Horrors! The Economic Stimulus Program Did Not Work, Says The New York Times and Congressional Budget office

Horrors! Two significant entities have recently reached the same conclusion that the economic stimulus package did not work as it was supposed to to, falling far short of its goals and predictions. The first 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 3.1% of last year and below a growth rate of a healthy, growing economy.
- Consumer spending is slowing down, a traditional driver of a robust economy.
- Wages are stagnant and higher prices for food and fuel are straining family budgets.
- Falling home equity values are contributing to downward pressure on consumer confidence and when consumers are not confident, they tend to restrict their spending.
- State and local government budgets are a fiscal mess.

Not a pretty picture, especially 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 House for the past two and a half years. All of the economic programs put forth by this Democratic Congress and White House 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
- First Time Home Owners rebate Program - same as Cash 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 people 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 while increasing employment in that quarter.

However, the CBO analysis also had some very negative findings:

- The cost of the stimulus program was not $787 billion as originally estimated but much higher, $830 billion.
- If you take the best case jobs estimate from the CBO, which is in line with other estimates form the administration, the cost per job created comes out to a whopping $251,000 per job.
- If you take the worst case estimate of 1.2 million jobs created, you get a per cost job of $692,000 per job.
- You cannot grow an economy using a program that costs hundreds of thousands of dollars to create one job that is worth for less than the cost 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 first time unemployment benefits every week and why the ADP jobs report this morning was about 80% below expectations with only about 39,000 new jobs created in the private sector. Expectations were for about 200,000.

This should not be news to anyone. The stimulus program created work, it did not create jobs. It spent money 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 short term work projects which disappeared when the stimulus money ran dry out. There was not lasting impact.

And to add insult to injury, consider a May 24, 2011 article from the Associated Press, "Tax Cheats Among Recipients Of Stimulus Money." According to the article, thousands of companies that received taxpayer money under the President's economic stimulus program already owed the government millions of dollars in unpaid taxes:

- The General Accountability Office found that more than 3,700 government contractors and nonprofit organizations received $24 billion even though they owed over $750 million in taxes.
- An engineering company received a $100,000 stimulus grant even though it owed $6 million in taxes.
- A social services outfit received $1 million in stimulus money even though it currently owed $2 million in back taxes.
- Many of the contractors and organizations had had long running nonpayment behavior as exemplified by a secuirty company that owed $9 million in back taxes, dating back to the mid-2000s but still got $100,000 in stimulus money.
- The most insulting comment regarding this whole fiasco comes from Senator Carl Levin who said its been known for years that a few Federal contractors and grantees don't 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 done to fix the situation before now?

So let's review. We have a government economic program which resulted in only short 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 variety of other economic programs that failed miserably to attain their goals. I think that pretty much sums up the political class economic track record over the past few years.

These failures, are of course, laid on top 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 biggest economic calamity to hit the country in 80 years before it happened, the Great Recession.

The question now becomes one of what to do going forward. Two areas of thought here. First, one of the fatal flaws of the economic stimulus program was the assumption that for every $1 spent within the stimulus framework, many more dollars of economic activity would be created. This is referred to as the "multiplier effect." Spend $1 through a government program and this single dollar will cause multiple versions of itself to trickle through the economy, raising economic activity far beyond the $1.

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 article, 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 $1 the government spent, it lost between $.30 and $.60 in economic value, a losing proposition. Even people 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 article goes on to point out how flawed the economic models were. The government models initially predicted that the stimulus would create four million more jobs within a year. Instead, total payroll job fell by 3.3 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 long lasting recovery, added significantly to the national debt without any tangible economic benefit, and paid out taxpayer money to known tax cheats.

Second area of thought, or amusement, is how the New York Times would proceed from our current ecocomic stagnation. After pointing out all of the problems 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 while this is a noble goal, it will have virtually no impact in the short term of fixing the economy.
2. Increase taxes to cover increased government spending - let's see, we just spend over $800 billion and got virtually no lasting economic benefit but the Times wants to spend more. This obviously brings the old Einstein quote to mind: "The definition of stupidity is doing the same thing over and over and expecting different results."
3. Provide more fiscal aid to states - given that we found out yesterday that California pays some of its lifeguards over $200,000 a year, I doubt there is much 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 easier for Fannie Mae and Freddie Mac to refinance mortgages - tried that and it did not work through the HAMP program, what makes us think it would work today? And why should some homeowners get a break in their mortgage payments while others may have been trying to do the right thing and have struggled to pay their mortgage? And finally, wasn't it the incompetence of Fannie and Freddie that was a major factor in the housing collapse?  See the Einstein quote for application here also.

The Times article concludes with the inane line: "There's a long way to go before the economy will thrive without government help." I think they had a typo here, the line should read: "There's a long way to go before the economy will thrive unless the government stops helping." Tomorrow we will explore real life, proven ways to spur economic growth, ways that have actually worked in this world's reality and which did so with minimal government stimulus





Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.



Please visit the following sites for freedom:

http://www.loathemygovernment.com
http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com