Article by Bruno Korschek
Horrors! Two considerable entities have recently reached the same conclusion that the economic stimulus package did not work as it was supposed to to, falling far brief of its objectives and predictions. The 1st entity is the New York Times, which reviewed the dire economic status of the country two days ago:
- Annual economic growth is only at 1.8%, far below the three.1% of last year and below a growth rate of a healthy, growing economy.- Consumer spending is slowing down, a standard driver of a robust economy.- Wages are stagnant and higher prices for food and fuel are straining loved ones budgets.- Falling home equity values are contributing to downward pressure on consumer confidence and when customers are not confident, they tend to restrict their spending.- State and nearby government budgets are a fiscal mess.
Not a pretty picture, specifically from an entity that loves anything Democrat, the party that had controlled both houses of Congress for four years and which has controlled the White Home for the past two and a half years. All of the economic programs put forth by this Democratic Congress and White Home have been failures:
- Cash For Clunkers – minimal incremental increases in auto sales, mostly a time shifting of demand.- Cash for Caulkers – disaster.- Cash For Appliances – disaster- Very first Time House Owners rebate Program – same as Money For Clunkers, minimal incremental sales, just a time shifting of demand followed by a dramatic drop in home sales when the program ended.- HAMP Mortgage program – a program to rescue homeowners from foreclosure that even its own inspector genreal suggested be shut down for being ineffective.
Which gets us to the biggest failure of all, the economic stimulus program. The Congressional Bidget Office (CBO) recently came out with its analysis of the program. It did have some guardedly good news to say about the program, namely that it increased the number of men and women employed between 1.2 million and 3.3 million and lowered the unemployment rate between .6% and 1.8%. It also had some good effect in 2010, according to the CBO. The program boosted GDP growth to 4.6% in the second quarter of last year although increasing employment in that quarter.
However, the CBO analysis also had some really negative findings:
- The cost of the stimulus program was not 7 billion as originally estimated but much greater, billion.- If you take the best case jobs estimate from the CBO, which is in line with other estimates form the administration, the price per job created comes out to a whopping 1,000 per job.- If you take the worst case estimate of 1.2 million jobs created, you get a per cost job of 2,000 per job.- You cannot grow an economy making use of a program that costs hundreds of thousands of dollars to generate 1 job that is worth for less than the price of creating.- The CBO esitmates that the employment effects of the stimulus began to fade in late 2010 as the money ran out. That might explain why we continue to see over 400,000 Americans filing for initial time unemployment rewards each and every week and why the ADP jobs report this morning was about 80% below expectations with only about 39,000 new jobs developed in the private sector. Expectations had been for about 200,000.
This ought to not be news to anyone. The stimulus program created function, it did not generate jobs. It spent cash on such ridiculous items as the study of insects on an island off the coast of Africa. It replaced windows in a shuttered Mount St. Helen’s visitors center that has been closed for years and which is unlikely to open any time soon. It replaced heating systems in some midwestern churches. It was spent to repair over a thousand bridges that did not need to be repaired. These are not jobs, these are brief term function projects which disappeared when the stimulus funds ran dry out. There was not lasting impact.
And to add insult to injury, contemplate a May well 24, 2011 post from the Associated Press, “Tax Cheats Among Recipients Of Stimulus Funds.” According to the post, thousands of organizations that received taxpayer income under the President’s economic stimulus program already owed the government millions of dollars in unpaid taxes:
- The General Accountability Office discovered that much more than three,700 government contractors and nonprofit organizations received billion even though they owed over million in taxes.- An engineering organization received a ,000 stimulus grant even though it owed million in taxes.- A social services outfit received million in stimulus cash even although it currently owed million in back taxes.- Many of the contractors and organizations had had long running nonpayment behavior as exemplified by a secuirty business that owed million in back taxes, dating back to the mid-2000s but still got ,000 in stimulus income.- The most insulting comment concerning this entire fiasco comes from Senator Carl Levin who stated its been known for years that a few Federal contractors and grantees do not pay their taxes. Which raises the question to the Senator: if it has been years and the government knows who they are, why hasn’t anything been accomplished to fix the scenario prior to now?
So let’s review. We have a government economic program which resulted in only brief term, non-permanent positive employment effects, which added almost a TRILLION to the national debt to get only trivial, short term effects, which handed out taxpayer money to organizations that already owed the American taxpayer untold millions of dollars in back taxes and which implemented a assortment of other economic programs that failed miserably to attain their objectives. I think that pretty significantly sums up the political class economic track record over the past few years.
These failures, are of course, laid on leading of the biggest failure of all by all aspects of the entire political class: the miserable inability of the Senate banking and housing committees, the House of Representatives banking and housing committees, the SEC, HUD, the Treasury Department, the Federal Reserve, Fannie Mae, Freddie Mac, and the Office of Thrift Supervision to foresee the greatest economic calamity to hit the country in 80 years just before it happened, the Excellent Recession.
The question now becomes one of what to do going forward. Two locations of thought here. Initial, 1 of the fatal flaws of the economic stimulus program was the assumption that for each and every spent within the stimulus framework, several more dollars of economic activity would be developed. This is referred to as the “multiplier effect.” Invest by way of a government program and this single dollar will trigger several versions of itself to trickle through the economy, raising economic activity far beyond the .
Nice theory but according to an article by Veronique de Rugy of Reason Magazine, “Ugly Modeling,” this is a seriously flawed assumption. According to the write-up, Harvard economists Robert Barro and Charles Redlick estimate that the multiplier effect for the stimulus program was between .4 and .7. In other words, for every the government spent, it lost between $ .30 and $ .60 in economic value, a losing proposition. Even folks who initially supported the stimulus program, Dartmouth economists James Feyrer and Bruce Sacerdote admit that it did not boost the economy anywhere close to what was expected by the government’s economic models.
The post goes on to point out how flawed the economic models were. The government models initially predicted that the stimulus would generate four million much more jobs within a year. Rather, total payroll job fell by three.three million, not grow by 4 million, and the unemployment rate had risen from 7.8% to 9.4% by the end of 2010. Thus, the government and this administration did a horrible job of predicting what would happen, basing their claims on obsolete economic models that did not contribute to a lengthy lasting recovery, added considerably to the national debt with out any tangible economic benefit, and paid out taxpayer cash to recognized tax cheats.
Second region of thought, or amusement, is how the New York Times would proceed from our existing ecocomic stagnation. Soon after pointing out all of the difficulties with economy, as listed above, it proposes the following fixes:
1) Boost educationtal achievement – it took us decades to get into the education mess we are in so whilst this is a noble objective, it will have virtually no impact in the brief term of fixing the economy.
2)Enhance taxes to cover increased government spending – let’s see, we just invest over billion and got virtually no lasting economic benefit but the Times wants to spend far more. This certainly brings the old Einstein quote to mind: “The definition of stupidity is performing the identical thing over and over and expecting various results.”
3) Provide a lot more fiscal aid to states – given that we found out yesterday that California pays some of its lifeguards over ,000 a year, I doubt there is a lot support from states that know how to manage their fiscal affairs to offer support to states that have ruined their fiscal integrity but who have wealthy life guards.
4) Make it simpler for Fannie Mae and Freddie Mac to refinance mortgages – tried that and it did not function by means of the HAMP program, what makes us believe it would work nowadays? And why really should some homeowners get a break in their mortgage payments although others may well have been trying to do the appropriate thing and have struggled to pay their mortgage? And finally, wasn’t it the incompetence of Fannie and Freddie that was a significant factor in the housing collapse? See the Einstein quote for application here also.
The Times write-up concludes with the inane line: “There’s a long way to go just before the economy will thrive with out government help.” I think they had a typo here, the line ought to read: “There is a
