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Tuesday, August 31, 2010

All that's left is to wear "Recovery Summer" buttons

Those of us old enough to have lived through the 1970s remember the Ford administration's fruitless fight to improve the economic picture by encouraging people to wear "WIN" buttons for "Whip Inflation Now." Rich Lowry pays tribute to those silly WIN buttons as he examines Joe Biden's clueless trumpeting of Recovery Summer success in bringing back our economy.
What WIN buttons were to Ford, the gewgaws of the stimulus are to Biden. He relentlessly plugs the $5 billion for weatherization as "one of our signature programs" -- never mentioning, as The Associated Press puts it, that the program "has experienced spending delays, inefficiencies and mismanagement. In Biden's home state of Delaware, the entire program has been suspended since May, and last month federal auditors identified possible fraud."

The inefficiencies of the weatherization program are typical. According to The Washington Post, as of June 30, Detroit had spent less than 1 percent of $8.8 million for energy-efficiency initiatives, Phoenix had spent even less of its $15.2 million and Fort Lauderdale, Fla., had spent $66,000 of $2 million.

In a favorite administration statistic, the Congressional Budget Office estimates that the stimulus increased the number of people employed by 1.4 million to 3.3 million in the second quarter, a suspiciously wide range redolent of seat-of-the-pants guesswork. All the report proves is that if you adopt a model that assumes that the stimulus created jobs, it created a lot of them. The stimulus excels in this ethereal category of assumed job-creation.
While Obama wants to blame Bush for the economy and cast everything we're enduring today as the residue of the Bush administration, Obama certainly owns the fruitless efforts that the Democrats have made to improve the economy. Instead of following their own economic economist's advice to make the stimulus "timely, targeted, and temporary," they instead allowed the congressional Democrats to throw together all the items on their wish list and then fling over $800 billion at their favored programs. The result is what we're enduring now. Nothing that the Democrats trumpeted as necessary measures to improve the economy has worked.

Megan McArdle takes on the argument that the whole problem with the stimulus was that it just wasn't big enough.
How much unemployment reduction you get for a given amount of stimulus spending is, obviously, at best an imperfect estimation. But let's take the CBO's estimates as representing a rough consensus of those who favor stimulus: for our $800 billion, we got a reduction of 0.7 to 1.8 percentage points.

Full employment is perhaps 4.5-5%. If we assume that stimulus benefits increase linearly, that means we would have needed a stimulus of, on the low end, $2.5 trillion. On the high end, it would have been in the $4-5 trillion range.

I'm going to go out on a limb and say that even if Republicans had simply magically disappeared, the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4-5 trillion. The political support for that level of government expansion simply wasn't there among Democrats, much less their constituents. Even if they had found the political will, I doubt that government institutions could have effectively channeled that much new spending. And assuming away those two problems, would lenders really have been available to fund 18% deficits at rock-bottom rates?

The CBO's numbers imply that even if we'd gotten a much larger stimulus--$1.3 trillion, say--unemployment would at best be something under 9%. The economy would still be underperforming.
She poses another question for all those Keynesians out there who still are touting their plans to spend even more money.
Which raises an interesting question: what if Keynesian stimulus works, but no one can ever actually afford to do it, short of something like World War II, where the government can tap into a patriotic outpouring of national savings by issuing bonds with negative real yields.
All that's left is to send Joe Biden out there the blather cluelessly about supposed successes while ignoring the dismal reality of how little of those billions did anything to allow real economic growth take off.

1 comment:

equitus said...

For perspective, bear in mind that the $2.5 trillion (low end) estimate boils down to about $8,300 for every man, woman, and child in the US.

I guess we're all just greedy.