Corporate & Securities Law

“Like A Rain Dance That Produces No Clouds”

My colleague Tom Hazlett, along with George Bittlingmayer and Arthur Havenner, provides some economic wisdom on why they don’t call it stimulus anymore:

Counter to the predictions put forward a year ago by the Administration, when it claimed that “more than 90 percent of the jobs created are likely to be in the private sector,” U.S. companies employed 3.9 million fewer workers in January 2010 than they did one year earlier. Public employment bucked the trend, staying constant even as governments contended with sharply reduced tax revenues. While the jobs held by those 22 million public workers helped support many families, the “stimulus” failed to trigger private sector employment growth.

In late 2009, the Congressional Budget office pegged employment gains due to the American Recovery and Reinvestment Act (A.R.R.A.) of 2009 at 600,000 to 1.6 million, while estimating its full cost at $862 billion.

This implies a price tag, at the median estimate, of about $800,000 per job. These forecast job gains are not permanent, but temporary. The Administration’s January 2009 forecast was that the A.R.R.A. was needed to reduce the path of unemployment for five years, when the unemployment rate – if we did nothing – would decline to the level projected with the “stimulus.” Using this five-year time horizon projects annual costs of approximately $160,000 per job.

That’s a rich bonus payment. The system is borrowing heavily to finance it. Deficits last year and this are running at 10 percent of GDP, easily the largest in post-WWII U.S. history. They are projected by CBO to remain at three percent of GDP in 2020 – when over 3% of GDP will be devoted to simply paying interest on the national debt.

The term “shovel ready” seems to have disappeared from the language just as quickly as it arrived. The idea that greater public borrowing would leverage capital expenditures to put the U.S. back to full employment is now replaced by boasts that Washington has saved Albany, Springfield and Sacramento from laying-off government workers. Whatever the value of that gold-plated jobs program, it is not “stimulus.”

Like a rain dance that produces no clouds, we are now into our fourth round of federal deficit creation – the automatic “stabilizers,” followed by the Bush (2008), Obama I (2009), and Obama II (2010) versions. With each dry day, the deficit dancing intensifies. When the rain finally falls, we will be told that the recovery is a tribute to the Keynesian Gods. But it’s already clear that something has gone wrong: the “stimulus” chant has fallen silent. Our dance on a fiscal cliff has lost its theme music.

Full post as published by Truth on the Market on March 27, 2010 (boomark / email).