(Jim Clark) – In last week’s Bonanza, Jeff Quinn wrote in a column titled “Economic Advisors’ Bafflegab” about the just released Council of Economic Advisors report on the effect of the American Recovery and Reinvestment Act of 2009 (the “Stimulus” bill). The report stated that the Stimulus bill “raised employment relative to what it otherwise would have been between 2.4 and 3.6 million jobs . . .” Huh??
Jeff, ever the canny CPA, calculated that this would work out to a cost of just about $300,000 per “job.” Except there are no jobs. There are instead 2.4 million less people employed today than when Obama took office.
Two years ago, UC Berkeley Economist Christina Romer chaired the Council of Economic Advisors and famously advised President Obama that unless a huge stimulus bill was passed unemployment would rise above 8%. She further advised that each dollar of government stimulus spending would produce a $1.60 increase in gross domestic product. When unemployment rose to nearly 10%, she departed for her ivory tower in Berkeley.
It has taken almost two years to discover her second big mistake, which is where UNR Economics Professor Thomas Gargill comes in.
Writing in the July 13 Reno Gazette-Journal, Cargill points out that at the time the stimulus package was under consideration, “there was no empirical consensus on the size of the multiplier” (that which would supposedly create $1.60 in economic activity for every $1.00 in federal spending). “Estimates ranged from a zero multiplier to $1.60 and higher.” But, he wrote, the “stimulus efforts lacked scientific support.”
This “lack of a scientific consensus suggest(s) politicians have exaggerated the ability of government spending to stimulate the economy, especially in Japan and the U.S.,” Gargill continued.
“Politicians often rationalize any lack of success to the fact government spending was not large enough or that without government spending the economy would be in worse shape,” he continued. An interesting observation because Cargill wrote this before release of the current Council of Economic Advisors “bafflegab” report cited above in which they do precisely that.
“The real issue,” Gargill said, “is whether an alternative policy, such as cutting marginal tax rates and simplifying the tax code, would have produced different results. Some politicians continue to argue for more government spending to stimulate the economy. Perhaps they should do their homework before committing more taxpayer funds and further increasing the size of the deficit and debt,” he concluded.
Yeah, but in this case, the politicians (all of them Democrats . . . not a single Republican voted for Obamulus) had U.C. Berkeley Whiz Christina Romer telling them everything would be wonderful if they would just borrow all that money from the Chinese and spend it.
Had the politicians “done their homework,” they could have ignored Romer and simply looked at history. In 1929, when the stock market crash triggered the Great Depression, unemployment was 3.14%. By 1934, after the original Keynesian stimulator, Franklin Roosevelt, had been in office for a year, unemployment was 21.6%; by 1938, after 4 years of stimulus spending to create jobs, unemployment was 18.9%. In 1942, as the U.S. industry shifted to wartime production, unemployment fell to 4.7%.
These statistics could lead reasonable people to conclude that government spending does not stimulate the economy. But who ever said politicians are reasonable?
The Council of Economic Advisors’ obfuscation still persists; we are up to our neck in debt, and the current red-hot battle in Washington is whether we should raise the debt ceiling to borrow more money to pay the interest on the money we previously borrowed to finance the stimulus that didn’t work.
Oh, well, maybe we’ll get bailed out by a world war again.
(Jim Clark is President of Republican Advocates, a member of the Washoe County and Nevada GOP Central Committees; he can be reached at tahoesbjc@aol.com)
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