Son of the Stimulus

Like the sequel to a horror film, the politicians in Washington just passed another stimulus proposal. Only this time, they’re calling it a “jobs bill” in hopes that a different name will yield a better result.

But if past performance is any indicator of future results, this is bad news for taxpayers. By every possible measure, the first stimulus was a flop. But don’t take my word for it. Instead, look at what the White House said would happen.

The Administration early last year said that doing nothing would mean an unemployment rate of nine percent. Spending $787 billion, they said, was necessary to keep the unemployment rate at eight percent instead.

So what happened? As millions of Americans can painfully attest, the jobless rate actually climbed to 10 percent, a full percentage point higher than Obama claimed it would be if no bill was passed.

The President and his people also are arguing that the so-called stimulus is responsible for two million jobs. Yet according to the Department of Labor, total employment has dropped significantly – by more than three million – since the so-called stimulus was adopted. The White House wants us to believe this sow’s ear is really a silk purse by claiming that the economy actually would have lost more than five million jobs without all the new pork-barrel spending. This is the infamous “jobs saved or created” number. The advantage of this approach is that there are no objective benchmarks. Unemployment could climb to 15 percent, but Obama’s people can always say there would be two million fewer jobs without all the added government spending.

To be fair, this does not mean that Obama’s supposed stimulus caused unemployment to jump to 10 percent. In all likelihood, a big jump in unemployment was probably going to occur regardless of whether politicians squandered another $787 billion. The White House was foolish to make specific predictions that now can be used to discredit the stimulus, but it’s also true that Obama inherited a mess – and that mess seems to be worse than most people thought.

Moreover, it takes time for an Administration to implement changes and impact the economy’s performance. Reagan took office in early 1981 during an economic crisis, for instance, and it took about two years for his policies to rejuvenate the economy. It certainly seems fair to also give Obama time to get the economy moving again.

That being said, there is little reason to expect good results for Obama in the future. Reagan reversed the big-government policies of his predecessor. Obama, by contrast, is continuing Bush’s big-government approach. Heck, the only real difference in their economic policies is that Bush was a borrow-and-spender and Obama is a borrow-and-tax-and-spender.

This raises an interesting question: Since last year’s stimulus was a flop, isn’t the Administration making a big mistake by doing the same thing all over again?

The President’s people actually are being very clever. Recessions don’t last forever. Indeed, the average downturn lasts only about one year. And since the recession began back in late 2007, it’s quite likely that the economic recovery already has begun (the National Bureau of Economic Research is the organization that eventually will announce when the recession officially ended).

So let’s consider the political incentives for the Administration. Last year’s stimulus is seen as a flop. So as the economy recovers this year, it will be difficult for Obama to claim that this was because of a pork-filled spending bill adopted early last year. But with the passing of a supposed jobs bill, that puts them in a position to take credit for a recovery that was already happening anyway.

That may be smart politics, but it’s not good economics. The issue has never been whether the economy would climb out of recession. The real challenge is whether the economy will enjoy good growth once the recovery begins. Unfortunately, the Obama Administration policies of bigger government – combined with the Bush Administration policies of bigger government – will permanently lower the baseline growth of the United States.

If America becomes a big-government welfare state like France, then it’s quite likely that we will suffer from French-style stagnation and lower living standards.