Free Markets, Free People
The gift that keeps on giving: The White House’s chart of unemployment predictions in the Stimulus/no Stimulus world. Superimposed is the graph of actual unemployment, but now, with wall street economists predictions for the near-term future.
I think a big speech will help, though. ‘Cause that’s what we’ve been missing. Speeches.
The analysis of that speech is pretty straightforward and simple. We’ve spent $800 billion for TARP, $1.4 trillion in the stimulus package, and $2 trillion in quantitative easing from the Fed. Now, if we spend another $430 billion on the American Jobs Act, that’ll be the fix we’ve been looking for, and everything will be peachy.
The president’s child-like faith in the power of government is touching. And frightening.
Seriously out of touch:
Three days after the U.S. Department of Labor reported that the national unemployment rate had ticked up from 9.1 percent in May to 9.2 percent in June, President Barack Obama said that the loss of jobs in the public sector is “evidence” that his $830-billion economic stimulus legislation worked.
“Now, without relitigating the past, I’m absolutely convinced, and the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs or created a whole bunch of jobs,” Obama said at his Monday press conference.
Except he can’t point to anything to prove his point. What we do know, however, is much of that money went to pay down the debt of the various states, which is hardly likely to create jobs. We also know it was spent on things like “Operation Fast and Furious” which certainly didn’t lead to any jobs – at least here in the US.
So this is the only place he has to point:
“And part of the evidence of that is as you see what happens with the Recovery Act phasing out,” he said. “When I came into office and budgets were hemorrhaging at the state level, part of the Recovery Act was giving states help so they wouldn’t have to lay off teachers, police officers, firefighters. As we’ve seen that federal support for states diminish, you’ve seen the biggest job losses in the public sector–teachers, police officers, firefighters losing their jobs.”
Or, ”we didn’t save anything, we just delayed, for a short time, the inevitable.”
That makes it hard to claim that the stimulus “worked”. Public sector jobs don’t contribute to the economy – they’re a drain. Oh sure we’ve decided they’re a necessary expense, but they don’t contribute to the economy the way a private sector employee does. What has been said for years is we can’t afford the overall expense of government – that it must cut back to “necessary” and drop the “unnecessary”. There was the easy way to do it (when the economy was good) and had they done so state governments would have been in better shape when the downturn hit. But they didn’t. Government has a tendency to expand when revenues increase, not contract. So when revenues contract, they are unable to fund the excess.
So the stimulus didn’t create or save jobs, it funded the excess jobs states and localities should have shed long ago as “unnecessary” and, more importantly, “unaffordable.”
Look, this unemployment problem is the beast that will devour Obama and he knows it. But if this is the best he can come up with, he’s in for a very long and bumpy re-election campaign, at least when it comes to this subject.
The folks at e21 remind us of something that should be at the forefront of every person’s memory as they consider what this administration has and hasn’t accomplished in its promise to “stimulate” the economy and create jobs. I call it the “big promise”. I don’t call it a “lie” since I use the traditional definition of a lie (a known falsehood) vs. the more modern one in use today by activists on both sides (being wrong about something). But that’s fodder for a future post.
In this one I want to issue a reminder of what was promised and what has been delivered. Promise:
Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan.
They got their “stimulus” – $800 plus billion in mostly borrowed money with which they were to stem the tide of unemployment then rising and keep it under 8% as promised.
The result wasn’t even close. In fact, other than two months of this year, the unemployment rate has stayed above 9%. By this time, according to the administrations plan, we were told we’d be at about 6.5%.
So it is clear that the “plan” was a total and unmitigated but costly failure.
What’s their explanation for such a huge miscalculation?
Romer and Bernstein defend their estimates with the argument that the economic situation turned out worse than they had anticipated; and so the economy would have done even worse without a stimulus.
Is that so? Then, as e21 says, they owe us a much deeper explanation of why that was so and why they considered their solution at the time to be the proper thing to do. Because it is seeming more and more like a very expensive boondoggle at the moment:
The recession “officially” ended two years ago, yet the first quarter of 2011 only saw 1.8% growth. The Administration and Congress should have a more robust discussion about their self-proclaimed “2010 Recovery Summer” – if for no other reason than to better inform the public about the recovery challenges the U.S. still faces in 2011.
For example, there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.
Larry Lindsey offered his own review of the stimulus this week, arguing that it failed what’s colloquially known as the Sharp Pencil Test. As he explains, “if you sit down and do a back of the envelope calculation of the [stimulus] program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense.”
Lindsey went on to offer this analysis:
[E]ven if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.
The 3 million claim is dubious at best with no mention of the type, quality or sector these jobs were supposed “saved or created” (the stimulus propped up a lot of state budgets which helped delay layoffs to government workers). And as Lindsey points out, the cost of what can only be a temporary “save” are way out of whack with the benefit. Instead, it appears the stimulus was a giant waste of money that did little if anything to create jobs in the private sector and mostly benefited government at a huge cost per job.
I’m not sure how anyone could economically justify such an outcome. But I sure would like to hear them try. I think they owe us some answers on this. And I’d like to see the GOP begin asking those questions. This is one part of the Obama record they need to pound on – starting now.
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:
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?
Apparently Joe Biden is the one chosen to carry the story that the reason the $862 billion “stimulus” plan failed is because of the stingy GOP.
Ed Morrissey pulls that apart like a kid pulling the wings off a fly. First Biden:
“There’s a lot of people at the time argued it was too small,” he said. “A lot of people in our administration…even some Republican economists and some Nobel laureates like Paul Krugman, who continues to argue it was too small.”
“But, you know,” Biden told Tapper, “there was a reality. In order to get what we got passed, we had to find Republican votes. And we found three. And we finally got it passed,” Biden said.
But if it wasn’t for the legislative reality, Biden explained, “I think it would have been bigger. I think it would have been bigger. In fact, what we offered was slightly bigger than that. But the truth of the matter is that the recovery package, everybody’s talking about it [like] it’s over. The truth is now, we’re spending more now this summer than we — I’m calling this…the summer of recovery,” the Vice President said.
"Legislative reality" at the time consisted of prohibitive majorities on the Democrats side in Congress. They ddin’t need a single GOP vote – not one. And, in fact, as Morrissey points out, the original package was to be $775 billion and the final package was $862 billion pig we got stuck with. In fact it was bigger than what had been asked for by Biden and company. You have to love the revisionist history, don’t you?
Of course Biden is pretty sure the victory in Iraq is possibly one of the "greatest accomplishments" of this administration so it’s no like he’s new at rewriting history. Morrisey also provides us with a couple of Obama quotes that sort of kick the Biden contention in the gut:
February 5th, 2009:
While efforts have been under way in the Senate to whittle the plan back to $800 billion or less, Mr. Hoyer said he believed it should be higher, at like $880 billion. Earlier on Air Force One, Mr. Obama was asked by pool reporters traveling with him about the size of the proposal …
Asked if the figure should be $800 billion and not more, Mr. Obama said: “Well, I gave you a range. I think we’re in range.”
And February 9th, 2009:
“It is the right size, it is the right scope. Broadly speaking it has the right priorities to create jobs that will jump-start our economy and transform it for the 21st century,” Obama said of the more than $800 billion bill at a rally in Elkhart, Indiana.
If the stimulus was too small (it wasn’t), it had zip to do with the GOP. And Joe and company isn’t fooling anyone but those who want to believe fantasy over reality. As usual, the Democrats blame-game runs into reality and facts and comes out second-best.
Turns out the $787 billion “American Recovery and Reinvestment Act” (AARA) was not designed for full economic recovery, but rather to “stabilize” the downturn. That’s the word from White House officials today, who held off-camera briefings with reporters on how the AARA is working so far.
“This legislation was designed to cushion the downturn,” said White House Press Secretary Robert Gibbs. “That’s why we have always talked about this as one function of economic recovery.”
When pressed about the change in terminology, Gibbs said he was not trying to temper expectations after the fact. “I can probably find 15 or 20 occasions when I said this in the lead up,” Gibbs said, explaining that he had always defined the AARA as part of a “multi-legged stool.”
Of course when we were in such a gawd-awful rush to pass the thing it was sold like this:
That is why I have moved quickly to work with my economic team and leaders of both parties on an American Recovery and Reinvestment Plan that will immediately jumpstart job creation and long-term growth. …
Jumpstart job creation and long-term growth? That sounds like what a “stimulus” plan should be designed to do. That’s what it promised to do (remember the warning that without the AARA unemployment would go over 8%?).
It is also what it has failed to do.
So, revising history on the fly, it was now never designed to that.
No wonder Amazon is out there deleting Orwell books from Kindle – who needs to read fiction when you have an administration like this.
Here’s an interesting little chart I found at Innocent Bystanders. The light blue line is the Obama administration’s prediction of how terrible unemployment would be if we didn’t pass the stimulus plan. The dark blue line is the prediction of how much better things would be we did pass it. The dark red triangles show the actual unemployment statistics.
So, how’s that recovery plan working out for us? Not so good, apparently.
I merely provide the chart for informational purposes. I know it’s useless to make any criticisms of the actual performance of the plan, just as it was useless to predict that this is pretty much what would happen.
Besides, saying, “I told you so”, is so churlish and mean.
Do Americans support the stimulus bill proposed by Congress, or hate it? The only way to glean a credible answer is by looking to reliable polls. Bruce did that earlier with respect to the ATI-News/Zogby poll which found that:
Amidst all the rhetoric surrounding President Barack Obama’s first signature piece of legislation, a massive $800 billion economic “stimulus” bill, one thing is clear: a majority of Americans reject the President’s handiwork. A just-released ATI-News/Zogby International poll shows that clear majorities of Republicans and Independents are against it.
Public support for an $800 billion economic stimulus package has increased to 59% in a USA Today/Gallup poll conducted Tuesday night, up from 52% in Gallup polling a week ago, as well as in late January.
So which is it? Is support up or down? Frankly, I don’t think we can really tell. Here’s why.
Both polls reveal the number of people questioned, and break down the results by party affiliation (although the ATI-News commissioned poll did not provide any numbers for Democrats). However, neither poll details how many participants of each party were polled, and/or whether the results were weighted. In short, if the ATI-News poll included substantially more Republicans and Republican leaning people among the 7,010 voters questioned, then the results should predictably skew towards the Republican side of the issue. Similarly, if there were significant number of Democrats and Democratic leaning independents among those 1,021 national adults polled by the USA Today poll, then we should expect that poll to favor the Democratic side.
Because we aren’t informed as to the breakdown of the total by party affiliation, we really can’t say how reflective the polls are of the country as a whole. Seeing as how the polls contradict one another, it’s safe to say that neither one accomplishes that task.
It’s tempting to conclude that, since the ATI-News poll was conducted over 5 days, as opposed to one, and interviewed almost 7 times as many people as the USA Today poll, the larger sample provides a more accurate picture. Moreover, the poll showing that the public is against the stimulus bill claims a margin of error (+/- 1.2%) that is far lower than the other poll (+/- 3.5%). Yet, the confidence interval for the latter poll is 95% and none is given for the ATI-News offering. If it was only 90%, I think (but could be wrong) that makes the USA Today poll slightly more accurate. In addition, without knowing how many answers came from each party (D/R/I), it’s impossible to say just how representative the poll actually is.
By the same token, the USA Today poll appears to offer a more comprehensive look at those questioned, and the questions asked seem less likely to evoke biased answers. For example, the main USA Today poll question was this:
As you may know, Congress is considering a new economic stimulus package of at least $800 billion. Do you favor or oppose Congress passing this legislation?
Compare that question to the following:
Most Republicans oppose the currently proposed stimulus bill supported by President Obama because they say there is too much money being spent for non-stimulus items. Do you agree or disagree that too much money is being spent on items that won’t improve the economy?
The first question above is simple, straightforward, and doesn’t present any potential bias words with respect to the issue. The second, however, sets up a premise, attaches “Republican” to it, and then asks for agree or disagree. Not surprisingly, the second question elicited a much stronger response from Republicans (93% agreed) and Independents (66%) than the first (56% Independents; 28% Republicans). Perhaps then the USA Today poll, despite its small sample, is the more accurate?
Once again, we don’t know how many of each party were questioned. If it was overwhelmingly Democratic Party leaners, then the results would have to be expected. In addition, the USA Today poll questioned all adults, while the ATI-News poll only queried voters, whom one might assume are somewhat better informed. Finally, the fact that any poll of voters could find a string correlation between the words “agree” and “Republicans” suggests that the wording was not causing any undue bias (unless, of course, it was mostly Republicans interviewed, which is pretty unlikely).
In the end, I don’t know how to view these two contradictory polls in a way that sheds any light on how the populace is actually feeling about the stimulus bill. Other than the glaring fact that Democrats overwhelmingly favor its passage, while Republicans do not, there is nothing definitive to be learned. I do agree with Bruce’s assessment that Independents are the best to look for answers, however the poll numbers we have don’t seem to match up.
I guess its possible that the a majority of people are ambivalent about the stimulus bill — yeah it’ll probably be a big screw up, but we have to do something, don’t we? — which would explain some of the apparent contradiction. And maybe Obama’s sales job made the difference in the numbers (the ATI-News poll ended on the 9th, while the USA Today poll was taken on the 10th).
Whatever the reason for the contradiction, I think it’s interesting that each day we have a different poll telling us that the public loves/hates the stimulus package, yet we never see any polls testing the public’s knowledge of what’s in the bill (much less anyone in Congress). Maybe if people were better informed about the contents of the legislation we see more consistent polling. Instead of constantly reading polls asking if the Republicans are right or wrong, or if $800 billion is a good number to spend, perhaps we’d learn more about what the public really thinks if we asked them how stimulated they would be by $4.2 billion for “neighborhood stabilization activities,” or $34 million to renovate the Department of Commerce headquarters, or $88 million to help move the Public Health Service into a new building, or $55 million for Historic Preservation Fund, or $6.2 billion for the Weatherization Assistance Program, or $2.4 billion for carbon-capture demonstration projects. Now there’s a poll I’d like to see.