Simple math

Governor Tim Pawlenty, R-MN, says it is "ludicrous" to claim February's fiscal stimulus legislation helped turn the economy around.

Aug. 28 (Bloomberg) -- Minnesota Governor Tim Pawlenty, a possible 2012 Republican presidential candidate, charged that President Barack Obama’s $787 billion economic stimulus program still isn’t working...

With only 15 to 20 percent of the money spent, it “would be ludicrous to claim” the stimulus program is “what pivoted” the $14.1 trillion economy “at the so-called bottoming or now a potential beginning of recovery,” Pawlenty said.

Some simple math is called for. The stimulus package passed in late February, so almost all of the spending and tax cuts occurred in the second quarter of 2009. In the second quarter of 2009, GDP was $14,143.3/4 = $3535.8 billion (the BEA reports GDP at an annual rate, so you have to divide by four to get total production in a quarter). Say GDP was the same in the third quarter; that's $7071.7 billion for the most recent 6 month period. Fifteen - twenty percent of $787 billion is $118.1 - $157.4 billion, or 1.7% to 2.2% of GDP over that period. We don't know what the multiplier is on this combination of transfers and spending - probably somewhat under 1 for the transfers and somewhat over 1 for spending. If the multiplier as a whole is one, then the stimulus added somewhere close to 2% to GDP in the second to third quarters. That is not chump change, that's enough to make a bad downturn a mild one or turn no growth to modest growth. And the bulk of the spending is yet to come.