Thursday, July 07, 2011

GOP Keeping It Unreal

Gateway Pundit, Michelle Malkin, and Fox News say it. And of course, Rush Limbaugh, on Tuesday, said it:

The Obama regime admitted that the stimulus didn't accomplish anything. They admitted that every job created by the stimulus cost about $278,000, and let's remember that every job created by the stimulus was a government job. It was a state teacher or state job of some kind. It was not a private sector job. Even at that: $278,000 per job. So they admit up front.

No, they didn't "admit" anything of the sort. The right-wing talking point of the (early) week was taken from a Weekly Standard article in which Jeffrey H. Anderson claimed the White House's Council of Economic Advisers

reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.

The CEA did not "admit" that each job cost $278,000, though Rush's listeners could not be faulted for believing yet another of their hero's lies.

Anderson's reasoning is very simplistic- far too simplistic, given that approximately 35% of the stimulus went toward tax credits/reduction and roughly half of the remainder went to various investments. In an e-mailed statement, a White House spokesman explained

This study is based on partial information and false analysis. The Recovery Act was more than a measure to create and save jobs; it was also an investment in American infrastructure, education and industries that are critical to America’s long-term success and an investment in the economic future of America’s working families. Thanks to the Recovery Act, 110 million working families received a tax cut through the Making Work Pay tax credit, over 110,000 small businesses received critical access to capital through $27 billion in small business loans and more than 75,000 projects were started nationwide to improve our infrastructure, jump-start emerging industries and spur local economic development.

Not content with demonstrating horrible math skills, Anderson added, in a charge repeated by Douglas Holtz-Eakin and John Boehner

Furthermore, the council reports that, as of two quarters ago, the “stimulus” had added or saved just under 2.7 million jobs — or 288,000 more than it has now. In other words, over the past six months, the economy would have added or saved more jobs without the “stimulus” than it has with it. In comparison to how things would otherwise have been, the “stimulus” has been working in reverse over the past six months, causing the economy to shed jobs.

However, Moody's Chief Economist, Mark Zandi, in an e-mail to Talking Point Memo's Brian Beutler explains

It's not that ARRA [the stimulus] is now costing the economy jobs, it is that the economy is now creating jobs without ARRA's help. This is exactly the objective of fiscal stimulus, namely to end recession and jump-start economic recovery. The Great Recession ended in June 2009, the same month that ARRA was providing its maximum benefit to the economy. Stimulus was never intended to be a source of long-term economic growth, it was intended to stop the free-fall in the private sector. It did that....

CEA's estimate that payroll employment was 2.4 million higher to as of [the first quarter of 2011] than it would have been without ARRA is very similar to my estimate," Zandi says. "I consider this to be a significant benefit to the economy's performance over the past more than two years. This benefit is fading, but this is by design.

According to Beutler, "In its report, CEA isn't revising its claim about ARRA's effectiveness downward -- it's accounting for the fact that the stimulus' impact on current employment is less than it was when the stimulus was pumping out more money, and will continue to decline. Years from, when the stimulus is responsible for few if any existing jobs, it won't be evidence of the stimulus' failure either."

Obviously, individuals who gained jobs proceeded to pay taxes as well as create demand for goods and services, though clearly not to a sufficient extent. This, and the continuing attack from Republicans, eerily confirms the prediction made by Paul Krugman on January 6, 2009:

And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

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