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 second 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 last Friday’s 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 foreclosureswere 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.