An Investors.com article entitled “The ‘Stimulus’ Actually Raised Unemployment“ should be required reading for every American:
By ALAN REYNOLDS Posted 02/19/2010
President Obama seized on the one-year anniversary of the American Recovery and Reinvestment Act (ARRA) as an opportunity to take credit for the belated and tenuous economic recovery.
But the economy always recovered from recessions, long before anyone imagined that government borrowing could “create jobs.” And we didn’t used to have to wait nearly two years for signs of recovery, as we did this time.
A famous 1999 study by Christina Romer, who now heads the Council of Economic Advisers, found the average length of recessions from 1887 to 1929 was only 10.3 months, with the longest lasting 16 months.
Recessions lasted longer during the supposedly enlightened postwar era, with three of them lasting 16 to 21 months.
Keynesian countercyclical schemes have never worked in this country, just as they never worked in Japan.
The issue of “fiscal stimulus” must not be confused with TARP or with the Federal Reserve slashing interest rates and pumping up bank reserves.
One might argue that those Treasury and Fed programs helped prevent a hypothetical depression, but it’s impossible to make that argument about ARRA.
The “fiscal stimulus” refers only to a deliberate $862 billion increase in budget deficits. Importantly, only 23% ($200 billion) was spent in 2009, with 47% in 2010 and 30% in later years (according to the Congressional Budget Office this January).
How could the initial $200 billion have possibly had anything to do with the 5.7% rise in fourth-quarter GDP?
The Keynesian fable presumes that faster federal spending and consumers spending their federal benefit checks were the driving forces in the rebound.
Yet the GDP report clearly said the gain “reflected an increase in private inventory investment, a deceleration of imports and an upturn in nonresidential, fixed investment that was partly offset by decelerations in federal government (defense) spending and in personal consumption expenditures.”
Since federal spending accounted for exactly zero of the only significant increase GDP, how could such spending possibly have “created or saved” 2 million jobs?
The bill was launched last year amid grandiose promises of “shovel ready” make-work projects.
In reality, as the CBO explains, “five programs accounted for more than 80% of the outlays from ARRA in 2009: Medicaid, unemployment compensation, Social Security … grants to state and local governments … and student aid.”
In other words, what was labeled a “stimulus” bill was actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.
First of all, believe it or not, America actually recovered from every single recession in its history without Barack Obama. And the longest recessions we’ve had have occurred during the period when elitist big government liberals were frantically pulling levers and pushing buttons.
UCLA economists have calculated that FDR’s policies actually prolonged the Great Depression by 7 years, a conclusion validated by Roosevelt’s own Treasury Secretary in his remarks to the House Ways and Means Committee:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot!” – Henry Morganthau, FDR’s Treasury Secretary, May 1939 (Morganthau Diary, May 9, 1939 entry, Franklin Presidential Library)
For the record, the unemployment rate the month before this mea culpa had been a sky-high 20.7%. More than six years after FDR’s New Deal, more than 1 out of every five workers was unemployed.
Obama’s own expert (Christina Romer) pointed out that pre-FDR, pre-New Deal, pre-stimulus, and pre-Obama, recessions only lasted an overage of 1o.3 months. This one’s going to last a helluva lot longer in the age of Obama.
The next thing to consider is that the $24 trillion in TARP and other federal programs makes the $862 billion Obama stimulus – with only some $200-plus billion having been spent so far – look laughably puny in comparison. Obama’s claim that his stimulus saved the day is rather like the gnat telling the elephant, “I was pushing too. And it was my efforts that saved the day, not yours.”
Obama’s claim is laughable. And so is the mainstream media that has largely allowed Obama to continue making such a claim.
A third point is that it is simply a fact that all the Obama and Democrat claims of “shovel ready jobs” is just a lie.
From an Associated Press article:
“Even within the construction industry, which stood to benefit most from transportation money, the AP’s analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.”
Which is to say, the only thing that was ever “shovel ready” about the stimulus was bull crap. And the Democrats shoveled it high and deep.
Virtually all of the nowhere near 2 million jobs that were “saved or created” were government jobs. And government jobs are parasitic upon the private sector which taxes PAY for those government jobs. In other words, the government sector doesn’t produce; government jobs exist ONLY because of the productive output of the private sector, and the private sector taxes that provide the money for the government sector and all the bureaucrats on the payroll.
And what we have here is a case in which $862 billion plus interest has been sucked out of the private sector which actually creates the jobs that produce and given to the government. Which means less wealth for the private sector. Which means fewer private sector jobs. Which means less productivity. Which means lower tax revenues which fund the government payroll.
Which means we are in a vicious cycle. Obama is going to need to keep borrowing to pay the government workers on the government payrolls, which means less money for the private sector, which means fewer private sector jobs and less private sector productivity, which means lower tax revenues, which means more borrowing to fund the government sector jobs.
Which is why “Keynesian countercyclical schemes have never worked.”
Let’s look at the gigantic mess that Obama left Illinois in as an example of why this crap doesn’t work, and how Illinois has an $85 billion black hole of unfunded public employee pension obligations which it can never possibly hope to repay.
First of all, the government has a way of rewarding itself at the expense of the private sector over and over again. Thus:
“The level of pension benefits provided by the state’s plans generally exceeds those available in the private sector — i.e., available to taxpayers who pay the state’s bills,” the Commercial Club’s Martin contended in his report.
But at the same time government sector union benefits dwarf those of the private sector employees who pay for those massive benefits, another thing happens: the government, being an inherently amoral and short-sighted enterprise, can’t help but constantly rob Peter to pay Paul in a neverending attempt to eat their cake, and have it, too. Hence the Pension Modernization Task Force investigating the black hole of Illinois pensions was forced to conclude:
“Not wanting to implement dramatic cuts in spending on essential services, the legislature and various governors elected to instead divert revenue from making the required employer pension contribution to maintaining services like education, health care, public safety and caring for disadvantaged populations,” the center argued. “Effectively, the state used the pension systems as a credit card to fund ongoing service operations.”
Which is to say that first the government makes impossible promises, and then it engages in unsustainable and frankly insane policies to play their equivalent of budgetary Whac-a-Mole in order to juggle all the impossible competing spending priorities they’ve been insane enough to commit themselves to.
Which is exactly what happened in the case of the Obama stimulus. It was advertised as a “shovel-ready” package to create jobs, but instead it was “actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.” And so money that was supposed to fund job creation instead went almost entirely to “Medicaid, unemployment compensation, Social Security … grants to state and local governments … and student aid.”
And jobs got sucked out of the economy.
To the extent that the Obama stimulus actually did any good, any benefit will be entirely consumed by the far greater harm it will do to the economy shortly down the road.
Fortunately, the claims that the Obama administration and the Democrat Party have made have been so inherently contradictory and so over-the-top fallacious that only six percent of Americans believe that Obama’s stimulus has created any jobs at all thus far.