The Nonsense That Is Obamanomics

An Associated Press (AP) article yesterday reported on the self congratulations press conference that President Obama and Vice President Biden threw for themselves yesterday. They were almost giddy with their report on how their stimulus package of a year ago and saved the economy from the second Great Depression, how wonderful and full of foresight they were to have created the stimulus package and executed it so well. made me sick. Lawyers like Obama and Biden should never try to fool the American public and statisticians like myself when it comes to numbers.

First, lets lay out the numbers that are not in dispute and then do some math:

• The unemployment rates during the time of the Great Depression, the 1930s, averaged about 20% for the whole decade, having a maximum level of about 25% in 1933 and a minimum level of about 17% in 1936.
• The January, 2010 unemployment rate was 9.7%, equivalent to 14.8 million Americans being out of a job.
• Obama just signed a bill from the Democratically controlled Congress, a Congress that has been under Democrats' control for over three years, that raises the debt limit to just over $14 TRILLION.
• There are about 130 million U.S. households today.
• The United States has lost about 8.4 million jobs since December, 2007, a period when the Democrats were in control of Congress.
• The cost of the Obama stimulus program was $787 billion.
• The Obama administration is claiming that the stimulus plan has already saved or created two million jobs, and could save another 1.5 million before it is done.
• The average hourly wage in the United States in December, 2009 was $22.41 per hour, which translates into an annual wage of about $38,000.

Now let's do some math, under the doubtful suspicion that the jobs saved/created estimate of 3.5 million is valid and accurate:

• If we divide the cost of the program by the Obama job number we see that the average cost to create a job under this stimulus program was about a quarter of a million dollars. This is almost six times the rate an average working American would make in a year. Not a real efficient way to create employment gains.
• If the economy would have had 3.5 million fewer jobs without the stimulus package, then the unemployment rate would have been about 12%. Thus, maybe the stimulus package did not save us from the second Great Depression which had unemployment rates average around 20% and were much higher during the height of the Depression. Obama's claim in his press conference that he averted a depression is quite overblown ("One year later, it is largely thanks to the recovery act that a second depression is no longer a possibility.") I don't think so, much exaggeration here Mr. President.
• By raising the debt limit to over $14 TRILLION, that pain if spread evenly across the entire U.S. household base would put every American household on the hook for just under $108,000. Thus, his taking credit during his press conference for the $400 and $800 tax breaks from the stimulus program looks kind of meek, relative to the $100,000 in debt he and the political class, Democrats and Republicans, have loaded onto our backs over the years.

These are not good results but they are the most optimistic since we used Obama's numbers. However, as reported many times in this blog, this whole process of estimating jobs saved/created has been riddled with bad data and assumptions. Jobs have been counted multiple times in some instances, some jobs that already existed were counted, etc. Thus, from a historical and political perspective, a case could be made that the 3.5 million estimate is little more than wishful thinking. We have seen numerous times where government estimates of costs, schedules, and other things have been off by factors of many times. Just as a sanity check, let's assume, and it is a generous assumption, that the number of jobs saved/created is only 2.5 million. What happens to the math then:

• The cost to create/save a job gets even more ridiculous. The cost for each job is now $787 billion over 2.5 million or $315,000 per job. This 8.5 times the average annual wages of currently employed Americans. How inefficient is this process, regardless of whose number is used?
• If the program actually did save 2.5 million jobs, than without it the unemployment rate would have been 11.3%, hardly Depression level numbers.

The political class does not get it. The government cannot create jobs, it can only create work, paying for that work by taking money/wealth out of the economy today and in the future (via deficit spending and increasingly high amounts of debt), to create temporary work projects today. While it may feel good to hire construction workers to work on a bridge project with stimulus money, once that stimulus money is spent, those construction workers are out of work again. The work did not endure past the stimulus funding. And the money used to pay for that bridge project was taken out of the economy where it may have been spent more efficiently in other parts of the economy. Certainly expending hundreds of thousands of dollars per job creation is not an efficient way to run an economy.

The sad part about the bridge example is that the government did not even get that right. As reported previously, the Associated Press found that about half of the bridge projects undertaken with stimulus funds were not in need of any repair, they were perfectly safe and usable as they were. Thus, the use of stimulus funds was not only expensive per job but a lot of those jobs were used on totally useless projects according to the AP investigation.

Americans spending their wealth on products and services they need and desire is the only way to expand the economy and job base and begin restoring freedom to our everyday lives. Continually expanding the tax burden on us while inefficiently using and wasting those taxes on faulty government programs is the exact opposite of what is needed to fix the economy. The government needs to get out of the job creation business, find a way to get the sky rocketing deficits under control and reduce the tax burden on Americans as much as possible.

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