Discovering the Obvious

Outcome of the Stimulus and the Burden of Proof
@ Economics 21

A new study by Daniel Wilson at the San Francisco Fed calls into question the idea that the stimulus legislation as a whole — including the state transfers and direct spending portion — failed to generate the promised improvements in employment.

It is difficult to properly calculate the effects of the 2009 ARRA bill, as it was a nation-wide program. Though employment and growth failed to respond to ARRA as the Administration had suggested, fiscal stimulus advocates have argued that employment levels would have been lower still without the program.

Wilson’s study makes an important contribution to this debate by focusing on state-by-state comparisons. A large portion of stimulus funding at the state level was based on criteria that were entirely independent of the economic situation that states faced. For example, the number of existing highway miles was used to calculate additional transportation spending.

The study uses this resulting variation in state-level stimulus funding to determine what impact ARRA funding had on employment — including both the direct impact of workers hired to complete planned projects, as well as any broader spillover effects resulting from greater government spending. Administration economists have repeatedly emphasized the importance of this indirect employment growth in driving economic recovery.

The results suggest that though the program did result in 2 million jobs “created or saved” by March 2010, net job creation was statistically indistinguishable from zero by August of this year. Taken at face value, this would suggest that the stimulus program (with an overall cost of $814 billion) worked only to generate temporary jobs at a cost of over $400,000 per worker. Even if the stimulus had in fact generated this level of employment as a durable outcome, it would still have been an extremely expensive way to generate employment.

Isn’t that a surprise! I think I’m going to have a heart attack and die from that surprise.

Granted, e21 is quick to emphasize that this is not the final word on whether or not the stimulus had a positive effect on our economy. But such a study should call into question the Obama administration’s confident proclamations that liberal policies are working.

Personally, I find it funny that the left doesn’t see the contradiction in insisting that we are in a recovery while also demanding that we extend unemployment benefits. Warning! Warning! Divide by cucumber error!

The current unemployment rate is at 9.8% – and this is during the holiday season, when temporary jobs in retail are usually available. Again, something is not computing.

ETA: Speaking of unemployment, here’s an interesting chart that’s been floating around:

Where exactly is this recovery we keep hearing so much about?


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s