Stimulus: How to Know If It's Working

Consumer confidence and job creation may be slow to emerge and hard to measure, but boosts in umemployment benefits and food stamps will be fast acting

By Moira Herbst

At his first prime-time press conference, President Obama was asked a central question about the $800 billion-plus economic stimulus package: How will Americans know if it's working? "My initial measure of success is creating or saving 4 million jobs," Obama answered.

That was on Feb. 9, a day before the Senate passed an $838 billion version of the bill by a vote of 61-37, following the Jan. 28 passage of an $819 billion version in the House. The House and Senate have begun negotiations to reconcile the measures, which Obama would like to sign into law by Feb. 16, the federal Presidents' Day holiday. When people have a job, Obama explained, they purchase and invest, allowing companies to do the same and, in turn, to hire more workers as business expands.

Indicators of Success

Yet while job creation is arguably the most important goal of the stimulus package, other parts of the bill will have a much more immediate and visible impact. Food stamp increases and extensions of unemployment benefits will be among the first noticeable effects of the package. Tax credit payments for individuals and families would follow, along with other tax breaks and incentives. Rising consumer confidence and lower unemployment will be far more gradual, and aren't likely to surface until late 2009 at the earliest.

There's an understanding among many economists that the sooner a government intervenes in an economic crisis, the more effective it tends to be in getting the economy back on track. That doesn't mean that precise measurement of success is easy, however. "The problem is, we don't know what trajectory the economy would take without the stimulus package," says J. Bradford DeLong, an economics professor at the University of California-Berkeley. "We can't enter a Star Trek-like divided universe in which we compare what's happening with the stimulus versus without it. It's hard to precisely judge its impact."

DeLong says that looking at interest rates will provide a clearer idea of whether the stimulus plan is working. "If interest rates stay extremely low, the plan is definitely working," he says. "If Treasury interest rates do start to rise by more than normal levels, then we worry that [the spending] is crowding out private economic activity and discouraging investment." Specifically, he says that if medium- to long-term Treasury bond interest rates climb two or three percentage points higher in the next year and inflation sets in, the stimulus package is not having its intended effect.

Swift Help for the Neediest

Of course, how one benefits from the stimulus package depends on several factors, including income, professional skills, and where you live. "What you'll see [in benefit] and when you see it depends on who you are," says Steve Ellis, vice-president at Taxpayers for Common Sense, a taxpayer advocacy group. "If you are living hand-to-mouth, you should have greater access to food stamps and other assistance right away. If you're employed and not doing as well but hanging on, you won't see much change unless a [federally funded] construction project starts up nearby. For them, the government hand will be less visible and less direct."

Direct assistance for the poor and unemployed, considered as among the most effective stimulus measures, will be the first to take effect. Both the House and Senate bills offer an additional $20.2 billion to extend emergency unemployment benefits for more than 3 million people whose state benefits are set to run out after March. They also offer an extra $25 a week in jobless benefits to millions of workers through the end of the year; the current average weekly benefit is $293.