I think this is a compelling article that indicates that it is impossible to tell, that different studies will say different things based on the study's assumptions.
According to an old joke, if you ask any two economists a question you will get back at least three opinions. As humor goes it’s only mildly funny. But as a gloss on the discussion of the stimulus, it’s terrifically on point.
Conservatives have slammed the American Recovery and Reinvestment Act of 2009 (ARRA) as a grotesque waste of money, claiming it has not created any jobs. Liberals counter that, to the contrary, it has created or saved millions. For instance, the White House Council of Economic Advisers claims the stimulus deserves credit for perhaps as many as 3.6 million jobs created or saved. Writing Tuesday in The Wall Street Journal, economist Alan Blinder says, regarding the claim that federal spending of more than $600 billion had zero effect, "that would be quite a trick."
He’s right—at least in a very superficial sense. If you throw a rock that big into a pond it is bound to make some ripples. And it is categorically undeniable that the stimulus has funded positions which otherwise might not exist. State governments alone have increased payrolls by more than 40,000 since the recession began, generally using stimulus dollars to cut the paychecks. Just the other day a Republican lawmaker who had blasted Obama’s "failed stimulus" attended a ceremony at a jobs placement center in Rome, New York. Stimulus money paid local youth to refurbish the building. Would they have been jobless otherwise? Impossible to say.
Still, more than 7 million jobs have disappeared from the economy since Barack Obama took office. He will be only the second president since Herbert Hoover to face re-election with fewer people working than when he started. (George W. Bush was the other.) So it seems fair to ask whether stimulus projects have increased the net number of jobs in the United States—or whether they simply have moved a diminishing number of jobs around.
Analogy time. Consider a robber who steals a purse containing $500, who then uses the money to buy himself a new TV. It is categorically undeniable that the theft has created a sale for the TV store. Conservatives who pretend the stimulus has not created any jobs whatsoever stand in the position of an observer trying to deny the TV has been sold.
Yet the liberal analysis lacks any recognition that the purse owner now has $500 less to spend on the laptop computer she was going to buy. The theft has generated one sale only by destroying another.
The first effect is easily seen. The second is not. But only the economically illiterate would conclude that just the first effect occurred, and that therefore the way to increase consumption is to encourage more purse-stealing. So in addition to looking at the number of jobs created or saved by the stimulus, shouldn’t we also consider the number of jobs destroyed or forestalled?
That all might sound rather speculative. But it is no more speculative than the methods used by the administration’s supporters. If you think they audited every single one of the jobs the stimulus ostensibly created to make sure each position can be traced back to the ARRA, then you have another think coming. Note how the various pro-stimulus studies estimate the program created somewhere between 800,000 and 4.2 million jobs. That’s a huge variation. What accounts for it? Huge variations in the assumptions built into the studies.
For instance, the White House Council on Economic Advisers supports its claims by comparing real changes in GDP to projections—i.e., against educated guesses. Then it declares the stimulus deserves the credit for any difference. This is known as assuming the conclusion.
True, other sources—such as the Congressional Budget Office—also say the stimulus has created or saved jobs. Yet still more sources say the opposite. Last month economists Timothy Conley of the University of Ontario and Bill Dupor of Ohio State University found that while the ARRA created or saved about 443,000 (mostly government) jobs, it destroyed or forestalled more than 1 million private-sector jobs—for a net loss of 595,000.
Liberals say that’s bunk. "I don’t find that very compelling," says a director of the liberal Center for Economic and Policy Research. (So there!) Conservatives retort that the pro-stimulus studies are programmed to produce a positive result, so they’re no good either.
That’s one of the fun things about economics: You can always find a study to support your position. And the human tendency toward confirmation bias means you’ll probably believe the studies that support your view, and dismiss the ones that don’t.
Given how economists still vigorously debate the economic effects of the New Deal, it’s not surprising that they would differ over the 2009 stimulus as well. So remember the old joke. You might ask for a definitive answer about the stimulus. The best you’ll get back is conflicting opinions.
A. Barton Hinkle is a columnist at the Richmond Times-Dispatch. This column originally appeared at the Richmond Times-Dispatch.
Long-term, the stimulus definitely did not create jobs...
The problem is that we have really just time shifted when the economic pain will occur. We have borrowed from the future to fund short-term stop gap measures that have no lasting impact. In the long-run, the US will be poorer for it...
Trying to figure out whether the stimulus created jobs or not is missing the forest for the trees...
No, it's trying to see if Obama's version of Keynesian economics is intellectually bankrupt or has merit. If the evidence points us toward it being a bankrupt ideology then we ought not repeat this mistake again in the future.
There's already ample proof it's intellectually bankrupt...but good luck convincing left-leaning economists otherwise.
We (indeed, every country on earth, apparently) just keep repeating this mistake ad nauseum and no matter how much evidence we conjure up against it, it will always be repeated. Why? Because it helps politicians get re-elected. Time shifting economic pain is a wonderful tool for them.
It's entirely possible that all versions of Keynesian economics are intellectually bankrupt...
Didn't do anything worthwhile, that's for sure.
hahahaha
How could that stimulus have created jobs in America. No self respecting economist could have backed the grounds for trickle down effects when globalization is the word of the century. When you add in additional corporate greed you can easily see how that money never made it to its "destination" (was it really supposed to reach the American households?). China probably got more stimmed up from that package. Wouldn't say it destroyed jobs or created them; nothing is created or destroyed, there are only shifts. So the question is why do economists continue to think they can correct 21st century special situations by using these simple old world methods? Or is there something we just don't know? Time to realize independent nations are all fiscally dependent on each other. Nationalism is dead and the motto is buy it on the cheap, that garbage might have worked right after WWII.
nothing is created or destroyed? works for energy, not for money, wealth can be created, and destroyed.
[/quote]nothing is created or destroyed? works for energy, not for money, wealth can be created, and destroyed.[/quote]
it comes down to resources...money is simply a value placed on resources. Can you create resources with money? Don't get caught up in an illusion please, it's happened before. We can only hope that we learn to allocate resources to the destinations that use them the most efficiently as fast as possible. And your argument might have been more substantial if you would have realized I was talking about job creation. I'll argue that point if anyone wants to call it out.
well said.....trickle down effect can never work in a plutocratic economy such as America.
FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression by Jim Powell, is paramount reading for the Keynesian and anyone who doubts the ill effects of stimulus backed economics.
Keynesian economics is the only thing taught from High School to MBA. There are no other points of view given. And the terrible thing is that Keynesians think that creating money creates wealth/production. That is impossible. All we did is create false production on borrowed money which will later have to be paid back with interest. Hurting time is still coming and it will be bad.
Stimulus was short term solution / holding move.
Economy is restructuring itself.
Long term trajectory favors technological innovation and educated workers for top end, young people and authoritarian gov't for low end.
^^^^+ 458
I think that economists and most of us try to have one set of responses for all the issues encountered: Keneysian or whatever method of economics. The matter is every situation in history is different. Every single one of them. You cannot address them the same way.
Let us for the sake of argument say that the Keneysian theory worked in 1930s. Did we face the same thing in 2008, 1980, 1975, 1992? All these periods were different recessions.
So what happened in 2008? To understand 2008, you need to understand the entire decade: mortgages went up (as high as 40% average) whereas wages did not go up more than 5%. So essentially you have mortgage inflation and no raise inflation. People just got poorer. In a good case, wages should have gone up to sustain the economy, but wages stayed very low. Since people could not afford high mortgages, they started to default, prices started to fall and the economy tumbled. It happened because people couldn't spend much more since they were trapped in too expensive mortgages.
To fix such imbroglio, maybe we need wage inflation (artificial), maybe we needed to restructure mortgages to align with our wages, maybe we needed to devalue the greenback to pay raise the wages.
In a bubble an economy should inflate. When you have some thing as important as home prices being too expensive, it will hurt the economy.
I'm not a fan of the stimulus,but have you ever thought that without it the number of jobs lost could have been much higher?It certainly did not create jobs,but do we have evidence that without it unlemployment wouldnt have rised to 10+%?
From what I understand, most of the jobs saved were temporary--as in the states and municipalities used stimulus funds to float their current budgets for a year or 2 before making cuts rather than "investing" the funds into projects.
In my opinion the failure is in the education system. Globalization and population explosion are the real concerns today (Stephen hawking says we have a millenium to get off this planet). In any case we need to realize true brilliance in people and business much quicker (and give the disproportionate amount of resources to them asap). Resources need to be leveraged in pursuit of obtaining more resources more efficiently and use this planet for all it's worth (oceans and airspace) until we can conceive life beyond Earth. All this amassing of wealth, inefficient production, and inefficient allocation of resources for inefficient production is both wasteful and destructive. Sorry if that's too much for this forum but if economics' concern is population welfare then that's as real as it gets. Wasteful government implosion; for now I pray that the truly great and efficient businesses may always experience increasing returns to scale.
God forbid any of you guys draw down a revolver for a portfolio company in PE.
Inflation and time shifting have their uses.
What alternative would you all suggest? I assume you support TARP and the Detroit auto bailouts, otherwise many or most of us here would likely no longer have jobs.
Higher taxes and reduced spending will be necessary for any long term recovery, but if those changes were made in January 2009, the consequences would have been disastrous. The stimulus allows time for the economy to regain traction and confidence before proceeding with the bitter medicine.
As Forbes points out, the net effect of the $14 billion Detriot auto bailouts was 4,000 jobs saved when compared to bankruptcy. $3.5 million per job. Helluva track record.
http://www.forbes.com/2011/06/21/bailout-autoworkers-unions.html
As Forbes points out, the net effect of the $14 billion Detriot auto bailouts was 4,000 jobs saved when compared to bankruptcy. $3.5 million per job. Helluva track record.
http://www.forbes.com/2011/06/21/bailout-autoworkers-unions.html[/quote]
And what private firm do you think would have stepped in to do the restructuring in 2009 instead of the government and enable GM to remain a going concern? The credit market was a wasteland then. Liquidation was a real possibility.
The Forbes article is completely myopic in that it also ignores the upstream and downstream consequences. GM's suppliers would have been hurt, the dealer network would be hurt, local governments in Detroit and other auto manufacturing centers would have been hurt by a precipitous decline in tax revenue.
An apples to oranges half-ass blog entry is not a valid argument against the GM bailout.
Almost all of the economic theory in this thread is questionable at best.
The allegation that Keynesians think creating money creates wealth is ludicrous. Keynesians use monetary policy in an attempt to smooth out business cycles and anyone that has taken a college level economics class knows money creation induces inflation and not the creation of wealth.
I would suggest providing capital to the businesses that are actually producing something and are the most productive (if your goal is to bosst American economy then the business should have majority of its production within this country). Why should banks be bailed out? Because they can leverage 10 to 1? More than any other industry it was the financial sector that caused the whole mess and you're going to tell me they should receive the money and in the same breath try to discourage moral hazard? The fact is new banks would have appeared in the place of the BB's (Goldman Sachs) who were bailed out and the industry would have corrected itself appropriately to keep such an occurance from reappearing. Some bank or entrepreneur would have bought GS on the cheap if they were worth anything.
how many years after the massive depression would the industry correct itself?
If we allowed GM and Chrysler to go bankrupt they would still exist. You make it sound as if they would disappear. Detroit got a bailout because Obama is up the ass of the union. He fucked over bond holders to appease unionized workers. That was all that was.
I do support Tarp because I support a well functioning financial system. Do I think banks got off too easy? Yes, but I think this country would have been in much worse shape had we just let the financial system totally fail.
I think government stimulus can work, but not what Obama put forth. He simply increased the role of government workers.
Government needs to shrink and people need to keep more of the money they earn. Every dollar stolen from a hard working America, to feed this wasteful and inefficient machine we call the federal government is a dollar wasted.
Definitely saved jobs, although its role in expanding the economy is questionable. If the CBO says it saved jobs I am likely to agree, as it has a strong track record in such matters. I place no value on studies from research or policy centers as they are more likely than not heavily biased.
From an anecdotal standpoint, I can definitely say the stimulus saved jobs. As I know a large amount of scientists/medical researchers who latest projects were directly or indirectly funded my stimulus money. And as far as I'm concerned, that' s a good thing, as scientific research was sharply lacking during the Bush era.
How does this hypothetical depression even happen? Are you suggesting Americans are too foolish to have learned from the great depression and would place their money under mattresses all over again? Or maybe your just worried about Chinese being able to buy up half the country for pennies on the dollar haha. The economy needs lessons on how to self correct much quicker and this sure doesn't help. I think lending would have become a much smarter, more inventive process and in the meantime Americans would have learned that you don't experience growth without innovation. Who knows what could have happened, hell maybe we would have seen Google lending. Too bad people scream antitrust on the corporations with true innovation but when a bunch of morons lose at their own game you just tell them to keep trying.
GM would have gone into bankruptcy. They would have reorged. Simple as that.
Again, if not the government, what other creditor would have stepped in to prevent liquidation? Even with the bailout, GM had to jettison Hummer, Saturn, and Saab, having previously killed Oldsmobile and Pontiac.
Of course it seems simple to you. You don't even have your facts straight.
Edit:
At time of bankruptcy: 82b asset (2b cash), 172b debt. FY 2007 and FY 2008 losses were 38.7b and 30.9b respectively.
You tell me how that ends well for anybody.
You'r right. The farce that happened is the same as truly going through a bankruptcy reorganization that normally happens.Gotta love rewriting bankruptcy precedence and dicking bondholders in favor of unions.
One might argue that GM should have been liquidated given its track record. This is its 2nd bailout in 40 years. What's the point? Let a real company buy their assets, fire all the lazy union workers and get back to work. Instead we have GM being propped up by the Chevy Volt pipe dream with federal funds.
The methodology isn't shoddy that you present, but it is a 2008 (i.e. pre-bailout) study of the effect of all three Detriot auto companies shutting down operations entirely, not an anaysis of the number of jobs saved at GM. As you would say, this is an apples to oranges comparison. What we are arguing for is a legal Chapter 11 restructuring of GM and not what it became--a tax payer ripoff slush fund of $14 billion that shafted bond holders and illegally gave ownership to Obama's union cronies. The bailout may or may not have been needed (that can certainly be debated), but the way it was handled was illegal and set a horrible precedent. And there is ample evidence that a legal bankruptcy with or without some form of government help would have been equally or nominally less effective without ripping off the tax payers.
While I am a bit dubious about the "3million jobs created or saved", I still believe it helped some.
I wonder what most anti-Keynesians would do if say.... you were president in February 2009, the economy is tanking - losing 700,000 jobs every single month, the entire world's economy is crashing .... what do YOU do to stem the tide??
Note: Doing nothing is not an option. Losing almost a million jobs every month and doing nothing is political suicide. Those numbers also wreck utter havoc on consumer spending, and other consumer metrics thereby killing any chances of a wall-street backed quick recovery. Meaning losing business support as well.
Note also that tax cuts alone in such emergency (dire situations) would not stem the tide - tax cuts only affects those with jobs.
When you really think of it, there are really few options. The TARP and the stimulus (which was poorly constructed) were necessary evils. TARP helped stabilize the Street, till the banks could recover enough, while the stimulus while not a resounding success, stemmed the tide for a short while, to give the private sector enough time to recover.
In my view, TARP was a resounding success. Stimulus was a modest success.
Nothing should have been done. Big banks should have failed. We should have had a deflationary collapse. People's mindsets would have been radically changed. People would become savers, and investment and productivity would grow much, much faster than they otherwise would have. Instead we continue to spend and borrow to work our way out of a crisis that was caused by excessive spending and borrowing. I laugh when I read someone like Krugman try to explain that this is the proper course to take.
It's simple numbers, it's far better to take the pain all at once and actually fix the problem than keep having lost decade after lost decade. We, as young people who will have to live through these lost decades, should want those that caused the problems to take the pain. Instead, the people who cause the problem will die before they truly feel the pain, and we'll be left holding the bag (we'll do our best to try to pass it on to our children though).
Those are some great ideas there. Yep. I always stop and wonder if people are THAT removed from reality to think that this was viable.
Oh please. It is very easy to be a armchair guy saying "let it all fall" .... but as I said picture yourself the President (the guy who gets ALL the blame), 700,000 jobs being lost a year.
Absolutely NO WAY, you can do nothing. Because you are looking at possibly 30 to 40% unemployment, as negative and crashing consumer metrics reinforce crashing consumer metrics - leading to a really nightmarish spiral. You are looking at breaking down of civil order. You are looking at possibly riots and things getting out of hands.
And YOU are the guy everyone is looking at to blame.
Am sorry, it doesn't matter your politics or your party. As your approval rating tanks completely, your party would desert you, join the opposition and pass a veto-proof stimulus. And you become a political pariah for the rest of your one term.
TARP was absolutely necessary. The stimulus should have been constructed far, far better, but a stimulus was definitely necessary.
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