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Bill Adair
By Bill Adair February 23, 2009

Sanford distorts impact of stimulus bill

A week after the economic stimulus bill was signed into law, it continues to come under fire from Republicans who say it won't do enough to jump-start the economy.

In an op-ed in the Washington Post on Feb. 23, Mark Sanford, the Republican governor of South Carolina, wrote that the bill would not only fail to boost the economy, but that it would actually make things worse.

"Now that the so-called stimulus plan is law, we're left with one question: Will this package help us or hurt us? Unfortunately, I believe it is the latter, for a few reasons," wrote Sanford.

"First, this package will ultimately mean less, not more, economic activity. The Congressional Budget Office has found that this bill will lead to a real 0.1 to 0.3 percent reduction in gross domestic product by 2019. That translates into our economy losing tens of billions of dollars."

When we asked Sanford's communications director to provide the source for his data, he pointed us to a Feb. 4 letter from CBO director Douglas W. Elmendorf to senators and House members that projects the impact of the stimulus bill.

We should note that the CBO is a nonpartisan agency that has the thankless task of projecting the cost and impact of bills being considered by Congress. CBO does not take a position on legislation and its estimates are widely quoted (and occasionally, misquoted) by both parties.

The Feb. 4 letter that Sanford cites is about the Senate version of the stimulus bill. It gives an overview of CBO's estimates.

(It's worth noting that there is a newer estimate written Feb. 11 that has slightly different numbers, but the patterns are the same. And CBO is likely to update that estimate in the near future.)

The letter says, in the cautious language of government economists, that the stimulus bill would indeed stimulate the economy.

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It says that the Senate version of the bill would boost GDP — the key measurement of the economy's output — by 1.2 percent to 3.6 percent by the fourth quarter of 2010. The bill would add 1.3 million to 3.9 million jobs. And it would reduce the unemployment rate 0.7 percentage points to 2.1 percentage points below the baseline forecast of 8.7 percent.

The letter says that the stimulus, intended as a short-term program to get the economy moving again, would have short-term effects.

So if the letter shows the stimulus bill will boost the economy, how can Sanford claim there is a decline in 2019?

He's quoting a single number out of context and distorting what it means. His office pointed us to a section of the letter that discusses the long-term impact. It says that by 2019 the Senate legislation "would reduce GDP by 0.1 percent to 0.3 percent on net."

That's not worded very clearly and it has led many people — including many conservative critics — to misunderstand what CBO meant.

Bill Beach, an economist at the conservative Heritage Foundation, said that was referring to the long-term impact of the debt from the stimulus bill on the economy. CBO estimates that all of the debt from the stimulus could have effect of "crowding out" private investment, meaning that investors wouldn't put as much of their money into private capital, which has an negative impact on the economy.

But the effect is relatively small. It would lower the GDP from its "baseline" level by only 0.1 to 0.3 percent. And contrary to the way Sanford said it, the economy is still growing by 2.5 percent annually at that point, according to CBO. It's just wouldn't grow as fast because of the big debt.

Sanford is quoting the number out of context and neglecting to point out that it is a reduction from the baseline, which itself was going up. So he gives the impression it is a decline in the real GDP, when it's really a decline in GDP growth. Big difference.

To say Sanford is cherry-picking the letter would be too generous. He has taken one number from a letter that seems to support his thesis and distorted it. And he's ignored several more prominent measurements that show the stimulus bill would help the economy. So we find his claim to be False.

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