Free Markets, Free People


Economists: Stimulus “destroyed/forestalled” 1 million private sector jobs

Economists Timothy Conley and Bill Dupor have issued a study about the American Reinvestment and Recovery Act, also known as the “Stimulus” – approximately a trillion dollars borrowed and spent ostensibly to create and save millions of jobs and keep the unemployment rate below 8%.

We’ve known for months, each and every time the unemployment numbers come out, that it failed miserably to keep unemployment below 8%.

Conley and Dupor give the short “bottom line” version of their study’s result:

Our benchmark point estimates suggest the Act created/saved 450 thousand government-sector jobs and destroyed/forestalled one million private sector jobs.

Those jobs which were “destroyed/forestalled” fell into a 4 sectors that the economists studied:

The large majority of destroyed/forestalled jobs are in a subset of the private service sector comprised of health, (private) education, professional and business services, which we term HELP services.

[…]

[O]ur estimates are precise enough to state that we found no evidence of large positive private-sector job effects. Searching across alternative model specifications, the best-case scenario for an effectual ARRA has the Act creating/saving a (point estimate) net 659 thousand jobs, mainly in government. It appears that state and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases (Fig. A) rather than directly boost private sector employment (e.g. Fig. B).

Here are the two figures from the study:

ARRA

 

What you see here is exactly what most critics of the plan claimed would happen – states used the money on government and not stimulating private job growth.

Result?  States forestalled their budget reckonings and unemployment, except in the private sector, continued on past 8% into the 10% area.

Of course, it appears that the architects of the ARRA never really thought this through nor did they anticipate how sending money to the states would be used.

As John Hinderaker at Powerline asks:

Does President Obama understand this? I very much doubt it. When he expressed puzzlement at the idea that the stimulus money may not have been well-spent, and said that "spending equals stimulus," he betrayed a shocking level of economic ignorance.

The answer to the question is a profound and telling “no”.  And yes, he’s betrayed a shocking level of economic ignorance throughout his presidency:

Upon acquisition of ARRA funds for a specific purpose, a state or local government could cut its own expenditure on that purpose. As a result, these governments could treat the ARRA dollars as general revenue, i.e. the dollars were effectively fungible.

In essence, it was used to save government jobs through a few easily accomplished accounting tricks.  The desired private stimulus (assuming there really was such a desired use), never came to pass.  An opportunity for state governments to review and downsize government to more efficient and appropriate levels was forestalled.

And the recession ran on.

Missing in action? 

Sheriff Joe.

~McQ

Twitter: @McQandO

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8 Responses to Economists: Stimulus “destroyed/forestalled” 1 million private sector jobs

  • D’oh…!!!
    –signed, The Collective

  • Highway, bridge & street construction went down ???
    I understand that housing construction was going down, but to have ARRA be “Shovel-Un-Ready” is a shocker.

    • Of course none of that stimulus money was spent on infrastructure.  It was spent on democrat’s constituency groups, it was a giant payday.  Now, they can ask for a second stimulus to fix the infrastructure.

  • John Taylor (professor at Stanford and the creator of the Taylor Rule used by the Federal Reserve) has already made this point in testimony to a Senate committee. (I think I might have posted links to his study here)
    Yes, there was no measurable improvement in contracting for infrastructure projects. The “shovel ready jobs”. Further, the amount of money borrowed by the states to fund operations contracted at a rate consistent with the amount of federal dollars given to the states under the stimulus law. And gross state purchases of goods and services, (not wages) did not increase to any appreciable level.
    So, we were promised a huge Keynesian stimulus and didn’t get one. I remember someone in DC arguing that a percentage of the stimulus dollars should be allocated to Pentagon procurement. If we had done that we might have at least benefited by the acquisition of some needed physical assets.
    Wrong headed policies leading to more government waste. Not surprised.

  • I disagree with the title conclusion.  Taxes cause unemployment in the spending scenario.  However, the bulk of stimulus was funded with debt, which are bigger taxes delayed.  The direct damage has yet to be felt. 

    Now if the criticism was the choice of stimulus and some taxes increases in place of tax cuts, or in short ‘Obama tax policy caused …’, then it makes more sense. 

    Also I don’t see realizing any benefit within the first year or two of unemploying government workers especially when unemployment is already high.  Down the road, yes, but immediately, not really. 

  • I think the whole “not so much” stimulus was great.  It has hastened the end of Keynesian Economics by showing not only does it not work, it leads to massive debt that will either be paid back out of higher taxes, defaulted, or inflated away.

    • “ It has hastened the end of Keynesian Economics”

      Dream on. Like Communism, Keynesianism will live forever.

  • From the beginning in 2009, I said that the alleged “stimulus” would be a net destroyer of both wealth and jobs.  I usually followed that prediction with “no other outcome is even possible”.
    The reason is very simple: it takes the federal government $1.00 to buy the same amount of goods and services that can be purchased in the private sector for only $0.75.  With each federal dollar spent, 25% of its purchasing power is lost compared to that same dollar’s purchasing power in the private sector.
    Multiplied hundreds of billions of times over, this represents hundreds of thousands of private sector jobs which will never come into existence.
    —Tom Nally, New Orleans

     

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