There are two broad camps in the debate over the stimulus and jobs. There is the Obama camp that makes statements like “In these last few months, the American Recovery and Reinvestment Act has saved or created nearly 150,000 jobs” and the Republican camp represented by Senator Scott Brown of Massachusetts who said, “The last stimulus bill didn’t create one new job.” Both the Obama camp and the Republicans are guilty of exaggeration or outright lying about the stimulus and job creation. In these two examples President Obama got a barely true rating and Senator Brown got a pants on fire rating from Politifact.org.
Since the Stimulus package of $862 billion passed in February of 2009, the jobless rate has gone from 8.1 percent to the current 9.5 percent (now 9.6). Does that mean the stimulus hasn’t worked? It depends on your definition of a working stimulus package.
Clearly, it hasn’t stopped the unemployment rate from rising, and if you define success as a drop in unemployment, the stimulus package has failed. However, the Congressional Budget Office (CBO) says that may have added up to 3.3 million jobs. Then why is unemployment rising?
Unemployment is rising because the number of stimulus created (or saved) jobs has been outpaced by private and public sector layoffs. Now that may be elementary to most of my readers, but some in Congress don’t understand that the stimulus package may have helped slow the rate of the recession and unemployment while it hasn’t ended either.
And by the way, many of those 3.3 million jobs that were “created” aren’t all new jobs. The White House saying they were all “created” is in fact a lie. Many are public jobs such as teachers, police, firefighters, etc, that were saved with the influx of stimulus money to the states. One of those teaching jobs saved due to stimulus money was mine.
The fact that the stimulus saved and created jobs but not enough to reduce unemployment can lead one to conclude that the stimulus package wasn’t large enough. However, it’s not that simple. There are other factors to consider. First, there is the money that the private sector received that hasn’t been reinvested in the economy. Perhaps if that money had been reinvested, the unemployment rate would have dropped. Then there is the question about how the money was spent.
A lot of the money from the first stimulus package was invested in the building of roads. However, a recent study has shown that investment in road construction won’t reduce long-term unemployment. That is probably because road construction and repair can be highly equipment heavy as opposed to labor intensives, and once a project is done, the jobs are gone.
” 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.” (Link)
It’s hard to say how many jobs were created with the stimulus money. What is clear is that the money saved hundreds of thousands of teachers jobs as well as jobs of firemen and police officers and other public figures. However, the private sector has yet to reinvest their recent windfall, and until that happens, unemployment may continue to hover around 10%.
Should the stimulus have been bigger? Yes, it should have been bigger, better, and smarter. The best return on investment for stimulus money is in education. After next best investments include mass transit and construction projects weatherizing homes and improving other housing infrastructure. (see the PDF report here) So the spent on teachers and mass transit was well spent. But road construction has a low multiplier affect.
Tax cuts were not only slightly more effective than investing in the military, and that was for all tax cuts. So while tax cuts can have a stimulative effect, it would be better to let some tax cuts passed under Bush expire and invest that money in energy efficiency for houses, mass transit for cities and populated urban corridors around the nation, and education. Curiously enough, it does not help to invest in new roads.
The upshot is that the White House exaggerates the effectiveness of the stimulus, which as many economists have said was too small, and Republicans exaggerate and even lie about it’s effectiveness. I suggest you read Forbes Magazine, the Wall Street Journal, economists’ papers (anything by Joseph Stiglitz), and the alternative press to get the best picture of how the stimulus works or not.
Follow the path of Joseph Stiglitz and ask Obama to push for more and smarter job creation. Half measures won’t do in this economy.
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