About this time last
year, the nation was debating the need for the government to take action to
save the economy from certain doom. The government had already saved the
financial sector from certain doom with the
Emergency Economic Stabilization Act of
2008, so by
virtue of this Bush era legislation, it seemed that the government was
qualified to save things from certain doom. This was to be a massive plan.
It was called variously "Stimulus" or "Spendulus," but eventually they
settled on the
American Recovery and Reinvestment Act of
2009.
American Thinker saw published an
article
considering whether it would be a good idea to have a backup plan. So how
are we doing?
The Recovery
Act
was signed into law in February of 2009. It was not clear what the
indicators of success for the Recovery Act were at the time, but it seemed
that keeping unemployment from exceeding 8% would be one of them. Without
the plan, it was said unemployment might well exceed 9%. Related to this was
a promise that some number of jobs would be "created or saved." So
employment is probably the best metric for measuring success.
Employment
According to the
U.S. Bureau of Labor Statistics,
the national unemployment rate exceeded 8% in February of 2009, the same
month that the Recovery Act was passed. The rate exceeded the dreaded 9%
level in May and the unanticipated 10% level in October. The unemployment
rate in 2009 increased from 7.7% in January to 10.0% in December. By
comparison, unemployment in 2008 rose from 5.0% in January to 7.4% in
December. The rate rose by 2.4% in the year before the Stimulus plan and by
2.3% in its year of adoption. The administration has
dropped the policy of defending the plan
through the claim that some number of jobs has been "created or saved,"
perhaps because it was becoming a cliché.
The claim that the
Recovery Act has slowed the rate of decline is questionable, even if the
near-identical performance of the unemployment rate of the previous year is
ignored. Consider
this table,
again from the Bureau of Labor Statistics, which shows employment statistics
for several demographic groups with a focus on educational level (non-HS
grads, HS grads, some college, and college grads). At first glance, it
appears that the cost of unemployment has been shouldered equally among the
four groups. For example, looking at the Seasonally Adjusted numbers, the
unemployment rate among non-HS grads went from 11.2% to 15.3%, a 4.1
percentage-point move, or just a bit over a third of the starting number.
College grads went from 3.7% to 5.0%, a move of 1.3 percentage points, or
just a bit under a third of the starting number. So the college grads are
only slightly better off, right?
Perhaps not. The labor
force of non-HS grads went down by 135,000, while
the labor force of college grads went up by
778,000. So the advantage of being a college grad would be somewhat greater
than the raw data imply if you look a little bit behind the numbers. What
seems to be happening is that companies have cut positions that are easily
replaced. Companies will make the economic decision to retain a position,
even at a loss, if replacing that employee costs more than can be recovered
by avoiding paying for the employee. Positions held by persons without a
degree tend to be more easily replaced than those held by graduates, so
which jobs are cut? Of course, the rate of job loss will subside over time
since jobs that are easily cut already have been.
The Recovery Act did
contribute to the growth of jobs in the public sector, and that does impact
the unemployment rate. But is it fair to compare new government jobs to new
private-sector jobs? To answer this, it is important to acknowledge that the
government is not like a business in the economy. Businesses and individuals
prosper when they provide valuable goods and services that are in demand in
the marketplace. The government prospers when companies and individuals
prosper. When the government borrows money to expand, it denies
capital to the private sector in the short term and imposes a burden on
it in the long term as the taxpayers are called on to repay the loans. So
when the government borrows money to create a job, it costs a comparable job
plus interest in the private sector. The government is running a huge
deficit, so any additional spending must be either borrowed or created
through inflation.
According to
Recovery.gov,
only a fraction of Recovery Act
funds have been distributed. Proponents may suggest that there simply
has not been time for the program to work; the sheer volume of dollars
cannot be distributed so quickly. Billions have been allocated to nuclear
power concerns, yet we are building no new nuclear power plants -- an
activity that would significantly stimulate the construction and
manufacturing sectors and provide reliable energy for decades to come. What
difference does it make how quickly the dollars are disbursed if they are
not used for activities that generate real jobs?
Factors Other Than Employment
A couple of factors other
than employment might be used to measure how effective the Recovery Act has
been. One is the misery index. According to
miseryindex.us,
the misery index was 7.63 in January of 2009. In November, it was 11.84,
which means "worse." By comparison, the misery index was 9.18 in January of
2008 and 7.77 in November (going from January to November to show comparable
periods). Things were improving prior to passage of the Recovery Act, at
least in terms of the misery index.
The Hooveresque "a
chicken in every pot and a car in every garage"
also comes to mind. The
price of chicken
is lower now than it was in January of 2009, but there is no reason to
suspect it had anything to do with the Recovery Act. The car in every garage
part did come into play in the form of the
Cash for Clunkers
program. This program provided incentives for owners of old, inefficient
cars to
trade them in for new, efficient ones. It was a good deal for people
getting ready to trade in their old car anyway, and for foreign car
companies that make fuel-efficient cars at a reasonable price. Since it
required a trade-in, it added not one car to a garage that didn't already
have one.
Cash for Clunkers
provides a clue as to why stimulus programs such as this one do not work
very well. They simply move funds from one place and put them in another.
Someone benefits at someone else's expense. It's like the man with the
blanket that was too short to cover his feet, so he cut a strip from the end
near his head and sewed it to the end near his feet.
No, the blanket scheme
did not work. The Recovery Act does not seem to have worked very well either
in any measurable way. The good news is that our leaders are
considering a Plan B.
The bad news is that it looks a lot like Plan A. There's an old saying about
doing the same thing over and over again expecting different results. This
particular instance may not really be symptomatic of insanity, but it does
not seem prudent, either.
Tom Bruner holds an MBA from
an ivy-free institution somewhere in darkest America.