The First Hundred Days

Since President Obama signed the stimulus package into law 100 days ago, the U.S. economy certainly seems to have stabilized. Public discourse about the bankruptcy of gigantic auto companies, about the financial system, and about the foreclosure crisis is now reasoned (or at least not panicked) and is once again easily distracted. We have a new Supreme Court nominee and a resurgent (or resurrected) Dick Cheney; Congress is enjoying a Memorial Day recess; and even the ever-pessimistic Nouriel Roubini sees light at the end of the tunnel.

Then again, 100 hundred days after the signing of the stimulus, housing prices are still marching downward, foreclosures are again at record highs, and the April unemployment report was nightmarish. The widely circulated 3-5 year investment outlook by the CEO of the giant bond firm PIMCO, Mohamed El-Erian, painted a bleak portrait of "a new normal", characterized by subdued global growth, high unemployment, "a heavy hand of government", and a more frugal American consumer. According to El-Erian, 8% unemployment and 2% global growth will be typical of this new normal.

Of course, the stimulus package was not designed to deal with the housing crisis or the financial crisis, but rather to create and save jobs and to make longer-term investments in areas like infrastructure, education, and health technology. The question about the stimulus package's success, really, is whether it bridges the gap between a period of very high unemployment (the unemployment rate will likely climb above 9% in May) and the "new normal" that El-Erian predicts and whether it makes investments that will allow the newly frugal American family to enjoy a middle-class standard of living in an environment in which credit is not so easily available to finance higher education, health care, and housing.

As of early May, a little less than 4% of stimulus funds had been outlaid by the federal government, meaning that even less have actually been spent by state and local governments and other groups eligible for funds. Indeed, Vice President Biden's first quarterly report to the President on the stimulus package provided little more than scattered, and somewhat questionable, anecdotes of the package's success. Even the Council of Economic Advisers' guidelines for estimating the job creating effects of AARA acknowledge the impossibility of knowing exactly - or even roughly - how many jobs the package has created. The administration's best estimate - that 3.5 million jobs will be saved or created - is not verifiable.

What will, however, become very apparent over the next two years is the extent to which the stimulus package has set the stage for Americans to deal with a new normal (should El-Erian's predictions come true).

Indeed, as Jared Diamond pointed out in The New York Times a year and a half ago, the rate of consumption in the United States was always going to decline, with or without the financial and economic crisis: our level of consumption was unsustainable given the growing consumption demands of other countries. But, more importantly, he noted that living standards would not necessarily suffer a similar fate. Western Europe's rate of consumption, for example, is considerably lower than that of the United States, while nearly all measures of quality of life - such as life expectancy, health, infant mortality, financial stability after retirement, access to medical care, post-retirement benefits, vacation, public school quality, and support for the arts - are in fact higher.

So as El-Erian and others fret about decreased global growth and a heavy-handed government, we should be grading the stimulus both on its job-creating effects - a somewhat quixotic, but nevertheless indispensable task - and on the extent to which it lays the groundwork for the middle class to thrive in a United States of frugal consumers and moderate economic expansion.