Government Spending Fails To Create Jobs – Economists Confused As Always
January 13, 2010 · Posted in General Economics
A brilliant government is again surprised as Unemployment unchanged by projects:
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama’s first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an “urgent need to accelerate job growth.”
An Associated Press analysis of stimulus spending found that it didn’t matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.
With the nation’s unemployment rate at 10 percent and expected to rise, Obama wants a second stimulus bill from Congress including billions of additional dollars for roads and bridges – projects the president says are “at the heart of our effort to accelerate job growth.”
Transportation Secretary Ray LaHood defended the administration’s recovery program Monday, writing on his blog that “DOT-administered stimulus spending is the only thing propping up the transportation construction industry.”
Road spending would total nearly $28 billion of the Jobs for Main Street Act, a $75 billion second stimulus to help lower the unemployment rate and improve the dismal job market for construction workers. The Senate is expected to consider the House-approved bill this month.
But AP’s analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn’t affected local unemployment rates so far.
“There seems to me to be very little evidence that it’s making a difference,” said Todd Steen, an economics professor at Hope College in Michigan who reviewed the AP analysis.
And there’s concern about relying on transportation spending a second time.
“My bottom line is, I’d be skeptical about putting too much more money into a second stimulus until we’ve seen broader effects from the first stimulus,” said Aaron Jackson, a Bentley University economist who also reviewed AP’s analysis.
For the analysis, the AP reviewed Transportation Department data on more than $21 billion in stimulus projects in every state and Washington, D.C., and the Labor Department’s monthly unemployment data to assess the effects of road and bridge spending on local unemployment and construction employment. The analysis did not try to measure results of the broader aid that also was in the first stimulus such as tax cuts, unemployment benefits or money for states.
Even within the construction industry, which stood to benefit most from transportation money, the AP’s analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.
“As a policy tool for creating jobs, this doesn’t seem to have much bite,” said Emory University economist Thomas Smith, who supported the stimulus and reviewed AP’s analysis. “In terms of creating jobs, it doesn’t seem like it’s created very many. It may well be employing lots of people but those two things are very different.”
Despite the disconnect, Congress is moving quickly to give Obama the additional road money he requested.
“We have a ton of need for repairing our national infrastructure and a ton of unemployed workers to do it. Marrying those two concepts strikes me as good stimulus and good policy,” White House economic adviser Jared Bernstein said. “When you invest in this kind of infrastructure, you’re creating good jobs for people who need them.”
Even so, transportation spending is too small of a pebble to create waves in the nation’s $14 trillion economy. And starting a road project, even one considered “shovel ready,” can take many months, meaning any modest effects of a second burst of transportation spending are unlikely to be felt for some time.
“It would be unlikely that even $20 billion spent all at once would be enough to move the needle of the huge decline we’ve seen, even in construction, much less the economy. The job destruction is way too big,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America.
Few counties, for example, received more road money per capita than Marshall County, Tenn., about 90 minutes south of Nashville.
Obama’s stimulus is paying the salaries of dozens of workers there, but local officials said the unemployment rate continues to rise and is expected to top 20 percent soon. The new money for road projects isn’t enough to offset the thousands of local jobs lost from the closing of manufacturing plants and automotive parts suppliers.
“The stimulus has not benefited the working-class people of Marshall County at all,” said Isaac Zimmerle, a local contractor who has seen his construction business slowly dry up since 2008. That year, he built 30 homes. But prospects this year look grim.
The stimulus has produced some jobs. And a growing body of economic evidence suggests that government programs, including a $700 billion bank bailout program and the $787 billion stimulus, have helped ease the recession.
Highway projects have been the public face of the president’s recovery efforts, providing the backdrop for news conferences with workers who owe their paychecks to the stimulus. But those anecdotes have not added up to a national trend and have not markedly improved the country’s broad employment picture.
The 400-page stimulus law contains so many provisions – tax cuts, unemployment benefits, food stamps, state aid, military spending – economists agree that it’s nearly impossible to determine what worked best and replicate it. It’s also impossible to quantify exactly what effect the stimulus has had on job creation, although Obama points to estimates that credit the recovery program for creating or saving 1.6 million jobs.
It is also becoming more difficult to obtain an accurate count of stimulus jobs. Those who receive stimulus money can now credit jobs to the program even if they were never in jeopardy of being lost, according to new rules outlined by the White House’s Office of Management and Budget.
The new rules, reported Monday by the Internet site ProPublica, allow any job paid for with stimulus money to count as a position saved or created.
Rep. Darrell Issa, R-Calif., complained in a letter sent last week to the government board monitoring stimulus spending that the new policy would make job counts “even more misleading.”
But Republicans aren’t expected to oppose Obama’s plans to increase transportation spending, a politically popular idea supported even by some in the GOP who have criticized other stimulus programs.
The road money ripples through the economy better than other spending because it improves the nation’s infrastructure, said Bernstein, the White House economist.
But that’s a policy argument, not a stimulus argument, said Daniel Seiver, an economist at San Diego State University who reviewed AP’s analysis.
“Infrastructure spending does have a long-term payoff, but in terms of an immediate impact on construction jobs it doesn’t seem to be showing up,” Seiver said. “A program like this may be justified, but it’s not going to have an immediate effect of putting people back to work.”
This is simply funny. This is the only assessment I can make. You have all these economists running around, looking up data, and trying to figure out what is happening and why no “jobs are being created” as a result of government spending.
Well, let me break it down for these people in very simple terms: The government is a group of people that obtains money from other people by the use of force or threat thereof. It uses that money for certain projects. But it doesn’t need to sell anything at any price. This is the phenomenon of bureaucracy. Thus it doesn’t need to create value in any way. Thus it opens the doors to corruption and rackets that make a few people and corporations very rich and in the very process, simply by it’s nature, destroys value.
To think that government spending would improve the jobs situation in the country is plain nonsense. For where does the government take the money from that it spends on projects? It takes it from the taxpayer. The fact that this has to be pointed out and nowhere appears in the page long analyses of ivy league economists is certainly annoying, but we have to deal with these amateurs unfortunately.
If Carl Consumer used to spend $10 per week in the bakery, Bob Bakery will use that money to cover cost like staff, appliances, etc. If Gordon Government holds a gun to Carl’s head, threatens him with kidnapping, and takes those $10 per week from him, then he won’t have the money to spend it in the bakery anymore. Gordon Government can now hire his campaign backer Conrad Contractor for that money to fix potholes in a road, or to dig holes in the desert, or whatever Conrad’s field of expertise is. Conrad Contractor will be happy about his new occupation, while Bob Bakery will be sad and will have to let people go due to fewer bread sales.
This transaction in itself is a zero sum game, as far as immediately visible numbers are concerned. But doesn’t the fact that Gordon Government uses the threat of violence to get to that money in the first place give you at least some little doubt as to whether or not he will spend the money wisely? If so, then you are on the right track. Because this is at the root of all government expenses. What destroys value and long term jobs in this process is the Trouble With Bureaucracy.
“Aaaah, …” says now the boring Princeton kindergarten economist with beard, “… you amateurs fail to realize that the government does NOT fund this effort via taxation, but instead borrows the money, and uses sound deficit spending to create wealth and jobs out of nothing. See it’s really simple: The government spends more money and through the well known multiplier effect the entire economy is turned around, saved, and turned into a paradise of sugar trees and chocolate rivers.”
OK, very well, let’s say Gordon Government does borrow the money. Who does he borrow the money from and under what premise? He borrows the money from Ian Investor who has saved up some money looking for alternative investments on the capital markets. He tells Ian Investor: “Hey, Ian, look no further, forget about all these visionary entrepreneurs and fascinating projects you are planning to fund. Give me that money. I will use it for some road projects or something else I will somehow come up with on the fly, but I will make sure today’s children, who luckily can’t vote yet, will be forced via the threat of imprisonment to pay off your debt at some distant point in the future! I call it taxation and I’ll make everyone believe it’s justified! Isn’t it great?? :))” Ian Investor now swiftly tells Ed Entrepreneur who was looking to hire people for his electric car startup, that he found a better prospect and gladly turns his funds over to drooling Gordon.
Get it? Is this so hard? Is there anything anybody doesn’t get about this in Congress? Of course not. These people are well aware of what they are doing. But they don’t care about what they are doing to the common people. They don’t care that they are destroying value. Why not? Why should they?? You and you, and you over there have given them the power to violently take your money under the threat of imprisonment. Why in the world would they care what happens to you??
Wake up people!