Thursday, September 01, 2011

It doesn't matter when the President speaks; his ideas are still bad

The President's allies are pressing him to be bold. Unfortunately, he's already been bold. There was that whole stimulus bill which ended up blowing around a trillion dollars and doing little for the economy or employment.

Veronique de Rugy reports on two studies that investigated why the 2009 stimulus bill didn't deliver jobs.
The papers primarily examine how people elected to use their stimulus dollars, and why. A key finding is that hiring unemployed workers with stimulus money wasn’t as common as hiring workers from other firms.
Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired (Appendix C). More were hired directly from other organizations(47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%) (Figure 2). Thus, there was an almost even split between“job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed
They also provide a real life illustration of what economists call the ‘crowding-out effect.’ In this case, however, it was labor, and not capital, being crowded out. And the paper confirms that there is no such thing as a shovel-ready project:
Tyler Cowen comments,
One major problem with ARRA was not the crowding out of financial capital but rather the crowding out of labor. In the first paper there is also a discussion of how the stimulus job numbers were generated, how unreliable they are, and how stimulus recipients sometimes had an incentive to claim job creation where none was present. Many of the created jobs involved hiring people back from retirement. You can tell a story about how hiring the already employed opened up other jobs for the unemployed, but it’s just that — a story. I don’t think it is what happened in most cases, rather firms ended up getting by with fewer workers.

There’s also evidence of government funds chasing after the same set of skilled and already busy firms. For at least a third of the surveyed firms receiving stimulus funds, their experience failed to fit important aspects of the Keynesian model.

This paper goes a long way toward explaining why fiscal stimulus usually doesn’t have such a great “bang for the buck.” It raises the question of whether as “twice as big” stimulus really would have been enough. Must it now be four times as big?
So if the President relies on the same sort of stimulus in his proposals next week, it will just be a vain hope to pretend to be doing something about the economy but not really concerned enough to correct what went wrong with the Democrats' first stimulus.

One of the ideas that the President is endorsing is creating a so-called "infrastructure bank." The WSJ explains why this is a horrible, no-good, terrible idea. Basically, it would duplicate the failed model of Fannie Mae.
Here's a novel idea: Have Congress create a "bank" that could borrow huge sums with only a small federal outlay and would be independent of any political interference. If you believe in this miracle, you probably thought Fannie Mae was a private company that wouldn't cost taxpayers a dime.

We're referring to Washington's latest marketing tool to sell spending to a skeptical public, a new federal "infrastructure bank." For the low, low price of $30 billion or so, President Obama says Congress can conjure hundreds of billions in new "grants and loans" to rebuild "roads, bridges, and ports and broadband lines and smart grids."

He says the bank would put "all those construction workers" back to work and "be good for the economy not just for next year or the year after that, but for the next 20 or 30 years." In a cats and dogs living together moment, the Chamber of Commerce and the AFL-CIO are both in favor. Since both unions and construction companies would be beneficiaries, this alone ought to give taxpayers pause.

This is the Fannie Mae model applied to public works. The new bank would be a government-sponsored enterprise, or GSE, whether or not anyone admits it. The bank would have an implicit subsidy for its debt because it is backed by the government. And the debt it issued would be "off-budget," which means it wouldn't show up in annual outlays. When she first proposed the concept in 2008, Connecticut Democrat Rosa DeLauro explicitly described the bank as a "public private partnership like Fannie Mae."
Of course, the Democrats refuse to acknowledge Fannie Mae's culpability in the housing bubble. So why should they worry about creating another government-sponsored monstrosity? They also refuse to acknowledge that one reason why government-sponsored infrastructure doesn't lead to increased employment is because of the requirements that the companies obey Davis-Bacon rules that require them to pay union prevailing salaries. We've spent hundreds of billions already on infrastructure and gotten little bang for our billions of bucks.
Taxpayers also get less for their money because federal projects must follow Davis-Bacon Act rules that require "prevailing wages." This law has come to mean de facto union wages on all public projects, inflating costs by 10% to 30%, depending on the project and location. Democrats and Republicans both refuse to relax Davis-Bacon rules, and the infrastructure bank would require them. The bank would also divert dollars to the mass transit lobby, which favors rail projects that serve a tiny fraction of commuters.

Instead of a Washington-centric bank that picks winners and losers, Congress would be wise to move in the opposite direction: devolving most public-works decisions to the state and local levels so users decide whether they want to finance a new school, bridge or water system. The feds can focus on maintaining the interstate highway system and then let states and localities choose what to fund. Arizona Rep. Jeff Flake and others have bills that would let states opt out of the federal highway program in return for getting back the federal gas tax money that its residents send to Washington.

GOP Congressman John Mica of Florida, Chairman of the House Transportation and Infrastructure Committee, is no fan of a federal infrastructure bank. He says he wants more state and local control of funds because "that way they won't have to come to Washington to get approval."

Mr. Mica is dealing with a reality that eludes many in both parties: With a $1.28 trillion deficit, Uncle Sam can't afford to keep serving as paymaster to states and localities. The infrastructure bank is merely a new gimmick to maintain the old system.
The Republicans won't agree to this gimmicky ideas. But passing these proposals isn't Obama's goal. He just wants to create the impression that he has ideas and then turn to bashing the GOP for opposing his wonderful proposals. They're quite open that that is their goal.
The next swing comes in the form of a jobs speech that will likely contain more dings on Congress than new policies that would dramatically lower the unemployment rate by next fall.

One White House official cautioned that Obama’s jobs speech will not be a “fire-breathing” partisan address. But the official said the president will be putting Congress on notice: Help him create jobs or get hammered as extremists more interested in playing politics.

Obama will continue with increased pressure on Congress through the fall, focusing on his immediate opponents and convinced that by doing so, Americans will come to see him as the centrist, jobs-focused politician in Washington.

“There’s no doubt that the president and Democrats are back on offense” one Democratic official said. “The Republicans can no longer claim the tax-cut mantle — they will now have to explain away why they are fighting to preserve tax cuts for the wealthiest and tax breaks for large corporations but are opposed to continuing tax cuts for the middle class.”
As if tax increases will do anything to increase employment. But at least it gives him an opportunity for demagoguery. And that's what it's all about.

UPDATE: And if the President starts blathering again about "green jobs," we'll all know how unserious he is about job creation. In a sweet irony, his own support for labor and environmentalism has helped to slow down job growth.
President Obama's green jobs agenda has become a victim of its own red tape. Several internal reports show that state-level projects have stalled for years due to federal regulations favored by labor and green groups — big boosters of the green jobs push.

The reports offer a peek into the dysfunction within the White House's green jobs initiative. In 2009, Obama dedicated $7.2 billion of stimulus funds to build "clean tech" jobs. He vowed to create 5 million jobs over the next decade.

So far, that effort has "created or retained" just 7,140 jobs, according to the Environmental Protection Agency. That's about $1 million per job. The number is actually down from last year, when the EPA claimed 16,605 green jobs.
Gee, $1 million per job - he'd have done better to have dropped money from a helicopter. So why haven't all these efforts created jobs?
Audit reports by the Energy Department's Inspector General Of fice offer some clues as to why: Trying to comply with federal reg ulations such as the Davis-Bacon Act, the National Environmental Policy Act and the Buy American Act has stalled many projects.

These particular cases involve grants made available directly to state energy agencies for projects such as green jobs training and retrofitting government buildings to make them energy efficient.

A total of $3.1 billion was made available to states for this. In theory these should have been some of the closest to "shovel ready" projects, because state and local governments would be spending the money directly.

But the inspector general found that many projects are just getting underway after more than two years. In several cases, the money hasn't even been spent. Some states are now scrambling to act before funds are rescinded.
There's more horrifying examples of what a waste this all was at the IBD article. And this was all so predictable. Many people warned of this very fact when the stimulus was being discussed back in 2009, but the Democrats barreled ahead.

Keep all of this in mind when the President lays out his ideas next week. He might have ideas, but they're bad ideas.