economists

Stimulus Wiped Out a Million Private Sector Jobs

by Hans Bader on May 21, 2011

in Economy, Employment, Stimulus to Nowhere

The economy may be slowly recovering, but that’s in spite of — not because of — the recent orgy of federal spending. Two economics professors, Tim Conley and Bill Dupor, concluded this month that the $800 billion stimulus package wiped out a million private-sector jobs, destroying a net 550,000 jobs. (The American Recovery and Reinvestment Act, also known as the stimulus package, created 450,000 government jobs, partly offsetting the million private-sector jobs it wiped out.) “The majority of destroyed/forestalled jobs were in growth industries,” they say.

The stimulus package was earlier criticized by many leading economics professors, like Harvard’s Jeffrey Miron, Robert Barro, and Martin Feldstein. Professor Barro called it “the worst bill that has been put forward since the 1930s.” Nobel laureates Gary Becker and Vernon Smith have also criticized it. 200 economists signed a statement publicly opposing the stimulus package.

While pushing the stimulus package through Congress, Obama cited claims by the Congressional Budget Office (CBO) that it would save jobs in the short run, while ignoring the CBO’s own conclusion that the stimulus package will actually shrink the economy over the long run, by increasing the national debt and thus crowding out private investment. Contrary to the CBO’s findings, Obama claimed that “irreversible decline” would occur if the stimulus was not enacted into law.

Obama has run up the largest budget deficits in history, running monthly deficits that are bigger than Bush’s entire annual deficit for 2007, after the economy started to go south.

More Stimulus Money Wasted

by Hans Bader on October 21, 2010

in Deregulate to Stimulate, Economy, Politics as Usual, Stimulus to Nowhere

A lot of money was wasted in weatherization projects paid for by the stimulus package, note The New York Times Green Blog and Professor Jonathan Adler.

Eighty percent of homes audited by federal investigators in Illinois “failed final inspection ‘because of substandard workmanship.’ In some cases, technicians who tuned up gas-fired heating systems did so improperly, so that they emitted carbon monoxide ‘at higher than acceptable levels.’”  In two-thirds of the homes audited, “contractors billed for labor charges that had not been incurred and for materials that had not been installed.” Illinois itself “had found a 62 percent error rate when it re-inspected homes weatherized by CEDA,” and that “some of the work created fire hazards.”

Stimulus money also went to prisoners and dead people, wasteful welfare spending, abandoned bridges to nowhere, and unnecessary government buildings.  The stimulus subsidized foreign green jobs and wiped out jobs in America’s export sector.

Liberal newspapers, like the editorial boards of The Washington Post and The New York Times, now parrot false claims by the Obama administration that the stimulus has “saved or created” jobs, and cite a non-existent consensus among economists in support of that claim.  But in reality, many leading economists, including Nobel Prize winners, were skeptical of the stimulus, including but not limited to Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales. The “‘stimulus’ is not the road to economic recovery. It’s the problem, not the solution, writes Nobel laureate economist Vernon L. Smith.” The Cato Institute even ran full-page ads in The New York Times and Washington Post, featuring a statement signed by 200 economists opposing the stimulus package.

The Washington Post itself once admitted that there was no consensus among economists for the stimulus, conceding that “[f]iscal stimulus is far from a sure-fire remedy. Economists disagree about the efficacy of every pump-priming effort from the New Deal to last year’s tax rebates. In general, fiscal policy had fallen out of favor in economics. . .Many economists note Japan’s failed attempt to borrow and spend its way out of a recession during the 1990s” through “repeated stimulus packages. As it is, Japan piled up a massive debt and recovered only modestly, leaving it vulnerable to today’s downturn.” (See Editorial, “Priming the Pump,” Jan. 25, 2009, at p. B6).

Radical Capitalism: A Noble Experiment We Ought to Try

by Michelle Minton on August 17, 2010 · 2 comments

in Deregulate to Stimulate, Economy

Earlier this month, Bloomberg published an article by Boston University economist Larry Kotlikoff in which he declared that the U.S. was bankrupt and headed toward an economic disaster that would be “worse than Greece”:

Last month, the International Monetary Fund released its annual review of U.S. economic policy. … the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

…Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising.

We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

In an article published in the July/August 2006 edition of the Federal Reserve Bank of St. Louis Review, Kotlikoff suggested that the only way to deal with the United States’ impending fiscal disaster would focus on productivity growth, which would translate to wage growth, combined with limited requisite tax hikes and an expanded tax base. While I can’t agree with all of Kotlikoff’s suggestions for reform (in particular his bid for mandatory enrollment in a universal health care system), he provides insight and intriguing options that the U.S. government must consider. One suggestion seems particularly viable: radically increase China’s ability to directly invest in the U.S.

It seems almost silly that up until this very day the federal government has hesitated to allow the second greatest holder of U.S. debt to directly invest in our economy. Presumably, allowing greater direct investment would increase China’s desire to see the US economy grow.

As I said, I certainly don’t agree with all of Kotlikoff’s suggestions, but he is is right in declaring that the time is now (or the time has passed) for U.S. regulators to take action to prevent economic collapse.

Perhaps it is time to take a chance on radical capitalism. It appears that the quality of life in the U.S. is bound to decrease no matter what steps we take to right the economy. So, is it not worth it to take a chance on radically cutting back government programs in an attempt to reduce the budgetary shortfall and see if the free market will pick up the slack?

There are plenty of books and articles that detail how capitalism has improved the quality of human existence, but perhaps it is time to consider how we might escape slipping into a fiscal dark-ages by letting the the invisible hand take the wheel of some of government provided services and focus government activity on protecting rights of individuals rather than directing lives and providing goods. Housing, education, retirement, food and drug oversight and enforcement–many of these services could easily be handled by free market enterprises and some shouldn’t be government priorities at all. If the quality of life in the U.S. is going to deteriorate one way or the other, why not give the open market a chance to assume the role as provider of some of these unessential goods and services. Who knows, it just might turn out that the quality of these goods and services increases rather than decreasing.

Economists vs. Economics

by Ryan Young on July 22, 2010

in Economy, Sanctimony

Are economists ruining economics? Over at The American Spectator, I say why that may well be be the case. Key points:

  • Economists can’t even predict whether the stock market will go up or down tomorrow. Yet many economists tell everyone who will listen that they know how to solve the financial crisis and dig out of a near-global recession. No wonder people aren’t taking them as seriously as they used to.
  • Economics isn’t the problem. The economic way of thinking is as powerful a tool as any for understanding the world around us. But it has its limits. Too many economists have pretended away those limits out of hubris, or for political reasons.
  • Any economist saying he understands global business cycles when he can’t even understand the pencil poking out of his breast pocket is a charlatan. But the discipline he dishonors is as beautiful as poetry. Interested readers should take a look at Leonard Read’s classic short essay, “I, Pencil,” as a case in point.

“Nearly Two-Thirds of Americans Say the Stimulus Isn’t Working”

by Hans Bader on April 29, 2010

in Economy, Employment, Politics as Usual, Sanctimony, Stimulus to Nowhere

“Nearly two-thirds of Americans do not believe the $787 billion stimulus package the president passed last year has helped create jobs, according to a new Pew Research Center poll.”

As the Washington Examiner notes, “a recent survey of business economists showed they didn’t think the stimulus was creating jobs, either.”  President Obama falsely claimed that virtually all economists supported his stimulus package, but this was patently untrue at the time he made this claim, when at least 200 economists publicly opposed it, and it  is even more untrue now.

Obama falsely claimed that the $787 billion stimulus package was needed to prevent “irreversible decline,” but the Congressional Budget Office admitted that it would actually shrink the economy “in the long run”.  The stimulus package has since destroyed thousands of jobs in America’s export sector, and subsidized countless examples of government waste and corruption.

Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.  As the Examiner notes, “If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent . . . The reality is that it passed 10.3 percent.”

Nobel Prize-winning economist Gary Becker says that Obama’s policies are delaying economic recovery.

“How is stimulus money allocated? Unemployment isn’t a factor, but politics is,” found George Mason University researcher Veronique de Rugy in a recent study.

Districts where people are struggling and unemployment is high are not receiving any more money than those in which unemployment is low, even though a stated purpose of the $800 billion stimulus package was to help the unemployed.  But politics mattered in doling out federal funds.  And “Democratic districts also received two-and-a-half times more stimulus dollars than Republican districts.”

There are three trillion dollars in tax increases in Obama’s proposed budget, yet it would still borrow 42 cents on the dollar, resulting in colossal deficits.

Obama’s policies would raise the national debt by $9.7 trillion, noted the Congressional Budget Office.

Earlier, one of Obama’s own advisers worried that the “barrage of tax increases” in his budgets could harm the economy and prevent a “sustained” economic recovery.

In 2008, Obama promised a “net spending cut,” but as soon as he was elected, he proposed massive spending increases.

“Economists: The Stimulus Didn’t Help”

by Hans Bader on April 26, 2010

in Bailout Watch, Economy, Employment, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

“The recovery is picking up steam as employers boost payrolls, but economists think the government’s stimulus package and jobs bill had little to do with the rebound, according to a survey released Monday” by the National Association of Business Economics.   “Economists: The Stimulus Didn’t Help” is the headline from CNN Money.   The vast majority of economists shared that conclusion.  Nobel Prize winning economist Gary Becker says that President Obama’s policies are delaying economic recovery.

Obama falsely claimed that the $787 billion stimulus package was needed to prevent “irreversible decline,” but the Congressional Budget Office admitted that it would actually shrink the economy “in the long run“ by driving up the national debt.  The stimulus package has since destroyed thousands of jobs in America’s export sector, and subsidized countless examples of government waste and corruption.

Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.  As the Washington Examiner notes, “If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent . . . The reality is that it passed 10.3 percent.”

“How is stimulus money allocated? Unemployment isn’t a factor, but politics is,” found George Mason University researcher Veronique de Rugy in a recent study.

Districts where people are struggling and unemployment is high are not receiving any more money than those in which unemployment is low, even though a stated purpose of the $800 billion stimulus package was to help the unemployed.  But politics mattered in doling out federal funds.  And “Democratic districts also received two-and-a-half times more stimulus dollars than Republican districts.”

There are three trillion dollars in tax increases in Obama’s proposed budget, yet it would still borrow 42 cents on the dollar, resulting in colossal deficits.

Obama’s policies would raise the national debt by $9.7 trillion, noted the Congressional Budget Office.

Earlier, one of Obama’s own advisers worried that the “barrage of tax increases” in his budgets could harm the economy and prevent a “sustained” economic recovery.

In 2008, Obama promised a “net spending cut,” but as soon as he was elected, he proposed massive spending increases.

SuperFreakonomics generates heat on global warming

by Fran Smith on October 19, 2009 · 3 comments

in Energy, Environment, Global Warming

Even before publication, the book SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance is the topic of hot debate – on economists’ blogs, including Krugman’s, on Amazon, and, of course, on environmental sites.  SuperFreakonomics’ authors are Steven D. Levitt, a professor of economics at the University of Chicago and Stephen J. Dubner, a former writer and editor at The New York Times Magazine.

The heat was generated by Chapter 5 of the book, which deals with global warming and mitigation techniques, such as geoengineering.  Since the chapter is no longer available for perusal on Amazon, it’s hard to take part in the debate.  But here’s one of the co-authors, Dubner, defending the chapter:

Our global-warming chapter has several sections. We discuss how it’s a very hard problem to solve since pollution is an externality – that is, the people who generate pollution generally don’t pay the cost of their actions and therefore don’t have strong incentives to pollute less. We discuss how even the most sophisticated climate models are limited in their ability to predict the future, and we discuss the large measure of uncertainty in this realm, given that global climate is such a complex and dynamic system. We discuss some of the commonly held misperceptions about climate and energy, including the fact that the historic relationship between global temperature and atmospheric carbon dioxide is more complicated than is generally thought.

The real purpose of the chapter is figuring out how to cool the Earth if indeed it becomes catastrophically warmer.

Here’s how Krugman, with his usual understatement, puts down the authors:

. . .they didn’t even look into the debate sufficiently to realize what company they were placing themselves in.

And that’s not acceptable. This is a serious issue. We’re not talking about the ethics of sumo wrestling here; we’re talking, quite possibly, about the fate of civilization. It’s not a place to play snarky, contrarian games.

Here’s a review of the whole book in the Financial Times this past weekend.

Your Loss Is My Gain, Sucker!

by Hans Bader on March 3, 2009 · 4 comments

in Bailout Watch, Economy, Politics as Usual, Regulation, Stimulus to Nowhere

I am being enriched by a vast expansion of government that will impoverish you and your family, and shrink the size of the economy in the long run.

Across the country, and probably where you live, home values have declined by 20 percent or more. But my house, located where many federal employees live, has lost much less value. Indeed, the tax assessor claims (with some exaggeration) that my home’s value is down only a few percent over 2007 and 2008, and is still well above its 2004 purchase price.

A Washington Post story today suggests why. It notes that thanks to Obama’s huge spending proposals, fueled by deficit spending on an unprecedented scale, up “to a quarter-million” bureaucrats could be added to the federal payroll. The Post reports that “President Obama’s budget is so ambitious, with vast new spending . . . that experts say he will probably need to hire tens of thousands of new federal government workers to realize his goals.”

Many of these new federal employees will end up living in Arlington, Virginia, the suburb right next to Washington, D.C. where my home is located, increasing demand for housing there. (Federal employees are better paid than the average private sector employee, although their pension and health benefits are not as generous as for many state and local employees, whose compensation far outstrips private sector employees). So essentially, you and your family, through higher taxes and higher national debt that will have to be paid off in the future, are subsidizing the value of my home.

The relatively resilient housing market in Arlington reflects large, deficit-financed government spending that has poured money into the Washington, D.C. area while sucking money out of the rest of the country. The compensation of federal employees has substantially outstripped inflation, and that trend seems likely to continue and increase under a Democratic Congress and Administration. (Spending rose, rather than fell, as a result of the Democrats retaking control of Congress in 2006).

This spending can’t be justified as a long-term cure for the economy. The Congressional Budget Office has recently issued a letter reaffirming its prior conclusion that the stimulus package passed by Congress and signed into law by Obama will actually reduce the size of the nation’s economy “in the long-run.” That’s because of the “crowding-out” effect — money that the government borrows to “stimulate” the economy results in a higher national debt, which results in higher spending on interest to service the national debt, which in turn results in money being taxed or borrowed to pay that interest, rather than being left in the private sector where it can be invested to create jobs. “In economic parlance, the debt will ‘crowd out’ private investment.”

Investors have already reached the same conclusion. Stock markets rise even in recessions (like the 1981-82 recession) when investors expect the recession to eventually end and lead to strong economic growth. That’s why they are called leading economic indicators.

But this year, the stock market has fallen like a stone, because investors — unlike the general public — realize that Obama’s economic policies are destructive and will retard, rather than speed, a recovery. The Washington Post today reports that stocks have lost 52% of their value since their peak, and have fallen to their lowest level since 1997.

The fact that the stock market has continued to fall this year is a sign of incompetence in Washington, and an illustration that the welfare-filled, deficit-exploding, trial-lawyer-enriching, $800 billion stimulus package pushed by Congressional leaders and Obama was a terrible mistake that will do nothing to address the root causes of the current financial crisis.

Stimulus Bill Triggers Legislative Logjams, Perpetuates Credit Crisis

by Hans Bader on January 27, 2009 · 1 comment

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Obama’s stimulus package is the problem, not the solution. No one wants to make any hard decisions until they see what goodies they may get from Obama’s trillion-dollar stimulus package, which many economists oppose for good reason. The result is a deepening credit freeze that makes it difficult for small businesses to meet their payrolls, and delays passage of state budgets.

All the talk of a stimulus is resulting in a logjam in state legislatures as legislators put off hard choices in the hope that Washington will bail them out, delaying passage of state budgets. In Virginia, for example, the Washington Post reports that “Legislators from both parties are guilty of assuming that President Obama will come to the aid of states with a stimulus package, and they aren’t taking the budget gap as seriously as they should.” Meanwhile, Maryland’s big-spending government, which pushed through record tax increases last year, is drawing up an extravagant wish list of new spending proposals it hopes will be funded by Obama’s budget-busting stimulus package. Obama’s package has sent a “thrill” though wasteful local officials, who even the Post has criticized for allowing public-employee pensions and benefits to skyrocket out of control.

The stimulus package is also contributing to the credit-freeze that left some businesses unable to borrow from banks to meet payrolls. Banks are reluctant to lend money without knowing who will be the winners and losers from provisions buried in the stimulus package, which has already grown to more than 600 pages. And the money in the stimulus package will be spent mostly in future years — like 2010, an election year — not this year, when economic relief is most needed.

The same perverse thing happened last year, during the debate over the Wall Street bailout. Credit markets froze, partly because trust had broken down in financial markets, but also partly because it was hard to tell where opportunities for profit lay, without first knowing who would be propped up by the bailout, and who wouldn’t. All the talk of a bailout actually aggravated the freeze. Who wants to look like a sucker?

The stimulus plan will suck money out of productive sectors of the economy, emulate Japan’s failed borrow-and-spend strategy of the 1990s, and cost at least $300,000 for each government-sponsored job it artificially creates.

My brother, a hedge-fund manager, has been appalled by the often arbitrary way that the financial-system bailout money has been used, to prop up irresponsibly managed banks, while allowing more responsible ones to go out of existence in forced mergers (precisely because they took action to rein in their risky loan portfolios, making their potential failure cheaper to the taxpayer). The arbitrary way the government has picked winners and losers — like propping up a failing lender tied to Housing banking committee chairman Barney Frank — has made players in the financial system even more reluctant to take risks that may be needed to restore liquidity to the economy.

Eventually, the economy will recover, no thanks to Obama’s stimulus plan. The economy always recovers after a recession, as part of the business cycle. When it does, Obama will take credit for it, even though he will have as little to do with the recovery as he does with the sun rising.

No Consensus for “Stimulus” Among Economists

by Hans Bader on January 25, 2009 · 8 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Contrary to claims by the Obama administration, there is no consensus among economists for a “stimulus” package, much less the trillion-dollar pork-filled “stimulus” package being crafted by Obama and liberal Congressional leaders. (Many economists oppose it). Even the liberal Washington Post, which has not endorsed a Republican for President since 1952, admitted this today: “Fiscal stimulus is far from a sure-fire remedy. Economists disagree about the efficacy of every pump-priming effort from the New Deal to last year’s tax rebates. In general, fiscal policy had fallen out of favor in economics. . .Many economists note Japan’s failed attempt to borrow and spend its way out of a recession during the 1990s” through “repeated stimulus packages. As it is, Japan piled up a massive debt and recovered only modestly, leaving it vulnerable to today’s downturn.” (See Editorial, “Priming the Pump,” Jan. 25, pg. B6).

The Obama Administration’s claim to economic expertise is odd, given that Obama’s nominee to head the Treasury Department and oversee economic policy is the “non-economist” Timothy Geithner, a man whose chief claim to fame is having worked on prior bailouts in which taxpayers were shafted, and he arguably “was had by crafty bankers.”

(Ironically, Geithner, whose responsibilities as Treasury Secretary will include overseeing the IRS, failed to pay income taxes (specifically, self-employment taxes) despite being specifically advised to do so by a past employer, even though he received an allowance from his employer to enable him to pay those very taxes).

Geithner has often been described by Obama staffers and liberal journalists (like David Broder of the Washington Post and Peter G. Gosselin of the Los Angeles Times) as an “economist.” But Geithner has neither a doctorate nor a bachelor’s degree in economics (although “international economics” was part of his Masters Degree studies). If Geithner qualifies as an economist, then so do I, given my economics background. And I consider Obama’s trillion-dollar stimulus proposal a disaster.

All the talk of a stimulus is resulting in a log-jam in state legislatures as legislators put off hard choices in the hope that Washington will bail them out, delaying passage of state budgets. In Virginia, for example, the Washington Post reports that “Legislators from both parties are guilty of assuming that President Obama will come to the aid of states with a stimulus package, and they aren’t taking the budget gap as seriously as they should.” Meanwhile, Maryland’s big-spending government, which pushed through record tax increases last year, is drawing up an extravagant wish list of new spending proposals it hopes will be funded by Obama’s budget-busting stimulus package. Obama’s plan has sent a “thrill” through irresponsible local officials, who even the Post has recently criticized for allowing public-employee pensions and benefits to skyrocket out of control.

The stimulus package is also contributing to the credit-freeze that left some businesses unable to borrow to meet payrolls. Banks are reluctant to lend money without knowing who will be the winners and losers from provisions buried in the 600-plus page stimulus package. And the money in the stimulus package will be spent mostly in future years — like 2010, an election year — not this year, when economic relief is most needed.

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