Is a 1.7 Percentage Point Decline in the Unemployment Rate Substantial?

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Wednesday, 08 September 2010 04:26

The NYT says it isn't. The context is a discussion of President Obama's new stimulus program. The article tells readers that the word "stimulus,"

"has taken on negative political connotations since the original roughly $800 billion recovery plan and subsequent additions have failed to push unemployment down substantially."

According to the Congressional Budget Office the stimulus has reduced the unemployment rate by between 0.8 and 1.7 percentage points. This clearly was not enough to get the economy back to full employment, but arguably it was still substantial. People would likely view the economy very differently today if the unemployment rate was over 11 percent.

Arguably, the major cause for disenchantment with the stimulus was the fact that it was hugely oversold. The Obama administration badly underestimated the severity of the downturn and claimed that the stimulus would be sufficient to bring about a recovery.