Obama's Fantasy Jobs Plan

The first stimulus fizzled. Let’s not repeat the mistake.

This is that wonderful time of year when a roly-poly, white-bearded fellow descends from the North Pole to lavish us with presents. So when President Obama follows suit, maybe it's just his way of getting into the spirit of the season.

He sounded uncannily like Santa Claus the other day in a speech taking credit for creating and saving 1.6 million jobs and vowing to do even more. The recent uptick in the economy and dip in unemployment, the president announced, came about because of the $787 billion economic stimulus package he signed last February.

But with unemployment still at 10 percent, Obama perceives a need for the government to generate additional jobs—which he plans to do with a new collection of tax cuts, public works expenditures, subsidies to homeowners for energy-saving investments, and a partridge in a pear tree. Though he stressed his commitment to fiscal responsibility, the president studiously avoided putting a price tag on this plan.

Like a certain jolly old elf, he doesn't want us to worry about the cost. After all, fiscal stimulus is supposed to more than pay for itself by goosing consumption expenditures to unleash a new surge of jobs, economic activity, and tax revenue. It's a Christmas that will go on for months or even years.

If only it were true. In fact, there is no reason to believe the American Recovery and Reinvestment Act has done anything to revive the economy. Economist John Taylor of the Hoover Institution at Stanford University reports that the economic data show "no noticeable impact of the temporary tax rebates and one-time payments on consumption." No impact, by the way, is pretty much what we got when President Bush tried a stimulus in 2008.

The administration's allies crow that in the six months before the package was approved, the economy shrank, and in the six months after, the economy grew. But just because football season follows baseball season, that doesn't prove baseball causes football. Just because the economy grew after the stimulus passed doesn't mean the stimulus deserves the credit.

Considering the claims of stimulus supporters, John Cochrane, a macroeconomist at the University of Chicago Booth School of Business, says, "There is just as much evidence that Valentine's Day saved the economy." What the advocates disregard, he notes, is that every dollar spent on federal programs is a dollar that is not invested or spent elsewhere. An extravagant program can create jobs in one place only by endangering them in another.

Even by the administration's logic, the success story doesn't hold up. The contraction of the economy slowed sharply in the first month after the passage of the stimulus—before any appreciable amounts of federal cash had been spent. Which suggests that the economy, far from requiring huge injections of federal cash to avert a depression, was already bouncing back on its own, something economies did for eons before Keynesian prescriptions came along.

What has happened since then doesn't make the case for buying a second round. Apparently the recession has already ended and unemployment has begun to fall—despite the fact that most of that $787 billion is doing about as much stimulating as the gold in Fort Knox. Only about one-third of the money has actually gone out the door.

If one-third of the stimulus spending was potent enough to rekindle growth, shouldn't the other two-thirds be even more effective? Why do we need to throw more tens or hundreds of billions on the fire when it's already starting to blaze? On the other hand, if the first stimulus fizzled, as the evidence suggests, it makes no sense to do a sequel.

Either way, there's precious little to be said for opening the throttle of a federal spending machine that is already hurtling out of control. But there's a lot to be said against it. Every big new appropriation represents money that has to be paid back with interest, on top of the $12 trillion we already owe.

Whatever else it may do, piling up more debt brings us closer to the day when the government will have to choose among such dire options as vastly increasing taxes, resorting to inflation, and defaulting on its obligations. If that day comes, Santa Claus may be hard to find.

COPYRIGHT 2009 CREATORS.COM

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  • Chad||

    Half of the current stimulus has been tax cuts, and NOT "one off" payments. It is interesting to see economic conservtives arguing that tax cuts DON'T stimulate the economy. Great job undercutting your core political argument of the last thirty years.

    Of course the stimulus creates jobs. Any time anyone spends money anywhere on anything, it creates jobs. If you disagree, simply tell me what you would spend money on that WOULDN'T create jobs (and more specifically, approximately one middle-class job for one year for each ~$50000 you spend).

    The idea that government spending comes at the expense of private spending is true when the economy is running at full employment. Right now, we are not even close. The government has a choice between paying people $500/week to sit on their butts and $600-$1000/week to do something useful. The latter is clearly preferable for both parties, and to the tax payer, who is getting the work for the *difference* between the two numbers.

  • Naga Sadow||

    How about paying them *NOTHING* while they sit on their butts. Seems preferable to the above. Cheaper too.

  • ||

    Or they could join the military.

    HUUUUUUURRR DURRRRRRRR
    GOVERNMENT IS THE PROBLEM
    SUPPORT THE TROOPS
    DERP DERP

  • Kolohe||

    In the same way that roads are built (in part) with earmarked gas taxes, paying unemployment benefits are one a least bad forms of government spending, as people paid into the funds while they were working. (and can only collect with some strings attached)

  • hmm||

    Spending money does creat jobs, but if the money is being coerced and the future rate of inflation is thought to be high the job created is nowhere near the impact of real wage lowering (inflation) and lost expansion due to taking money out of the market with coercion. So you either screw the people creating jobs or screw the guy getting the job. Sort of why government sucks at creating jobs directly and one reason it generally doesn't. I'd be interest in where that 50K number comes from, I've seen in it on Huffpo and some other liberal blogs.

    Government spending always comes at the expense of private spending. It's a zero sum game. Unless someone starts printing their own money.

    It amazes me that people don't get the relationships between government spending and government income. Where the fuck do people think the money spent comes from? Fairies and unicorns?

    Cutting taxes on the people not creating jobs is useless and does nothing more than get you more votes. Do you honestly think the people working 9-5 for 40K a year have more impact on the economy than the small business owner making maybe 100K a year employing people? Kind of like giving people cars. So far it's been all politics all the time, and little economically sound decisions have been made. (par for the course for the last 20 or so years)

  • Chad||

    A middle-class job pays something like $40000 year plus benefits. If you spend that much money, you employ one such person for one year (or 2.5 WalMart greeters, or one Wall Street banker for five minutes...it depends on what you buy).

  • eb||

    "It is interesting to see economic conservtives arguing that tax cuts DON'T stimulate the economy. Great job undercutting your core political argument of the last thirty years."

    There is a difference between temporary or lump sum "demand side" tax cuts and perminant "supply side cuts."

    Tax cuts that are temporary are saved... this was one of Friedmans great contributions to econ theory was that people make spending decisions based on long term expectations of income.

    Also a tax change has a demand and a supply side effect. The demand side is you have x amount more dollars in your pocket to spend. The supply side is, the marignal rate of taxation on a productive activity goes down so you supply more (labor or capital). These recent tax cuts are temporary (so little demand side stimulus) and they are not at the marginal rate (so little supply side benifit). Really the major effect of these tax cuts were just to shift private debt to public debt.

  • CatoTheElder||

    Actually you're making an old Keynesian argument that has gotten so old that even Keynes would disagree.

    Barro and Redlick's research published by the NBER indicate a multiplier effect of 0.6. For non-Keynesians, that means $1.00 of government spending generates $0.60 of GDP.

    Then add in the regime risk perceived by the people in the real world of business. Who on earth wants to invest in a country with massive debt, unending deficits, monetary overhang, cap'n trade, employer mandates, oppressive regulation, a pay czar, and increasing tax rates? A smooth-talking president cannot overcome these hurdles.

  • waterlogged cash||

    Who on earth wants to invest in a country with massive debt, unending deficits, monetary overhang, cap'n trade, employer mandates, oppressive regulation, a pay czar, and increasing tax rates? Somali pirates

  • Old Mexican||

    Re: Chad,

    Half of the current stimulus has been tax cuts, and NOT "one off" payments.

    Which stimulus are you refering to? Obama's?

    Of course the stimulus creates jobs. Any time anyone spends money anywhere on anything, it creates jobs.

    That's not why jobs are created. Spending money on something only leads to exchange, not to job creation. Jobs are created out of a necessity to produce something faster or cheaper, but there has to be capital investment first before labor can be required.

    It is capital investment that creates jobs, not mere spending.

    If you disagree, simply tell me what you would spend money on that WOULDN'T create jobs

    Sure - spending my money on garage sales.

    The idea that government spending comes at the expense of private spending is true when the economy is running at full employment.


    I don't see how one has to do with the other. Government does not produce anything for exchange, it has to take capital from productive endeavors, no matter how much "employment" there is.

    The government has a choice between paying people $500/week to sit on their butts and $600-$1000/week to do something useful.


    That's a false dilemma - the government could also do NOTHING.

    The latter is clearly preferable for both parties, and to the tax payer, who is getting the work for the *difference* between the two numbers.


    That's a fallacy - who said the taxpayer wanted that "work" in the first place?
  • ||

    Chad:

    You might want to read about the tax cuts before you write about them. The tax cuts are additional credits that will affect tax refunds, mostly for low income such as earned income tax credit which will be increased. This is nothing like a more traditional tax cuts that have an immediate impact.

  • ||

    It depends on your definition, but actually tax cuts are bad too but in a different way.

    (google Mountofrd/Uhlig or Barro for the detailed data)

    I'll explain it in a simple way. To solve the dotcom bubble pop Bush cut taxes. This did boost the economy enough to take care of the next bubble 'we' (ie the Fed/Congress) created but it caused more misallocation of resources. The 2008 crash was again the result of that.

    Debt financed tax cuts work short term, but in the long term they do worse damage. As we see. This is a lie of 'supply' side.

    Tax funded fiscal spending shocks don't even have that advantage, they perform poorly from the start and do even worse in the long run. (Great Depression, lost decade, etc)

    A borrowing funded spending shock is similarly bad, between the the other two choices. And this is undoubtedly what Obama would like to do but he hasn't much credit left.

    All of those make it worse in the long run than allowing correction, because intervention, even the threat of intervention, scares resources from going to expansion.

    In all cases an empirical anylysis demonstrates the long term 'multipliers' are below unity, except in the case of military spending, if the economy is already performing.

    This of course stands to reason because military spending never really benefited from the benefits of market function.

    It's the efficiencies that characterize market action that cause prosperity. Assuming that a million spent by government is more efficient that a million spent by entities who are motivated to be efficient at every step of the way is logically preposterous, and the data bears this out.

    The idea that government spending comes at the expense of private spending is true when the economy is running at full employment.

    No it's always true.

    Do we have to repeat the great depression or the lost decade to show this?

  • David||

    Spending money on anything does not create SUSTAINABLE jobs. All it does is take away money that could be spent on next wave of ideas that produce long-term jobs, i.e. creative destruction.

    If you've ever worked in government (I have), you'd recognize that these folks are highly inefficient and don't pick projects based on value but on political value.

    Most academics, politicians and journalists don't understand how management, incentives, operations or organizational change management are used to create successful projects. All they know is how to wordsmith and sell fear/hope. Sales is only half the battle of success.

  • MJ||

    "When all you have is hammer, everthing looks like a nail."

    Obama's only answer to creating jobs is government spending and narrow tax credits. These don't work very well to create jobs. The sorts of things that will have some good effect, broad based cuts in corporate tax rates and looser regaulations don't fly in leftist circles and don't create slush funds for Obama's rent seeking clients.

  • MJ||

    Also, having looming government imposed costs from Obama policies like Cap & Trade and the health care reform are scaring businesses from making long term commitments to capital resources, especially human capital. What business needs is some sense of stability from the government, and Obama is not giving them that and is largely constrained by his more far left ideological supporters from providing stability.

  • CatoTheElder||

    What's really laughable is Obamm's one-year capital gains tax holiday for small business investments.

    Real investors and entrepreneurs have a significantly longer time horizon. Even if they planned for a twelve-month exit strategy, one couldn't count on a deal closing in time to benefit from this. I'm sure some players on Wall Street like this tax gimmick, but it's no good for people that actually conduct real business.

    In order to be useful, tax cuts need to be permanent, or at least have an expiration date that far enough out to allow for planning.

  • ||

    Pre 2008: We'll all get rich flipping houses.

    Post 2008: We'll all get rich weatherizing houses.

  • hmm||

    One government bubble for another.

    Houses indirectly through forced low rates and legislation. And weatherizing through direct wealth distribution and debt. (of course, the latter bubble will be more of an entitlement and transfer than a bubble per se)

  • hmm||

    This is that wonderful time of year when a roly-poly, white-bearded fellow descends from the North Pole to lavish us with presents.

    I thought Krugman lived in New York?

  • Rich||

    there is no reason to believe the American Recovery and Reinvestment Act has done anything to revive the economy.

    It's not about reason, folks -- it's about *Hope*.

    Drink?

  • Gilbert Martin||

    Even if one believed the Keynesean nonsense about government spending (despite the absolute fact that no one on earth is the least bit capable of proving that it has ever accomplished so anything worth so much as one cent in value anywhere it's ever been tried on earth in the entire span of human history), most of the original "stimulus" money hasn't been spent yet so there's no legitimate reason to add another big pile to it. Just speed up the spending that was already authorized.

  • hmm||

    They just didn't spend enough.

    (sole defense taken care of)

  • Chris||

    The trick about Keynes is that you have to save money when you are in a surplus. Not so much on that part of the plan... congress sure has the spending part down though.

  • ||

    The trick about Keynes is ignoring the fact that it never works.

  • Morris||

    Fantasy--finally and area of real libertarian expertise!

  • Old Mexican||

    I just love your witty repartee . . . it's just so . . . so . . . pigheaded.

  • ||

    Your addiction to reading libertarian blogs--tell me about it.

  • Kevin||

    Obama Claus O....NO!NO!NO!

  • ||

    Wow, this guy actually makes pretty good sense I think!

    Jess
    www.be-anonymous.bg.tc

  • Chris||

    Thanks mr. bot.

    start giving me links to Snuggie or Sham Wow commercials, if you are going to try and trick me at least give me some entertainment out of the deal

  • JoshIbHB||

    The Economy is not growing, the depresstion roles on.

    Printing a trillion dollars then acknowledging some resulting gdp inflation is not growth.

  • CatoTheElder||

    I'll be happy to give Team Obama credit for 1.6 million jobs "saved or created" if they'll take blame for the 3.1 jobs destroyed since January.

  • Old Mexican||

    Re: Chad,

    Half of the current stimulus has been tax cuts, and NOT "one off" payments.

    Which stimulus are you refering to? Obama's?

    Of course the stimulus creates jobs. Any time anyone spends money anywhere on anything, it creates jobs.

    That's not why jobs are created. Spending money on something only leads to exchange, not to job creation. Jobs are created out of a necessity to produce something faster or cheaper, but there has to be capital investment first before labor can be required.

    It is capital investment that creates jobs, not mere spending.

    If you disagree, simply tell me what you would spend money on that WOULDN'T create jobs

    Sure - spending my money on garage sales.

    The idea that government spending comes at the expense of private spending is true when the economy is running at full employment.


    I don't see how one has to do with the other. Government does not produce anything for exchange, it has to take capital from productive endeavors, no matter how much "employment" there is.

    The government has a choice between paying people $500/week to sit on their butts and $600-$1000/week to do something useful.


    That's a false dilemma - the government could also do NOTHING.

    The latter is clearly preferable for both parties, and to the tax payer, who is getting the work for the *difference* between the two numbers.


    That's a fallacy - who said the taxpayer wanted that "work" in the first place?
  • HeadTater||

    If at once you don't succeed, try, try again. If it still doesn't work, tell everyone it did until they start to believe you or just get tired of arguing because they have something important to do (like go work at a real job).

  • Tag44||

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  • abercrombie milano||

    My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets

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  • nike shox||

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