“It was only after the [fourth]-quarter numbers came in … that suddenly everybody looked and said the economy shrank 6 percent,” President Obama said Tuesday. He was trying to defend his administration’s predictions that the unemployment rate would peak at 8 percent if his $787 billion stimulus program was passed. The stimulus was passed in February, and the economy has gotten worse.
“We and everyone else misread the economy,” Vice President Joseph R. Biden Jr. said Sunday, defending the stimulus on ABC’s “This Week.” Backpedaling aside, it’s not accurate to say the administration didn’t know about the fourth-quarter data before officials made their predictions. On Feb. 28, the administration forecast an average unemployment rate of 8.1 percent for this year. This can be found in “Economic Projections and the Budget Outlook,” which was published after gross domestic product results for the fourth quarter had been released to the general public. Unemployment is now pegged at 9.5 percent, and rising.
What makes Democrats nervous is that the unemployment rate is going up faster under Mr. Obama than during the close of President George W. Bush’s administration. From February through June, the unemployment rate has increased by .4 percentage points per month. During Mr. Bush’s last five full months in office, unemployment rose by .3 percentage points per month. During that same length of time, 2.6 million jobs were lost under Mr. Obama, while 2.1 million were lost under Mr. Bush.
It should come as no surprise that the stimulus has made things worse. The government is not creating jobs so much as it is reallocating resources in the economy. The stimulus moves around almost a trillion dollars from what Americans would have spent it on to things that the government prioritizes. Naturally, such central direction of the economy also moves jobs. Moving people from one job to another temporarily generates unemployment.
Administration officials simply made promises they couldn’t keep. On Jan. 25, Lawrence H. Summers, the White House chief economic adviser, said that the economy would start improving “within weeks” of the stimulus plan being passed. “If we fail to act, we are likely to lose millions more jobs, and the unemployment rate could reach double digits,” Christina Romer, chairman of the President’s Council of Economic Advisers, warned on Feb. 4. At the end of May, President Obama was declaring that “we are already seeing results” from the stimulus working.
We’re not sure what results Mr. Obama sees, but even a slight uptick in the economy won’t vindicate his massive government spending. The yardstick isn’t whether growth eventually appears, but whether it is smaller than what otherwise would have occurred. Until that uptick arrives, the problem isn’t that administration predictions were made before people realized how bad the economy actually was. The problem is that the stimulus isn’t working. It is making the economy worse, and politicians are pushing even more stimulus spending as a solution. With Democrats reaching a filibuster-proof majority, that losing strategy isn’t likely to change any time soon.