Has President Obama's Stimulus Made the Private Sector Lazy and Hurt Job Growth?


President Obama has been trying to tamp down the maelstrom of ridicule that greeted his claim last week that the private sector was doing just fine—but the public sector needed to be propped for robust job creation. Whether his remark was a political gaffe of the order of Mitt Romney's "I enjoy firing people" or "I don't care about poor people" remains to be seen. But Obama's comment accurately summarized prevailing Keynesian thinking on job creation, namely, that public sector spending complements –not crowds out—private sector economic activity.

But a fascinating study by Harvard Business researchers Lauren Cohen, Joshua Coval and Christopher Malloy last year debunks this notion. The study examined the economic activity in 232 instances over the last 42 years when a senator or representative ascended to the chairmanship of a powerful congressional committee and then used his position to divert federal resources to his home state in the form of federal earmarks, contracts and transfers. 

If the Keynesians were right, this "exogenous government spending shock" should have resulted in greater private sector activity, especially since this spending constituted "free money" that wasn't financed by greater state taxes or borrowing. But, alas, the exact opposite happened:

 Increased resources from the government that are not expected to be funded by taxes or borrowing induce individuals to increase their consumption and leisure. The resulting decline in the marginal productivity of capital compels companies to scale back investment and output…

Focusing on the investment (capital expenditure), employment, R&D, and payout decisions of these firms, we find strong and widespread evidence of corporate retrenchment in response to government spending shocks. In the year that follows a congressman's ascendency, the average firm in his state cuts back capital expenditures by roughly 15%. These firms also significantly reduce R&D expenditures and increase payouts to their investors. The magnitude of this private sector response is nontrivial: in the median state (which receives roughly $452 million per year in increased earmarks, federal transfers, and government contracts as a result of a seniority shock), capex and R&D reductions total $48 million and $44 million per year, respectively, while payout increases total $27 million per year. These changes in firm behavior persist throughout the chairmanship and begin to reverse after the congressman relinquishes the chairmanship. We also find some evidence that firms scale back their employment, and experience a decline in sales growth in response to the government spending shock… (Emphasis added).

Our approach identifies a distinct and alternative mechanism by which government spending deters corporate investment. In particular, we provide evidence that crowding out occurs through factors of production including the labor market and fixed industrial assets. These findings argue that tax and interest rate channels, while obviously important, may not account for all or even most of the costs imposed by government spending. Even in a setting in which government spending does not need to be financed with additional taxes or borrowing, its distortionary consequences may be nontrivial.

President Obama might be satisfied by the job creation in the private sector. But one of the great mysteries of America's post-recession economic recovery under his tenure has been why private companies have refused to add jobs and bring down the unemployment rate despite having returned to profitability.

Could it be because Obama's trillion-dollar stimulus pumped easy money into the economy and made capital "lazy"? Why invest in expanding business and adding workers when you have easy government money at hand to keep shareholders happy?

And could it be that just as the economic health of states began to improve after they lost their powerful Congressional representatives, likewise the American economy will improve after Obama leaves office and all his stimulus threats finally end? 

Just sayin…Not that I have any love lost for the alternative!

(Check out Hot Air's Ed Morrissey's blog illustrating precisely how weak job growth has been under Obama's recovery compared to other post-recessionary periods, Obama's sanguine declarations to the contrary nothwithstanding.)

NEXT: More Government Employees Paid Twice Average Salary, Because They're That Damn Good

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  1. Whoa whoa whoa whoa. Whoa. Are you saying that when you give people money for doing nothing, they won’t get up and start working really hard in the hopes of making more money?

  2. Whether his remark was a political gaffe of the order of Mitt Romney’s “I enjoy firing people” or “I don’t care about poor people” remains to be seen.

    One big difference is that Obama actually said, “The private sector is doing fine,” while you’re mangling the actual things Romney said:

    “I like being able to fire people” is presumably the origin of Dalmia’s first mangle, and Romney was talking about switching insurance companies anyway.

    “I’m not concerned about the very poor,” is the source of the second and is closer to your mangle. Of course that was only the first half of the sentence, the second half was that “we have a safety net there; if it needs repair I’ll fix it.”

    Whereas the context of BO’s quote doesn’t really help — he was whining about how we need more govt jobs.

    And seriously Ms Dalmia? It took all of 15 seconds to find the actual Romney quotes. I’m sick of fact checking you people for free.

    1. If you were actually sick of it, you would shut the hell up.

      1. If I don’t do it, who will.

        1. Whoever gets stimulus money to do it?

        2. Tulpa, do you need me to carve you a bigger crucifix or are you going to do it all by yourself?

          1. I forgive your blasphemy.

          2. Jesus carved his own crucifix but only because he could see that the Romans were botching the job.

            1. Tulpa Christ!

    2. I have to say, this makes me more sympathetic to Tulpa. The only thing I can think of in Dalmia’s defense is that she was expressing the way Mitt’s “gaffes” were interpreted by many politically-middle-of-the-road Americans.

      1. Exactly. His complaint is ridiculous, considering Reason is one of the places that pointed out the context of those gaffes in the first place. Dalmia is just using them as short references.

        1. I don’t think so.

          Seems like she’s jumping on the anti-Mitt bandwagon.

    3. I am confused…

      Was Tulpa outed as a Romney supporter the other day?

      1. I’ve been out and loving it for quite some time.

          1. That was fucking weird. Thanks… I guess???

          2. “The Shiites are undoubtedly protected from this disease” lol

          3. My favorite part is how he says that the worm drives homos to hysteria that can only be temporarily alleviated by sperm. Hence their constant crazing, even addiction to anal intercourse.

            So does that make the pitcher a type of therapist?

        1. Tulpa the White|6.11.12 @ 6:57PM|#
          “I’ve been out and loving it for quite some time.”
          Romney = 6 letters.
          Obama = 5 letters.
          Oh, NOW I see.

          1. Don’t persecute Tulpa Christ, you dirty Jew.

            1. Hey, I’m CLEAN!

      2. That depends, did reason post something negative about Romney?

        1. The only posts Reason has made about Romney’s “gaffes” were to note the context of the statements that other news outlets were omitting or downplaying.

    4. Point goes to Tulpa on this one given those were indeed non gaffes in both instances. You can’t just separate out a single phrase from an argument and play gotcha on a provocative phrase meant to stoke interest in the broader argument (joe use to do that to us ALL THE TIME), esp. when the point Romney made was easily explained by the rest of what he said.

      1. Eh, but whether or not what he said made sense in context doesn’t change that they were “political gaffes.”

        Methinks Tulpa doth protest too much.

        1. He protest so much that he sometimes stumbles on being right.

          You going to give the media that as a gaffe? Off of that lazy reaching for it shit? They don’t get a Quayle off of something that actually made sense no matter the hootenanny they throw down on it to obfuscate the fact all you needed to get either phrase was to read seven words to either side of it. Fuck the press.

          1. Isn’t a gaffe just something that unintentionally causes public embarrassment?

            Romney and/or his writers have been in the game long enough to know what stinks politically and what doesn’t. They’re usually good at making the Rominee bland enough to avoid offending even the most sensitive old lady ears, but sometimes they slip up and produce spinworthy gaffes.

            1. no, a gaffe is something that stands on its own but is stupid. For easy reference see: Biden, Joe, re: any number of phrases. The Romney ‘examples’ are parsed from broader comments, unlike Obama’s about the private sector.

              1. I agree, a gaffe doesn’t necessarily mean something embarrassing on its own, but something that is used to embarrass. Regardless of actual meaning of the statements, they were used (often without context) to portray him as uncaring or hateful about the poor. Since they did end up embarrassing him (though they wouldn’t have in a better world), they are indeed political “gaffes”.

            2. Yeah,

              Romney could have made the same point in an even better way by saying:

              I like it when businesses are competing for my money.

  3. This is as good a thread as any in which to make a slightly off-topic suggestion.

    For decades I’ve been frustrated because so many of the statist/left/progressive/liberal/Democratic economic arguments are very refutable, but it’s a pain to try to gather the evidence each time the various subjects come up. So how about if Reason creates some sort of online resource for this? There probably aren’t even 50 main topics that keep coming up, and each one should have a series of links to articles, papers, and books that provide evidence for the libertarian point of view.

    This article and the linked paper are perfect for the Keynesian economics section. Other topics that need this treatment: Tax cuts don’t cause deficits, and in fact often increase revenue. Tax increases don’t always bring in more revenue, or have unwanted side effects in other ways. Public workers are overpaid. Privatization works. Socialized medicine doesn’t work well. The US doesn’t have a “free market” in medicine. Scandinavian countries don’t have the perfect social-democracy economies many think they do. Etc. etc.

    It might work to set it up as a wiki, but there would have to safeguards to prevent vandalism.

    Anyway, it would be great if someone would do something like this. And I’m only semi-employed at the moment, if you’d like to hire any freelancers for the project?.

    1. is usually good for this, since it specializes in 3 to 10-minute videos presented by libertarian academics but aimed at the layman. Many of the points you raised are addressed there.

    2. There’s a fair amount of that on, as well.

      1. Thanks for the links. is sub-optimal because I think text is better for making a case. Better to send someone a link to things they can read or skim, rather than a video that would take longer to watch and be less information-rich. does have a wiki, but it’s sparse on content. I still think Reason could do something better.

    3. So how about if Reason creates some sort of online resource for this?

      Cato’s Daniel J. Mitchell is pretty good at kicking Keynesians in the nuts.

      If CATO blows itself up with that whole Koch vs Crane business perhaps Reason should poach him.

      Then again maybe he is more think tanky while Reason is more journalisty.

      1. Yes, stuff like that, but gathered (via links) into one place with some good SEO so that it’s easily found by Googling.

  4. Obama’s stimulus went mostly to state governments, to keep them from having to make budget cuts. It represented an expenditure to keep things from changing; it should be no surprised that it didn’t really change anything.

    Simultaneously with Obama’s stimulus, the Fed began intervening in the markets to create financial repression (that is, it artificially suppressed interest rates, thus reducing the incentive to save). Since the Fed has been undermining capital formation, is it any surprise that capital formation has been weak, and thus less has been invested in productive/job-creating business?

    Also, by suppressing interest, the Fed has reduced the income of people who were trying to live off of their savings. Whatever economic knock-on benefits came from keeping all those pubsecs employed got undermined by the Fed.

    But, you say, the stock market is up! Yes. Both the newly printed Fed money, and some private investment capital seeking some kind of return, have gone into the equities markets. Its funny; when you look at a chart of the stock market, you can easily identify when various QEs were announced: that’s when a decline reverses and an awfully steep/bubbly increase begins.

    So, the Fed and the administration have been suppressing and diverting capital, except when they have been working at cross-purposes on consumer spending.

    Good job, Top Men!

    1. Good job, Top Men!

      Is “Top Men” going to be a new thing now like gamboling or bachpfeifengesicht or monocle?

      I always get blind sided by these.

      1. Top. Men. has been a reason meme since I came on the scene a couple years ago. And of course, the wonderful scene from Raiders

    2. Additionally, TARP didn’t really stop many banks from failing, and various assistance on home loans didn’t do much to stop the price of homes from falling either.

      I can see how someone might argue that they bought us more time with those maneuvers, but that’s not how they were justifying throwing money at the problem then.

      Price corrections happen anyway. Bloated government payrolls need the hatchet anyway, etc., etc.

  5. Look, if the previous nearly twenty years of Japan’s experience isn’t enough to convince the Keynesians that there just might be some flaws in their thinking, there is nothing that can ever possibly happen that could!

    You can no more convince an invincible ignoramus like Obama that many of the economic theories he learned at Harvard are misguided than you can convince Pat Robertson that Jesus isn’t coming back.

  6. Way way way OT:

    Todays winner in the “appropriate punishment category”.

    SHERIFF: Father catches man raping 4-year-old daughter, punches him to death…

    1. I’d like to shake that father’s hand.

      1. I believe the next edition of Black’s Law Dictionary will define “justifiable homicide” simply through that headline.

        1. Racist?

          1. It’s ok when say it.

            1. Half okay.

              1. Halfrican-American?

              2. As in “hAlfrican-American”?

                You see what I did there.

    2. That scene of Bruce Willis doing that in “Sin City” always stuck with me. I can’t say I’d do a thing differently.

  7. “Also, by suppressing interest, the Fed has reduced the income of people who were trying to live off of their savings.”
    “But, you say, the stock market is up! Yes. Both the newly printed Fed money, and some private investment capital seeking some kind of return, have gone into the equities markets.”

    And all this ignores the uncertainties of future labor and regulation costs, reducing job ‘creation’ and adding to the effect.
    Except, say in software (where the labor is already highly paid and further regulation is unlikely) capital isn’t going to start new endeavors.
    There’s a lot of ruin in a capital market, but Obama’s trying to find out how much that is.

  8. Weird, a link to Hot Air? Not that I’m complaining. I consider Hot Air a great site and resource, and think we (Hot Air types and Reason types), should be allies.

    1. Didn’t that Allahpundit guy want Obamathe taxpayers to pay off his student loans for “stimulus”?

  9. Why is Reason so horrible about reporting on economic studies that show that overspending hurts the economy?

    Cato seems to be able to report it:…..ic-growth/

    Everyday Reason reports on some person claiming we need to spend more to grow the economy…why aren’t any economic studies brought to bare to combat their sophistry?

  10. OT ball o’ stoopid:…..86361.html

    Warning: Fuckstains suggest government portioning of political ideology, while claiming the airwaves belong to “the people”.

    1. The delusion is strong in this one:

      It’s difficult being a liberal these days because you can never be certain what you believe in. You believe in Obama, of course, knowing that he’s ultra smart and can solve every problem, but beyond that, it gets fuzzy.

      1. You made that up. You have to have made that up.

        1. It’s in the comments, not the article.

          1. It’s HuffPo, Epi. A million monkeys shitting on a million typewriters… or something.

          2. Hey Darius,


            1. SugarFreed it, Killaz.

              1. Shit.

                1. Blame Tony. It’s usually his fault, anyway.

                  1. Yes, indeed, I blame To-, wait, T o n y absolutely bores me. I blame Shikha. She would make for a far more interesting advisory. [shakes fist] You may have thwarted my musings this time, Shikha, but this isn’t the last you’ve heard of Killaz.

      2. Apatheist, you DO realize that commenter is being sarcastic, right?

        1. You can never be sure at Huff Po.

      3. Goddamn…

        It’s difficult being a liberal these days because you can never be certain what you believe in.

        Is it any wonder that the de facto demand of leftists is “MORE MORE ALWAYS MORE!!!”? People like this are so empty inside spiritually and emotionally their appetite is insatiable.

    2. And this one:

      The beltway media are no different than Rush Limbaugh or FOX news. They’re ALL shilling for Romney, and they ALL belong to big money, right wing corporate paymasters.
      The only difference is that the mainstream media are more subtle and very clever at pretending not to get along with FOX.
      Yet in the end, they ALL lead with the same pro-Republican stories.
      America could not be as it is otherwise.
      Women marched in 45 STATES, and NO CHANNEL covered it.
      There IS no mainstream media, it’s ALL right wing, it’s all run by white conservative men, and the only difference betwen a FOX broadcast and a CNN one is HOW FAR they tilt to the right.

      I blame my loss of brain cells on you FIFY.

      1. “Women marched in 45 STATES, and NO CHANNEL covered it.”

        Not true.
        If 3 women ‘march’ in SF with signs blaming KORPORASHUNS for whatever they didn’t like, at least 3 CHANNELS would covere it, as would the Chron.
        And if they used school-kids as props, they would have gotten more coverage.
        So it must have been two, max, with really rotten signs, and no kids.

        1. Glad to help, Apatheist.

          Just be glad I don’t go to DU or DogCuntPond or whatever that website is called… I’d rather bleach my eyeballs than read that shit.

          1. “it’s ALL right wing”

            Yeah, those fuckers at MSNBC are rippin’ you off, Team Blue. Especially that Ed Schultz guy.

      2. Women marched in 45 STATES, and NO CHANNEL covered it.

        Why would the news channels cover it when we get to experience women getting hysterical over nothing in our everyday lives?

  11. Choo-choo OT:

    “DesertXpress Vegas-California rail project renamed”
    “The original DesertXpress proposal involved rail service between Las Vegas and Victorville, Calif. Project organizers last week signed an agreement with the Los Angeles County Metropolitan Transportation Authority to explore extending the line further west to Palmdale.”

    See, the problem isn’t that just about no one is going to drive to (now) Palmdale to ride a choo-choo to Vegas. The problem is the name is wrong!
    Sorry, just about no one is going to drive to Palmdale to ride a choo-choo to Vegas, either, regardless of the name.……DTLtsp=1

    1. There is a Metrolink station in Palmdale. You don’t need to drive to Palmdale.

  12. That seems like it might jsut work dude.

  13. Sounds like a plan to me dude. Wow.

    1. Really dude? Exactly which part of the plan would you recommend? Would you implement it as written, or would you modify parts of the plan as necessary to make it more effective? If you’re going to participate anonbot, please try to bring more depth to your comments.

      1. “If you’re going to participate anonbot, please try to bring more depth to your comments.
        You got a better chance than getting shithead to post without lying.

  14. Too bad Obama was wrong about government employment, national employment actually goes down when the federal government hires less people:

    1. *national unemployment

      1. Yo, heller, you’re all up in that graphin’ shit. You got game, dog.

        1. I fuckin love a good motherfuckin graph

          1. Put up some goddamn pie charts, bro. Or some bar graphs. Make Ross Perot die, then come back from the grave.

            1. Bitches love pie charts.

              1. And we love their pie.

        2. I dunno, b.

          I don’t be trustin’ no motherfuckin’ graphs wihthout no motherfukcin’ errobars, yo. Where all da errorbars at, dawg.

          I ain’t talkin’ ’bout them made up excel motherfuckers either. I mean them real deal 95% certainty shits included in the author,s motherfuckin’ data, yo.

          Bitch-ass statisticians ain’t shit.

          1. True dat, General.

          2. Your daddy wasn’t named Herbert Kornfeld by chance, was he?

  15. Another knee-slapper/brain-destroyer-for-Apatheist link to HufPoo:…..f=politics

    The headline, alone, is enough to make you want to puke.

    1. And another:…..ostpopular

      Yep, I’m evil.

      1. Okay, ONE more for this time:…..ostpopular

        The irony. The salty ham tears of all the Little Michael Bloombergs out there. It’s so much fun.

        1. Wow. HuffPost really is the leader in non-news.

          A felon appears in an ad that has guns???

          The ad agency that does work for Michelle Obama also does ads for Capri


          1. The last one really got me… the same ad agency that spun up the “Let’s Move” agitprop, is now shilling bags of fruit-flavored sugar water.

    2. The amusing thing about all of it is how blind they are to why it is a losing strategy. Talk amongst yourselves lefties; the country will move on and forget you like a bad case of the clap.

  16. You know what would be a great idea right now?

    …besides spending and tax cuts.

    We should propose a free trade agreement with the EU.

    Normally, they’d be scared to death of such a thing. But any excuse to boost exports to a huge market like the U.S.? Something that might help them right now. Rather than explaining away another bailout to their constituents, a free trade agreement with the U.S. might be just what the doctor ordered.

    Obama, of course, wouldn’t propose such a thing right now. Because he’s a shitty president.

    1. Might be a good excuse to eliminate China’s “most favored nation” trading status too.

  17. I don’t think anyone truly believed Obama wouldn’t tax to pay for a bailout.

  18. The President’s stimulus is doing untold damage to the countries future. The % spent on interest on debt is spiraling out of control and there will be a heavy price to pay to get this under control.

    I would suggest that rather than lazy, excessive government spending makes the private sector cautious. They know it cannot go on forever and they know what’s coming when it stops.

    What the president is attempting to do is create a false economy by boring money rather than stimulating wealth creation.

    The country desperately needs this to stop as this debt will be left for our children to deal with which is simply immoral and unfair.

    It is really quite simple. If you borrow money you have to pay it back. If you stimulate growth there is nothing to pay back. Borrowing does not stimulate growth – lower taxes do.

    November cannot come soon enough. I just hope the american people understand this, especially families concerned with their children futures.

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