Five Stimulus and Jobs Bills: Measuring the Abysmal Keynesian Results

'Even before the 2010 midterm elections, with Democrats controlling massive supermajorities in both the House and Senate, President Obama had passed five stimulus and jobs bills. If you add up the promises, he boldly promised well over 5.5 million jobs “created or saved.” But reality turned out very differently: There were 2 million fewer people working in September 2011 than when Obama took office. On top of that, population growth by itself should have generated more than 3 million new jobs.'

'By the end of the summer, in August 2011, the unemployment rate was still at 9.1 percent. It was no longer possible to claim the Stimulus had worked well. Obama claimed that the sluggish economic growth wasn’t the fault of his own economic policies; it was the fault of other circumstances that he had no control over. It was either events outside the United States or the irresponsible political behavior of others in Washington. Obama claimed:

"In the last few months, the economy has already had to absorb an earthquake in Japan, the economic headwinds coming from Europe, the Arab Spring and the [rise] in oil prices—all of which have been very challenging for the recovery. But these are things we couldn’t control. Our economy didn’t need Washington to come along with a manufactured crisis to make things worse. That was in our hands. It’s pretty likely that the uncertainty surrounding the raising of the debt ceiling—for both businesses and consumers—has been unsettling, and just one more impediment to the full recovery that we need."

There are a couple of problems with his argument. Economic growth had already ground to a halt during the first three months of 2011—with GDP growing by just 0.1 percent. This was well before the Arab Spring, the renewed debt crisis in Greece and other countries, and the July and August 2011 debate over the debt ceiling. And whatever the impact of the March 2011 earthquake, its initial impact during the first quarter in the United States would have been very limited. The president also blamed Republicans for not passing his new legislation when they took over the House of Representatives in January 2011. But with Democratic supermajorities in both the House and Senate for the two previous years, it is pretty hard to blame for the slow growth in the first half of 2011.

In addition, it seems a little hard to blame the Japanese earthquake for our poor unemployment rate when the Japanese unemployment rate fell and ours rose in the five months following the earthquake. Nor is it clear how we can blame “economic headwinds” from Europe when our unemployment rate from January to August 2011 rose while it fell for European countries such as Germany, Italy, and Sweden and stayed the same in France.'

'No matter how you cut it, 3 million jobs have not been added since the recession ended. The recession officially ended in June 2009, and at that time 130.49 million people held jobs according to the Bureau of Labor Statistics’ Establishment Survey. The numbers for September 2011 show 131.33 million, an addition of just 840,000 jobs. But with the working-age population having grown by 4.6 million people in the same period, this should be viewed as a miserable failure. Furthermore, out of the 840,000 additional jobs, the vast majority—540,000—were merely “temporary help” service jobs.' - Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future, Grover G. Norquist and John R. Lott, Jr.

The entire excerpt from the book Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future can be read at the following link:

http://www.foxnews.com/opinion/2012/03/15/read-excerpt-from-john-r-lott-jr-and-grover-g-norquists-new-book-debacle/

Government Deficit Spending on the Skids ….Times Some Multiplier of Keynesian Foolishness

The Obama Jobs Plan, Centrally Planned Economies, Keynes, and Hayek’s “Fatal Conceit”

"Government is the only enterprise on earth, that when it fails, it just does the same thing over again, just bigger". - Don Luskin, TrendMacro


'The president and his supporters are in the grip of what the economist F.A. Hayek once called the "fatal conceit" -- the idea that politicians can manage an economy according to some overall plan. Their efforts to create "green" jobs, stimulate the economy, redistribute income and manage costs in the health care system are all examples of the fatal conceit run amok. A large and modern economy, made up of hundreds of millions of participants who make spending and investment decisions by the minute, is far too complex to allow for centralized coordination. Such efforts, Hayek warned, invariably make a difficult situation worse'.

‘Hayek was skeptical of Keynes' theory on economic grounds, but even more so on political grounds. Efforts by the state to manage the economy will certainly fail, he argued, but they will not be abandoned. Every failure would instead lead to more ambitious and extravagant policies to reach the elusive goals, until more and more aspects of the economy are brought under government control. This, Hayek argued, was "the road to serfdom." ‘- Manhattan Moment: Hayek's wisdom, rediscovered, James Piereson, Washingtonexaminer.com, 09/28/2011

The link to the entire article appears below:

http://washingtonexaminer.com/opinion/columnists/2011/09/manhattan-moment-hayeks-wisdom-rediscovered

Notes:

Link to Hayek’s book The Fatal Conceit:

http://www.press.uchicago.edu/ucp/books/book/chicago/F/bo3643985.html


You also might be interested in F.A. Hayek’s speech given at his acceptance of the Nobel Prize 12/11/1974 entitled “The Pretense of Knowledge”. Link appears below:

http://www.nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lecture.html

Saved and Created Just for You: Summer of Recovery Part Three!

A Bridge to Nowhere, A Bridge Too Far, or The Bridge of Sighs?

The Spruce Goose of All Stimulus Plans Ever Concocted


If you recall the $787 billion(try $862 billion at last count) Obama deficit spending plan aka stimulus plan, you likely remember the claim that unemployment would not rise above 8% which in fact rose to 10%. Maybe you merely recall the enormity of the plan at $787 billion ($862 billion) plus future interest putting the grand total well beyond a trillion dollars. Maybe you remember the term “shovel ready”.

Remember the term “social engineering”? (1)


Bridge of Economic Security

One of the social engineering aspects of the stimulus plan was the awarding of large chunks of money to state governments to keep public sector employees on the payroll. The money was doled out over two years. In other words, an artificial bridge was produced with deficit spending (tax payer liability) to delay public sector layoffs.(2)

One thing to consider, historically speaking, when the US economy goes into recession the private sector begins layoffs immediately. However, the public sector begins its layoffs approximately twelve months after the beginning of the recession. Why? Governments plan their budget and fund those budgets one year in advance. Hence when the recession begins the public sector has budgeted and funded their budget with tax dollars well in advance of the recession. Moreover, once the recession is twelve months old and tax receipts have plunged, the public sector budget is adjusted downward to equal the new lower tax revenue volume at which point public sector layoffs begin.


Therefore the bridge of economic security for public sector workers was merely delaying or putting off into the future what would historically speaking occur in twelve months from the beginning of the recession. Why put off the inevitable? What if you think you can spend your way out of the inevitable? What if you think you can centrally plan a desired outcome at someone else’s expense?


A Bridge to Nowhere?

Politicos, through the mechanism of government, built a Keynesian deficit spending social engineering bridge and picked winners and losers regarding the bridge. One of the social engineering winners was public sector employees. Why? Public sector unions and associations lobbied their associated politicos for additional economic security. That is, organized public sector labor merely organized for their particular economic security against the disorganized mass of tax payers and to the detriment of the tax payer’s economic security. Hence the public sector and their associated politicos built a bridge of economic security for the public sector at tax payer expense.

Moreover, the bridge of economic security was produced to remove the threat of layoffs over two years for the public sector. The implicit and explicit assumption of the Obama deficit spending plan and consequential bridge of economic security for the public sector being that the economy would have recovered after twenty four months and tax revenues once again would be robust. That is, the economic assumption was that the $862 billion deficit spending plan would jump start the economy and after two years there would be no public sector layoffs as the economy would once again be robust.

However, the bridge of economic security became the bridge to nowhere as the economy did not recover in a robust manner as assumed by the stimulus plan’s Keynesian social engineering designers. Hence the bridge never reached the shores of robust economic recovery and robust tax revenue.

Its important to note that little attention would have been directed to the cumulative effects of public sector collective bargaining, its unsustainable path, had the Obama deficit spending social engineering plan succeeded. That is, some commentators in the past have pointed out the unsustainable path of cumulative total compensation produced by public section unions through collective bargaining. However, the issue would have remained in the background and continued to fester as politicos elected by and in association with public sector unions would have derailed any debate. Meaning that the hidden strategy of the social engineering deficit spending, spending specifically for an economic bridge of security for public sector unions, was in essence a strategy of pay me now and pay me later.


A Bridge Too Far?


The economic stimulus plan aka deficit spending plan was the grand design of central planning techniques. One likely remembers the grand charts and graphs of how the deficit spending would stimulate this sector and that sector. That future unemployment trends were shown graphically and how they would peak at 8% then begin a downward trend. Like any central planning scheme the central planners were so sure of themselves that they made bold prediction with their charts and graphs. And like all the central planners from the past, present, and future they were/are/will be frightfully wrong.

However, the assumptions used in the Spruce Goose of all stimulus plans ever concocted regarding the bridge of economic security for public sector employees were woefully short sighted. The single minded idea that in two years all would be well and public sectors workers could go on their merry way was ludicrous. What about state spending expanding at an extraordinary rate from the mid 1990’s until the demise of Lehman? What about two thirds of the states with continuing and constant financial problems? What about ballooning state debt? What about Medicaid eating up larger and large chunks of state tax revenue? What about woefully funded state unemployment insurance programs that immediately had to apply for loans from the federal government at the onset of recession? What about exploding public employee total compensation costs?

“The curious task of economics is to illustrate to men how little they really know about what they imagine they can design.” - F.A. Hayek


The Bridge of Sighs

The current problem for state legislators is that a bridge to nowhere or a bridge too far is of no interest to public sector unions. Regardless of the implosion of the bridge of economic security for public sector employees, regardless of the failure of the stimulus plan, regardless of the failure of the social engineering aspects, regardless of the failed predictions by the central planners - bridge or no bridge- there shall remain economic security for public sector employees or else.


Forget the billions of dollars thrown at the bridge of economic security for public employees, tax revenues be damned, budgets and accumulated debt be damned, the status quo for public sector employees will remain or else a tantrum to end all tantrums erupts. We won’t teach your children and we will not pick up your garbage. That is, the wonderful world of government monopolized services will come to a grinding halt. And to boot we will jam your capital buildings and sleep over if necessary.

You see, regardless of the billions upon billions upon billions of dollars already spent to ease the pain of public sector employees, well, that’s still not good enough. All past benefits will be retained. Period! Collective bargaining will be retained as public sector unions and associations know exactly how they obtained current benefits and how they will expand benefits in the future. Politicos will continue to be funded by these unions so the both-sides-of-the-table phenomena will continue and tax payer’s money will continue to be funnelled into greater and greater compensation levels for unionized/collective bargaining public employees.(3)

And who pays? You pay!

Government is the great fiction, through which everybody endeavours to live at the expense of everybody else. -- Frederic Bastiat


Summary


Current public sector union demands are made atop of the past bridge of economic security specially built for the exact same group. Public sector employees are earning approximately 25% more compensation than comparable private sector workers made possible through cumulative effects of collective bargaining against they tax payer's dollar. Gratefulness is not an option. More of the same is the only option. More and more, all at the tax payer’s expense. (4)


Notes

(1) http://www.cnsnews.com/news/article/57617

(2)http://www.jsonline.com/news/statepolitics/64116527.html

(3)http://thelastembassy.blogspot.com/2011/02/wisconsin-is-coming-to-state-capital.html

(4)http://mjperry.blogspot.com/2010/02/two-americas-public-sector-vs-private.html

Exit Zero

The Real Unemployment Rate in the US Economy currently sits at 16% according the Federal Reserve of Atlanta. (1) Further, no relief is in site for idle Human Capital. (2) Persistent high unemployment appears to be the norm with no current favorable factors contributing to the reduction in the number of unemployed.


Are Government Policies contributing to high persistent unemployment?


Government Policies

Stimulus Plan

An $800 Billion Stimulus plan was rammed through Congress in early 2009. The unread and un-debated Bill had a marquee of urgency. The urgency of passing the Stimulus Bill was to head off Unemployment. That the Unemployment Rate would not exceed 8% if the Stimulus Bill was immediately passed by legislatures and signed by President Obama.

Although the Stimulus Bill was unread and un-debated within Government, many outside the Government in the Private Sector did debate the Bill. Warning signs went up that the Stimulus Bill was Social Engineering, Financed Wealth and Income Transfers, and in the Macro Economic sense, not an engine to create Employment. That the Stimulus Plan was full of pork, ear marks, and based on a Political-Political design rather than a Political-Economy design.

One merely needs to look at the results to see the warning signs were correct.


Reasons for the Failure of the Stimulus Plan


Why is the American Recovery Act such a Spruce Goose? Why is the American Recovery and Reinvestment Act the Spruce Goose of all stimulus plans ever concocted? Surely $800 Billion of borrowed money will create jobs?

First of all, Keynesian Government Deficit Spending (Fiscal Stimulus) is suspect at best with very mixed results/track record. However, if one is to deploy Keynesian Government Deficit Spending the best results of past stimulus plans of this label are based on Infrastructure Spending. Building and repairing Social Overhead Capital does in fact create temporary employment and a public asset is either created or repaired.

However, only a small portion of the Stimulus Plan was based on Social Overhead Capital ($80 Billion of the $800 Billion). Why? It has to do with the designers of the Stimulus Plan. Who designed the Stimulus Plan? Very good question. Many parts of the design were concocted by the Tides Foundation in association with The Center for American Progress.(3) You mean to say Congress in association with Public and Private Sector Economists didn't design the entire plan? Correct.

The Warning Flags were real.

The Tides Foundation and The Center for American Progress influenced the Stimulus Plan? Who are they? These two organizations label themselves as liberals or "progressives". Others label them as Socialists as many of the members of these two groups are Socialists. (4) Many past members of the Tides Foundation and The Center for American Progress now hold positions in the White House.

Socialists have a grand track record in Social Engineering aka wealth and income transfers. Socialists on the other hand have no track record regarding income, wealth, and job creation. Beginning to ring a bell?


Hence we have transfers of borrowed Stimulus Funds arriving at the Public Sector that produces virtually nothing. Those transfers go to pet projects (pork barrel spending) that are dubious job creators. More transfers go to Social Welfare Programs. Meanwhile, on the Federal Level employment is expanding based on borrowed Stimulus Funds. Expanding a sector that produces little.



Liberal Economists believe that transfers of funds to Private Welfare Programs create a situation where the transferred funds will immediately be spent (a component of Social Engineering). The theory is based on the notion that low income or no income recipients will spend 100% of their funds and save zero. That 100% of the transferred funds will be spent hence creating a multiplier effect thus stimulating the economy. However the theory has a major flaw: low income recipients generally spend their funds on "staples". Low income earners do not buy new vehicles, contract for a home to be built, invest in new business ventures, and other dynamic economic activities that truly have multiplier effects.



The tax cuts associated with the Stimulus Plan are doomed to fail. Why? Any positive economic effect associated with Tax Reductions is closely associated with "expectations". That is, temporary tax cuts have basically no effect as consumers and businesses realize the short term duration on any additional disposable income and hence make short term type purchases that match the short duration of additional disposable income. Whereas long term tax cuts (e.g. reducing Marginal Income Tax rates for the next 10 years) causes consumers and businesses to make long term purchases such as home, vehicles, and capital investment in business as the consumer or business matches long term purchases to the long term increase in disposable income.



Meanwhile, tax revenues at all levels of government are plummeting at historical rates. The answer to plummeting tax revenue? Taxes are increasing on the State and Local levels to support the bloated size and scope of these governments. The increased taxes then reduce disposable income of consumers and businesses which consequently reduces Private Sector Demand for goods and services.



On the Federal Level tax revenues are plummeting as well. However, the Federal Government continues to spend at unprecedented levels (spending increasing at an increasing rate). Spending and tax revenues are on a course of complete divergence. The result is a swollen deficit.



Enter the non-renewal of the Bush Administration across the board tax cuts. Soon all tax payers will face an across the board tax increase. This creates the expectation of long term higher taxes and consequently changes consumer and business consumption behavior (the opposite behavior of long term tax cuts mentioned above).



However, the specter of even more tax increases are affecting consumer and business behavior. The spending increases by the Federal Government, the constant need to borrow funds by the federal government for financed spending such as the Stimulus Plan and general revenue needs, the specter of higher energy taxes through Cap and Trade legislation, talk of a Value Added Tax as an additional tax, and finally the increased tax burden of Socialized Medicine are causing consumer and business long term spending behavior to be paired back.



Oddly the Consequences are Known



The consequences of the above mentioned Government Behavior is well known. Huh? The lessons of the Great Depression have been enumerated by economists through empirical study. Thousands of empirical studies have concluded the errors of the Great Depression:

(1) Keynesian Government Deficit Spending (fiscal stimulus) creates temporary jobs creating temporary stimulus. When the deficit spending ends, the temporary jobs end as well as the temporary stimulus,

(2) rising taxes, rising regulation, and increased government debt reduces Private Capital Formation which is directly related to Private Sector Job Creation,

(3) rising taxes reduce Private Sector consumption,

(4) repeating 1-3 above, over and over again, as was done in the Great Depression, yields the same result: continued recession.


Milton Friedman's Fourth Category of Spending


Milton Friedman basically said when you spend someone else's money, you have no rational interest in either value or quality. (5) (6) In other words, when the government taxes you, brings in the revenue, when the time comes to spend that tax revenue, value and quality are Job 57. Hence Keynesian Government Deficit Spending (Stimulus) has inherent value and quality problems.



Enter "Jobs Saved"

In the field of Manpower Economics and Labor Economics you are either employed or unemployed. Yes, you either have a job or you don't have a job. Sure, you can be underemployed, structurally unemployed, part-time employed and a multitude of sub-categories of employment and unemployment. However, at the end of the day, you either are employed or unemployed.


Heard the phrase "Jobs Saved"? (7) Guess what? No such term or statistic or measurement exists within the field of Economics. Huh?

When the Spruce Goose of all stimulus plan fell on its fat little porker , income transfer, wealth transfer face, the Obama Administration, through the Council of Economic Advisers, created the ultimate Political Speak Phrase "Jobs Saved".

Jobs Saved is a non-statistic statistic. Its unmeasurable, un-comparable, and basically fantasy. Why did they create "Jobs Saved"? One must remember that the $800 Billion stimulus plan, if passed immediately, would then cause unemployment to top-off at 8%. When the 8% target was unmanageable, enter "Jobs Saved". (8)

Jobs Claim

The employment picture created by the stimulus plan is so bleak that the Obama Administration has begun to grab at straws. "30,000 jobs created" was the reported headline and the Obama Administration lauded the report (9). Unfortunately 30,000 is an anemic number of jobs and better yet the report was refuted, called "way off the mark" a week later. (10)



Subsequently the White House announces the Stimulus Plan saved 650,000 jobs (jobs saved non-statistic statistic yet again). (11) Somehow borrowed money, sent to the States on a temporary basis, has saved jobs? Or has borrowed money been used by State Governments to subsidize budgets that were already out of control?



Please remember, no jobs were saved. You are either employed or unemployed. However, take a closer look at the report and what jobs are referred to within the report? Public Sector jobs. (11) Hence Government Workers remained employed based on unsustainable State Budgets temporarily funded by borrowed money. One might also point to Government Workers, unionized in many states, are predominantly supports of the Obama Administration.

Meanwhile Back in the Unemployment Line

Creating the phase "Jobs Saved" and lauding a phony job report or pointing to borrowed money propping up unsustainable State budgets funding Government Jobs doesn't really help the unemployed.

What is the Jobs outlook for the Unemployed? Not too bright. (2) (8) (12)

With the average work week at 33.2 hours the average employer has plenty of room to expand the utilization of current employees before any expansion of total employment. (8)

If demand does expand, and employers do increase the average work weeks to 40 hours, an employer will opt for over time for the current work force rather than expand the number of workers. Why? The employer wants to be certain that any increase in demand is sustainable and not a false signal. (13)

An employer also realizes that the laid off workers were the most marginal workers. In other words, employment was reduced at the margin, leaving the most productive workers retained. It can be argued some workers laid off were in marginally profitable lines of business while other workers were laid off from core profit business. The marginally profitable line of business would have to show even more robust sustainable growth before human capital is added back in comparison to employment in a core profit business.


Gross Domestic Product (GDP) can Rise and High Unemployment can Persist?

GDP can grow, however, if human capital is under utilized (current 33.2 hour average work week) a slack or lag occurs in labor markets and persistent high unemployment can exist. The slack or lag is elongated by the determination of employers, as mentioned above, regarding GDP growth and the ability of GDP growth to be robust and sustained. Hence GDP can show positive results while unemployment can remain persistently high.

What if Demand grows in an anemic fashion? That is referred to as a Jobless Recovery.

Exit Zero

If you are currently unemployed, you have reached Exit Zero on the unemployment highway. Exit Zero is the last exit before unemployment Armageddon.


Discouraged workers are increasing at an increasing rate (those giving up on finding a job). The average length of time unemployed workers have been drawing unemployment benefits is at an all time high (week after week after week these workers can not locate a job).

The Stimulus Plan is a bust accompanied by made up statistics and made up economic criteria. Private Capital Formation leading to private sector job creation is anemic. Rising taxes are depressing consumption dynamics.

The average work week at 33.2 hours means employer will utilize current workers before hiring new workers.

Welcome to mile marker Zero. The zero job creation mile marker on the employment highway. Welcome to Exit Zero.














(1) http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show_article=1


(2) http://www.politico.com/politico44/perm/1009/leveling_off_b1e35f37-54bc-4c12-91df-0c9e48cf6403.html


(3) http://www.foxnews.com/story/0,2933,535284,00.html

(4) http://www.foxnews.com/story/0,2933,554680,00.html

http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

(5)http://bartsblogg.blogspot.com/2008/10/milton-friedman-4-ways-money-is-spent.html

(6)http://www.reddit.com/r/Economics/comments/9lldr/milton_friedmans_classic_4_ways_to_spend_money/

(7) http://online.wsj.com/article/SB124451592762396883.html

(8) http://www.ft.com/cms/s/0/b3565084-bc02-11de-9426-00144feab49a.html?catid=171&SID=google

(9)http://www.usatoday.com/money/economy/2009-10-15-stimulus-jobs_N.htm

(10) http://today.msnbc.msn.com/id/33522856/ns/business-stocks_and_economy/

(11) http://www.msnbc.msn.com/id/33548535/ns/business-stocks_and_economy/

(12) http://scottgrannis.blogspot.com/2009/10/state-of-union-is-bleak-but-there-is.html


(13) http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

The $800 Billion Spruce Goose

Have you seen this logo (below) as you travel down the highways and byways?

The logo represents, none other than, the American Recovery and Reinvestment Act of 2009 aka Stimulus Plan. This logo represent "stimulus" as well as $800 Billion of debt.

Apparently the logo has meaning. The meaning is translated to you via the "artist's impression".

After surveying logo impressions from the general public, here are some of the most interesting responses:

....the blue area includes eight stars. This represents the eight jobs created,

....The blue area part two: recovery.gov is an oxymoron,

.... the green area represents that money, does in fact, grow on trees,

....the red area is the cogs, inter workings, of the Debt Clock.


This may have been a better logo:

The Other Unemployment: Capital

Many articles are being published regarding the 9.5% unemployment rate. That unemployment will worsen. That June unemployment came is at 473,000 more losing their job (+100,000 more than predicted). That many States have unemployment rates of +11% and that pockets of unemployment exist that are approaching 20%.

What about the other unemployment? Unemployment of Capital. This economic phenomena never gets much attention in the mainstream media.

Production is made up of human capital and Physical and Monetary Capital. With absolutely, positively no incentive being offered for Private Capital Formation or activation of existing Capital, the other component of production , human capital, sits idle.

Human Capital will continue to sit idle for the very fact that no stimulus has been sent the way of Private Capital Formation leading to Private Sector jobs. The fact that no incentive exists for Private Capital Formation is compounded by the specter of an Energy Tax via Cap and Trade as well as the expectation of general tax increases by Federal, State, and Local Government Bodies. Furthermore, the specter of over-regulation threatens profits at the margin even if Private Capital Formation is employed.

Romer, Goolsbee, and Jared "The King of Spin" Bernstein (the non-economist Economist) have painted themselves right into a corner.

Recall the un-read-but-we-voted-on-it-anyway, 6000 earmark, Social Engineering Stimulus Goofiness. Try painting from the corners toward the doorway this time around.