Obama stim­u­lus plan failed to reg­is­ter

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

Har­vard econ­o­mist Robert Barro ex­pressed dis­be­lief ear­lier this year when Pres­i­dent Obama and his ad­vis­ers fore­cast that his eco­nomic stim­u­lus pro­gram would cre­ate or save 4 mil­lion jobs.

“I think it’s a ter­ri­ble piece of leg­is­la­tion, re­ally on both sides, that is the ex­pen­di­ture side and on what they pur­port to have as a tax re­duc­tion side. I don’t think it’s go­ing to help the econ­omy on ei­ther di­men­sion,” Mr. Barro told the non­par­ti­san Tax Foun­da­tion in April.

Mr. Barro was hardly alone in fore­cast­ing that the nearly $800 bil­lion spending bill would not have any ef­fect on the econ­omy. Many other economists said it was pre­pos­ter­ous to think that one can ac­tu­ally re­move $787 bil­lion from the econ­omy and then in­tra­venously in­ject that money back into the eco­nomic blood­stream drip by drip over sev­eral years through an al­pha­bet soup of fed­eral agen­cies and pro­grams and ex­pect it to pro­duce in­creased em­ploy­ment and con­sump­tion.

The idea is pure, long-dis­cred­ited Key­ne­sian eco­nomics, the eco­nomic equiv­a­lent of 18th-cen­tury blood­let­ting. First you bleed the pa­tient - i.e., econ­omy, by tak­ing cap­i­tal out of it through in­creased debt, then you be­gin re­turn­ing the money a lit­tle at a time by turn­ing it over to law­mak­ers, bu­reau­crats, gov­er­nors and may­ors to spend on a wish list of pork-bar­rel and in­come-re­dis­tri­bu­tion projects.

Nine months and 2.7 mil­lion lost jobs later, the un­em­ploy­ment rate is at nearly 10 per­cent — much higher if you count mil­lions of peo­ple who have given up looking for work — yet the ad­min­is­tra­tion can’t pro­vide any proof its plan is cre­at­ing new jobs.

Stan­ford economists John Co­gan and John Tay­lor re­cently went over the stim­u­lus plan with a fine tooth comb in search of its re­sults. “Sim­ply put, there is no ev­i­dence that the stim­u­lus pack­age has helped the econ­omy. Vir­tu­ally all of the im­prove­ment in the econ­omy’s growth from the first to the sec- ond quar­ter is the re­sult of pri­vate in­vest­ment in plant, equip­ment and in­ven­to­ries that are un­re­lated to any­thing in the stim­u­lus pack­age,” Mr. Co­gan told me.

In an anal­y­sis of their find­ings pub­lished in the Wall Street Jour­nal last month, the two economists con­cluded this: “In­com­ing data will re­veal more in com­ing months, but the data avail­able so far tell us that the gov­ern­ment trans­fers and re­bates have not stim­u­lated con­sump­tion at all, and that the re­silience of the pri­vate sec­tor fol­low­ing the fall 2008 panic, not the fis­cal stim­u­lus pro­gram, de­serves the lion’s share of the credit for the im­pres­sive growth im­prove­ment from the first to the sec­ond quar­ter,” they said.

Stan­ford econ­o­mist Michael Boskin, a for­mer chair­man of the White House Coun­cil of Eco­nomic Ad­vis­ers, also pointed to the snail’s pace lead time it takes gov­ern­ment at the fed­eral, state and lo­cal level to put the stim­u­lus money back into cir­cu­la­tion, mi­nus the over­head charges.

“The stim­u­lus leg­is­la­tion has, thus far, had a very small im­pact on the econ­omy and job cre­ation. The orig­i­nal trans­fer pay­ments and tax cuts barely nudged con­sumer spending, and the fed­eral spending has been painfully slow,” Mr. Boskin told me.

“The funds to state and lo­cal gov­ern­ment prob­a­bly did re­duce lay­offs some­what. I ex­pect a big­ger im­pact, though far less than claimed, from the de­layed in­fra­struc­ture spending,” he said. “Given the im­mense cost and small ben­e­fits, it’s a shame that a more ef­fec­tive short-run stim­u­lus that would have de­creased lay­offs and slowed the rise of un­em­ploy­ment, such as a pay­roll tax hol­i­day, was not im­ple­mented.”

Ear­lier this sum­mer, Vice Pres­i­dent Joseph R. Bi­den Jr., given the job of tracking the stim­u­lus, pur­ported that it “has cre­ated or saved be­tween 500,000 and 750,000 jobs. Mat­ter of fact, some no­table economists sug­gest the num­ber is as high as a mil­lion.”

But the Oct. 2 La­bor Depart­ment re­port said 263,000 jobs were lost last month, fol­low­ing 201,000 jobs lost in Au­gust. All told, more than 15.1 mil­lion Amer­i­cans were without work in Septem­ber. U.S. fac­tory or­ders tum­bled, auto sales sank, credit was tight and fore­clo- sureswere still ris­ing.

Mean­time, the White House and Demo­cratic leaders in Congress were hard at work on plans to take nearly $1 tril­lion more out of the econ­omy’s pay­checks and cash reg­is­ters in fu­ture taxes, fines, penal­ties and Medi­care cuts to pay for their gov­ern­ment-run health care “re­forms.”

The econ­omy would prob­a­bly be in much bet­ter shape to­day if Mr. Obama and the Democrats had taken Mr. Barro’s ad­vice ear­lier this year when he pro­posed abol­ish­ing the cor­po­rate in­come tax that all con­sumers pay in the price of ev­ery­thing they buy. That one re­form alone “would have been a tremendous pos­i­tive sig­nal to the busi­ness sec­tor, to the stock mar­ket. It would have had a big pos­i­tive ef­fect,” he said.

But those who still ex­pect Mr. Obama’s plan will even­tu­ally be­gin cre­at­ing jobs are prob­a­bly go­ing to have a very long wait. The bulk of the stim­u­lus money won’t be spent un­til the end of next year or in 2011 at the lat­est.

Don­ald Lam­bro is chief po­lit­i­cal cor­re­spon­dent of The Wash­ing­ton Times.

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