‘Jobs Created or Saved’ Is White House Fantasy

Commentary by Caroline Baum

Oct. 28 (Bloomberg)


Heresy, thy name is Christina Romer.

Last week, the chairman of President Barack Obama’s Council of Economic Advisers -- a position that carried the title “chief economist” until Larry Summers took up residence in the White House -- testified to the Joint Economic Committee on the economic crisis and the efficacy of the policy response.

Here’s the executive summary in case you missed it:

The crisis: “Inherited.”

The economy: “In terrible shape” (the inherited one).

The shocks to the system: “Larger than those that precipitated the Great Depression.”

The policy response: “Strong and timely.”

The efficacy of the policy response: a 2 to 3 percentage point addition to second-quarter growth; 3 to 4 percentage points in the third; and 160,000 to 1.5 million “jobs saved or created,” a made-up metric if there ever was one. (More on that later.)

What was most puzzling about Romer’s Oct. 22 testimony was her comment on the waning effect of fiscal stimulus.

“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”

At first it was just fringe elements, such as conservative blogs and the not-really-a-news-organization Fox News, that pounced on Romer’s statement. Then other news outlets started to question her statement, which seemed to fly in the face of White House assertions that only a small portion of the stimulus -- $120 billion, or 15 percent -- has actually been spent. Most of the criticism of the stimulus coming from the president’s own party has been, “too little, too late,” and here’s Romer saying it’s kaput.

Thanks for That

Instead of being banished to the woodshed, Romer was consigned to the White House blog, where she slipped into professorial mode to explain the arcane distinction between the effect of the stimulus on the change in gross domestic product and its effect on the level of GDP.

Stimulus has its biggest impact on the growth rate of GDP when it’s implemented, Romer said, using a car-and-driver analogy: Step on the accelerator, the car goes from zero to 60.

Stimulus will keep the level of GDP and employment higher than they would have been even after the growth-rate effect fades, she said.

Her logic is impeccable. It’s her premise that’s flawed.

Dispensing Lucre

When the government distributes lucre or loot, people spend it. If your interest is national income accounting, spending other people’s money is great. Spending is a back-door way for government statisticians to measure what matters, which is the real output of goods and services.

But the government has no money of its own to spend; only what it borrows or confiscates from us via taxation. Oops.

“Government job creation is an oxymoron,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business. It is only by depriving the private sector of funds that government can hire or subsidize hiring.

That’s why “jobs created or saved” is such pure fiction. It ignores what’s unseen, as our old friend Frederic Bastiat explained so eloquently 160 years ago in an essay.

Econometric models synthesize all sorts of variables and spit out a GDP forecast. From there they derive the change in employment using something called Okun’s Law, named after the late economist Arthur Okun, which describes the relationship between the two.

Fiction Lags Reality

Actual hiring seems to be lagging behind the model’s land of make-believe. For small businesses, which are the source of most job creation in the U.S., the government’s increased and changing role in the economy isn’t a confidence builder. Businessmen have no idea what health-care reform will mean for their cost structure or what whimsical tax policies the government might impose when it realizes those short-term deficits are running into long-term unfunded liabilities.

No wonder capital spending plans were at an all-time low in the third quarter, according to the NFIB monthly survey.

Only 30,383 jobs were created or saved by the American Recovery and Reinvestment Act, according to Recovery.gov, the government’s once-transparent Web site that has become a complex blur of numbers, graphs and pie charts. These are only the jobs reported by federal contract recipients. The Obama administration will report the larger universe of ARRA-related jobs on Oct. 30.

An extrapolation of what would have happened without the fiscal stimulus isn’t much consolation to the 9.8 percent of the workforce that is unemployed. Nor is Romer’s prescription for the economy and labor market very comforting in light of the trillions of future tax dollars that have been spent, lent or promised by the federal government.

“If you take your foot off the gas, the car goes from 60 back down to a slow crawl,” Romer said in clarifying blog post.

Gentlemen, start your engines.





(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

bloomberg.net.

Last Updated: October 27, 2009 21:00 EDT

800 billion dollars flushed down the toilet.

It's a rather simple concept - the government cannot create "jobs." Couple that with a timid White House that surrendered the legislation over to the Congress that larded it up with nonsense pork projects and the results are quite predictable.

Two Questions:

1) Does the government employ people?
2) Does government spending contribute to the Gross Domestic Product?

If you answered "no" to either of these questions, you need to study ECON 101.

What do these Hail Mary questions have to do with the great failure of the "stimulus"?

Wrong. The federal govt can always print money. The federal government is stepping in to spend just when it is most needed because consumers, businesses, and the states aren't spending.

Dear Professor of ECON 101, how exactly does #1 create profit in order to mitigate taxpayer funding?

The rhetorical question was to address the fallacy that the government cannot "create jobs" (ask anyone working in the public sector if they really have a job).

Now some public sector jobs can result in profits or losses...just like the private sector jobs. But of coarse the function of many public sector jobs (like teachers, police officers, military soldiers, etc.) is not purely to "create a profit" but exist for the public good and establish/maintain a functioning civilization.

Imagine that revolutionary concept: people working toward the advancement of a society instead of simply monetary profit.

Failure?! US GDP grew 3.5% in Q3, the highest rate of economic growth in two years largely thanks to the economic stimulus package.

Would you like to buy a bridge in San Fransisco? I'll give you a real good deal.

There are no bridges in San Francisco, shithead. There is the Bay Bridge that spans the SF Bay, whose closure some conservatives perversely celebrate.

But other than economic growth to measure the effectiveness of a stimulus package, how would you measure its success or failure? Have the Bush tax cuts been a success or failure?! That answer is obvious; it would be refreshing if you could admit it.

So do you want to buy it or not? I can send pictures.

Why would it be refreshing if I could admit it?

It would be refreshing because I would like you to proclaim that the Bush tax cuts were a complete failure and supply-side economics is complete bullshit.

When did I say the opposite of that? Bush was the same big government, big spender as Obama. Whats scary is Obama is an even bigger spender. I guess I don't get it but if spending got us in trouble how is it going to get us out of trouble? Isn't that like putting out a fire with fire? China sure seems to be worried about it but maybe they are like me and they just don't get it. Maybe you could call up China and explain it, put me on the line as well.

This growth is "robbing Peter to pay Paul"

Cash for clunkers taking 4th qtr sales into the 3rd and props up production. detroit is still way behind.

One time 8k tax credit for homebuyers done. New housing starts at all time low foreclosures are up.

Home values predicted to drop another 10%. This fuel consumer spending in past. That is gone.

Cost of credit continues to rise.

Unemployment continues to rise.

Consumer confidence at a real low.

The dollar is still losing value. Real concerns about inflation for 2010.

Stimulus monies that went to states to fill defecits will not be there to fill next years budget.

The Dows rise is due mostly to the incredible deals that some stocks presented at the time. Earnings have been created from efficiencies and cost cutting not real growth. We can start another thread to discuss the cost that future regulations are going to have on business. I hope things turn around but I think what we are seeing from the admin (as you would from any other admin) is a lot of wishful thinking. I am unfortunately pessimistic about these assesments and the above points give me second thoughts to Obama's assessment of the future.

There are many highway projects being done here in the northeast, you know, the kind with lots of people working on them, with signs saying it is being paid for with stimulus money.

If the money wasn't available these guys would be home collecting unemployment.

Weren't their jobs saved by the stimulus money?

Or are they volunteers?

Why would people keeping their own money be bullshit?

Idiots like rod_jammer go right over the cliff, along with the ideology they're chained too because they are too fucking stoopid to think outside the vacuum of their own skull. That is a very common ailment on this board.

Bush tax cuts have NOTHING to do with the recession we're in.

If they were the root cause, why did O'Bammy leave them in place.


National debt, deficit spending, globalization, off-shoring, outsourcing, open-borders, unbridled greed by hoards of MBA's on Wall-street, Fed policies and the giveaway programs at Fannie/Freddie are what put this country into the tailspin toward third-worldism we are now enjoying.

The stoopidity displayed here is staggering and what's ironic is cock-suckers like this think they are informed voters!









But, but, but, it's all Bush's fault! :bigcry:

The Bush tax cuts and other fiscal policies have nothing to do with the national debt, deficit spending, off-shoring, outsourcing, open-borders, unbridled greed by hoards of MBA's on Wall St....this tailspin started all under Obama.

No wonder you live in a former Slave State like North Carolina.

you realize before the bush tax cuts we had no deficit and had embarked on paying down the debt.

So you think that the way to solve the deficit is to create more jobs which will require more tax revenue?

No, really, good idea. If everyone worked for the government, we wouldn't have any unemployment.

the more people slinging tar and rock, the better our country is....

The way to address the deficit is to keep government spending flat while raising taxes on the top 1% of the income earners significantly.

I'd agree with you if we weren't in the need for stimulus. Once the economy is further on track and businesses and consumers are spending, we should do just that. But right now we need the federal spending.