reduce unemployment. After World War II, the BLS ceased counting those in work-relief programs as unemployed. But even without including "emergency" public employment under the New Deal, the unemployment rate in 1937 and 1938 did not surpass the 1933 unemployment rate, as Wallace claimed.

Additionally, contrary to the January 7 claim of Fox News' Brit Hume that "everybody agrees ... that the New Deal failed," Nobel laureate and New York Times columnist Paul Krugman has written that the New Deal produced "long-run achievements" that "remain the bedrock of our nation's economic stability" and that Roosevelt's short-term successes were constrained because "he was eager to return to conservative budget principles."

4. Fiscal stimulus in Japan failed during the "lost decade" of the 1990s

On the January 23 edition of Fox News' Hannity, host Sean Hannity joined the ranks of media figures who have cited Japanese fiscal policy in the 1990s in arguing against a large scale-stimulus plan to combat the current recession in the United States. Hannity claimed that "the Japanese economy was suffering, in the '90s, they had eight separate stimulus packages that created, in their history, massive debt. It was unprecedented. And it didn't work." However, as Media Matters documented, according to prominent economists, economic conditions were improving in Japan before the Japanese government temporarily abandoned fiscal stimulus policies in an attempt to reduce the deficit. And Krugman, for one, points to Japan's fiscal stimulus packages as having "probably prevented a weak economy from plunging into an actual depression."

Additionally, Adam Posen, deputy director of the Peterson Institute for International Economics, wrote in his September 1998 book, Restoring Japan's Economic Growth, that "the 1995 stimulus package ... did result in solid growth in 1996, demonstrating that fiscal policy does work when it is tried. As on earlier occasions in the 1990s, however, the positive response to fiscal stimulus was undercut by fiscal contraction in 1996 and 1997." Posen also testified before the U.S. House of Representatives that the Japanese government "way overstated the amount of fiscal stimulus in which they actually engaged." Other economists and media accounts of Japan's policies agree with Posen that the positive effects of the mid-decade stimulus packages in Japan were curtailed by attempts to scale back spending and increase taxes.

5. The economic recovery bill would amount to spending more than $200K per job created

Numerous media figures, including David Brooks, Larry Kudlow, Brit Hume, and George Stephanopoulos, have asserted that the proposed economic recovery bill would amount to spending at least $217,000 for every job created, echoing a January 15 "Stimulus Quick Facts" press release issued by the Republicans on the House Appropriations Committee. The release stated that "President-elect Obama has said that his proposed stimulus legislation will create or save 3 million jobs. This means that this legislation will spend about $275,000 per job. The average household income in the U.S. is $42,000 a year." But by calculating the per-job cost by dividing the estimated total cost of the recovery bill by the estimated number of jobs created -- and thus suggesting that the sole purpose of that package is to create jobs -- these media figures ignored other tangible benefits stemming from the package, such as infrastructure improvements and investments in education, health, and public safety.

Moreover, economists, including Center for Economic and Policy Research co-director Dean Baker and Nobel laureate Paul Krugman, have presented another criticism of the claim. In a January 24 post on The American Prospect's Beat the Press blog, Baker wrote: "The Republicans have become fond of saying that President Obama's stimulus package will cost $275,000 for every job created. The media have been typically derelict in simply reporting this number without making any assessment to evaluate it -- as though readers in their spare time are supposed to determine whether it is accurate or not." Baker continued:

Okay, let's do the reporters' work for them. First, where do the Republicans get this number? They divide the the $825 billion cost of the stimulus by 3 million jobs that President Obama had originally pledged.

Their arithmetic is right but both numbers are wrong. First, the projections from the Obama team is that their package will create 4 million jobs, not 3 million. Furthermore, it is important to note that this over 2 years, not one year.

The cost is also wrong, or at least misleading. If we assume that the stimulus will work as planned, then it will boost GDP by approximately 1.5 times the amount of spending or $620 billion a year. If GDP rises by this amount, then it will translate into roughly $155 billion a year in higher taxes/lower spending than if we didn't do the stimulus. This is money that should be subtracted from the cost to the taxpayers.

So, if net out the increased revenue from the growth generated by the stimulus we end up with a 2-year cost of $515 billion which will generate roughly 8 million job-years. That comes to about $65k per job year, less than one-fourth of the Republicans' number.

Similarly, in his January 25 New York Times column, Krugman wrote, "As the debate over President Obama's economic stimulus plan gets under way, one thing is certain: many of the plan's opponents aren't arguing in good faith. ... The true cost per job of the Obama plan will probably be closer to $100,000 than $275,000 -- and the net cost will be as little as $60,000 once you take into account the fact that a stronger economy means higher tax receipts."

6. $4.19 billion of stimulus "would go to" ACORN

On January 27, the San Francisco Chronicle reported the false claim -- which the Chronicle attributed to the group Americans for Limited Government -- that $4.19 billion of the economic recovery plan "would go to the liberal housing activist group ACORN." Later the same day, nationally syndicated radio host Rush Limbaugh repeated the claim: "[I]n the Obama stimulus package, $4.19 billion is going to ACORN. Obama's community organizing -- you -- would somebody tell me what the stimulus is in that?" Limbaugh continued: "Oh, it's not called 'ACORN,' it's called 'neighborhood stabilization programs.' Now, would somebody explain to me what in the name of Sam Hill ... $4.19 billion to a voter-fraud organization has to do with stimulus?"

In fact, the bill contains no language mentioning ACORN. The false claim is based on a misrepresentation of a provision that would appropriate $4,190,000,000 "for neighborhood stabilization activities related to emergency assistance for the redevelopment of abandoned and foreclosed homes as authorized under division B, title III of the Housing and Economic Recovery Act of 2008." The provision requires that money will be distributed through competitive processes. It states that "not less than $3,440,000,000 shall be allocated by a competition" to "States, units of general local government, and nonprofit entities or consortia of nonprofit entities." It also provides that "up to $750,000,000 shall be awarded by competition to nonprofit entities or consortia of nonprofit entities to provide community stabilization assistance."

The Chronicle's report and Limbaugh's comments echo material released by House Minority Leader John Boehner's (R-OH) office. A January 26 "fast facts" release claimed of the stimulus bill: "The legislation could open billions of taxpayer dollars to left-wing groups like the Association of Community Organizations for Reform Now (ACORN), which has been accused of voter fraud, is reportedly under federal investigation; and played a key role in the housing meltdown." A January 23 release to which the January 26 document links stated that "the Democrats' bill makes groups like ACORN eligible for a $4.19 billion pot of money for 'neighborhood stabilization activities.' "

7. Robert Reich proposed excluding white males from recovery plan

On January 22 and January 23, Michelle Malkin, Rush Limbaugh, and Sean Hannity falsely asserted or suggested that former Labor Secretary and Obama economic adviser Robert Reich, speaking at a congressional forum, proposed that jobs created by the economic recovery package should exclude white males. In fact, while addressing concerns from women's advocacy groups and others about the composition of the proposed stimulus, Reich said then and has repeatedly stated that he favors a stimulus plan that "includ[es] women and minorities, and the long-term unemployed" in addition to skilled professionals and white male construction workers, not one that is limited to women and minorities.

During the forum, Reich stated that the jobs created should not "simply go to high-skilled people who are already professionals or to white male construction workers." Reich continued: "I have nothing against white male construction workers. I'm just saying that there are a lot of other people who have needs as well. And therefore, in my remarks I have suggested to you, and I'm certainly happy to talk about it more, ways in which the money can be -- criteria can be set so that the money does go to others: the long-term unemployed, minorities, women, people who are not necessarily construction workers or high-skilled professionals."

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