Tuesday, June 7, 2011

Visual Proof of the Failed Stimulus

They say a picture is worth a thousand words. Check out the chart below, which was the one presented by Christina Romer, former Chair of Obama's Council of Economic Advisers to show the positive impact Obama's stimulus plan would have, and what would happen without it.  On top of that is a plotting of the official unemployment rate, courtesy of Tyler Durden (obviously not his real name) at ZeroHedge:

As you can clearly see, the stimulus plan was a complete failure and did not do anything close to what they thought it would do.  In fact, the reality is probably much worse than this picture as the real unemployment rate is over 2% higher than the official one, as I show here (the unemployment rate is being depressed by a plummeting labor participation rate, which is at a 30 year low), which would literally put the current rate off the charts.

Could things have been worse without the stimulus?  Maybe, but I doubt it.  According to a recent study from Ohio State, private sector jobs were not created at all by the stimulus and best case saved/created 659,000 public and private jobs.  Considering the $862 billion cost of the stimulus, that is about $1.3 million per job.  Not a very efficient use of funds now is it?  Part of the problem was the focus on infrastructure spending, thanks to Paul Krugman, something I never did understand.  Once you patch a bridge or a highway, the job is done, with no wealth created.  And it is not self-sustaining as you need to find additional funding for the next project.  No wonder there was little to no effect from it.  Maybe if they had tried lowering tax rates, the effect would have been more immediate and impressive.  People would have spent that money in their local businesses, helping them grow, expand, hire new workers, who would have then spent more, helped businesses expand, hire more people.  It doesn't seem that hard.

Obama needs to get cracking on this and soon.  Maybe it would help if his economic team stopped running for the exits.  Peter Orszag, head of the OMB, resigned in July 2010.  Christina Romer resigned just two months later and then Larry Summers left two weeks later.  And just recently, Austan Goolsbee, Romer's replacement,  resigned after only 10 months on the job.  That's not very reassuring.

No comments:

Post a Comment