Tag: stimulus

Jobs Bill Only Makes Political Sense

I can’t look into President Obama’s heart, so I can’t tell you what motives are driving the American Jobs Act. I can, though, tell you this: One look at the facts about American education, and his proposal only makes sense if the goals are to energize union support, and perhaps use spending as some easy shorthand to tell voters that the President cares about kids.

The basic reality is that over the last several decades governments at all levels have conducted ever-bigger education money bombings with no positive academic impact. According to the Digest of Education Statistics, real per-pupil expenditures rose from $5,671 in 1970-71 to $12,922 in 2007-08 (the latest year with available data). On the federal level, between 1970 and 2010 per-pupil spending rose an astonishing 375 percent. Meanwhile, National Assessment of Educational Progress scores for 17-year-olds – essentially, our schools’ “final products” – were almost completely flat. More money did not buy better results.

What did it buy? Exactly what President Obama seems to want to protect: staffing bloat. Between 1969 and 2008 American schools went from having 22.6 students per teacher to 15.3. District administrative staff went from 697.7 students per employee to just 363.3. In total, students per employee dropped from 13.6 to 7.8, all while academic outcomes froze. We got lots of jobs – many unionized – but nothing of educational value.

There is simply no way to look at the data and believe that $30 billion for school staffing will improve education. So it must only be about jobs, and ineffectual jobs at that.

That “ineffectual” part is the economic key. Stimulus supporters argue that paying for any job is good because employed people spend their dollars. But they ignore that the money must come from somewhere, and that somewhere is ultimately taxpayers who would either spend it themselves – including investing in new or existing companies – or put it in banks that would lend it. So the money would be spent one way or another, only taxpayers have huge incentives to employ it much more efficiently than do public schools, if for no other reason than they did the hard work of earning it. In the aggregate, that means we’d be better off just letting taxpayers keep their ducats.

What we’ve tried already supports this. Contrary to what Dan Domenech writes, public schools have gotten oodles of bailout money. The original stimulus included roughly $100 billion for education, the bulk of which went to public K-12 schooling, and in 2010 the President signed legislation giving states another $10 billion to keep school employment rolls engorged. And did unemployment plateau at about 8 percent, as the Obama team projected? You know the answer.

How about fixing dilapidated school buildings? Again, money is not the answer, unless the question is how do you win union friends and influence voters.

As I testified in 2008, for years school districts had been spending more on maintenance and construction than it was estimated they needed to bring all schools into “good overall condition.” Yet conditions seemed to keep getting worse.

What’s the problem? First, districts often put off maintenance so that small problems become bigger. And second, they often spend lavishly on School Mahals, a tendency embodied by L.A. Unified’s $578 million Robert F. Kennedy Community Schools complex.

Of course, building something brand new, equipped with more superfluous lights and whistles than the original starship Enterprise, doesn’t make practical sense if you could keep the old buildings fully functional at a fraction of the cost. But practical and political are totally different animals. Keeping the boiler in good repair simply doesn’t make for politician-aggrandizing, ribbon-cutting photo-ops. But undertaking a big addition or renovation, which Obama’s bill would pay for, absolutely does.

And let’s not forget: All the labor would likely have to be hired at union rates, in keeping with standard federal requirements. So jobs yes, but not more jobs in exchange for market wages.

Ultimately, the President’s bill would do nothing for education and would hurt the economy, because government spending more almost by definition means a nation wasting money.

C/P from the National Journal’sEducation Experts” blog.

Obama’s Economic Policy: From Tragedy to Farce

Herman Cain probably had the best reaction to the President’s speech: “We waited 30 months for this?”

My reaction yesterday was mixed. In some sense, I was almost embarrassed for the President. He demanded a speech to a joint session of Congress and then produced a list of recycled (regurgitated might be a better word) Keynesian gimmicks.

But I was also angry. Tens of millions of Americans are suffering, but Obama is unwilling to admit big government isn’t working. I don’t know whether it’s because of ideological blindness or short-term politics, but it’s a tragedy that ordinary people are hurting because of his mistakes.

The Wall Street Journal this morning offered a similar response, but said it in a nicer way.

This is not to say that Mr. Obama hasn’t made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can’t do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013. Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we’re told the projects really will be shovel-ready.

And let’s also note that Obama had the gall to demand that Congress immediately enact his plan - even though he hasn’t actually produced anything on paper!

And then, for the cherry on the ice cream sundae, he says he wants the so-called supercommittee to impose a bunch of class-warfare taxes to finance his latest scheme.

What began as tragedy has now become farce.

If you didn’t see it when I posted it a month or so ago, here’s the video I did last year when Obama was proposing a second faux stimulus. Now that he’s on his fourth of fifth jobs-bill/stimulus/growth-package/whatever, it’s worth another look.

Though I must confess that I made a mistake when I put together this video. I mistakenly assumed the economy would have at least managed to get back to a semi-decent level of growth. More confirmation that economists are lousy forecasters.

Government and Job Creation: Help or Hindrance?

I recently posted four charts eviscerating Obama’s record on jobs.

My Cato colleagues, Caleb Brown and Austin Bragg, have a good complement to those charts. They’ve put together a short video looking at how government spending and regulation undermine job creation.

Caleb says he will be doing more excellent videos like this, which is very encouraging since there is so much more ground to cover – particularly when trying to educate people in Washington.

One thing he should explain is that jobs don’t exist without profits. As I explained in a New York Post column last year, employers “only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers.”

This seems like an elementary observation, but it’s one that most politicians don’t seem to understand. Or don’t care to understand.

That certainly seems to be the case at 1600 Pennsylvania Avenue. The president will speak tonight and supposedly will propose a $300 billion plan. He’ll claim, of course, that this new “stimulus” package will boost growth.

But a look at the various components that reportedly will be in his plan doesn’t create a sense of optimism. Especially since it appears that he’s mostly recycling proposals that already have failed at least once.

Maybe the President should copy the policies of a former resident of the White House, who also had to deal with a deep downturn, but managed to produce dramatically better results.

Grading the Likely Components of Obama’s New Stimulus Plan

President Obama will be unveiling another “jobs plan” tomorrow night, though Democrats are being careful not to call it stimulus after the failure of the $800 billion package from 2008.

But just as a rose by any other name would smell as sweet, bigger government is not good for the economy, regardless of how it is characterized.

Here are the most likely provisions for Obama’s new stimulus, as reported by the Associated Press, along with a grade reflecting whether the proposals will be effective.

  • Payroll tax relief - C - This proposal won’t do any harm, but it probably won’t have much positive impact because people generally don’t make permanent decisions on creating jobs and expanding output on the basis of temporary tax cuts.

    But, to be fair, if the tax cut keeps getting extended, people may begin to view it as a semi-permanent part of the tax code, which would make it a bit more potent.

  • Extended unemployment benefits - F - I agree with Paul Krugman and Larry Summers, both of whom have written that you extend joblessness when you pay people to be unemployed for longer and longer periods of time.

    And I recently produced a chart showing how long-term unemployment has jumped sharply since Obama entered the White House, a dismal result that almost surely is related to the numerous expansions of unemployment benefits.

  • New-hire tax credit - D - This proposal actually would subsidize employment rather than joblessness, so it’s an improvement over extending unemployment benefits, but it’s unclear how the IRS can effectively enforce such a scheme.

    This approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to companies with high employee turnover is not an effective approach.

  • School construction subsidies - F - The federal government should have no role in education. Period.

    That being said, the economic flaw of school construction spending-cum-stimulus is that government spending must be financed with either taxes or borrowing, both of which divert resources from the productive sector of the economy. Simply stated, Keynesian spending does not work.

  • Temporary expensing of business investment - B - The current tax code penalizes new business investment by forcing companies to “depreciate” those costs rather than “expense” them, thus forcing companies to artificially overstate profits. Temporary expensing mitigates this foolish bias.

    But temporary tax cuts, as noted above, are unlikely to have a permanent impact on growth. Temporary expensing, however, will encourage companies to accelerate planned investment to take advantage of better tax treatment, so it can lead to more short-term economic activity (albeit perhaps by reducing economic activity in future years).

The only good news - at least relatively speaking - is that Obama supposedly will propose to misallocate $300 billion of resources, significantly less than what was squandered as part of the 2009 faux stimulus.

But the bad news is that the AP story also notes that “Obama has said he intends to propose long-term deficit reduction measures to cover the up-front costs of his jobs plan.” Translated into English, that means the gimmicks and new spending in the plan proposed tomorrow night will lead to proposed tax hikes at some point in the future.

More taxes and more spending. Hey, it worked for the Greeks, right?

Olbermann Mocks Obama ‘Jobs’ Plan; Try Blenders, Not More School Spending

Information about President Obama’s forthcoming “jobs” plan is so disappointing that even Keith Olbermann is mocking him.

And the saddest part has to be more spending on school infrastructure. As I pointed out last week, per-student spending on facilities has increased 150 percent over the last two decades, even after adjusting for inflation. And Andrew Coulson explained how public schools can spend so much and still have infrastructure problems: waste and incompetence.

But the president’s school construction plans are such a spectacularly sorry response to our Great Recession, Little Depression, malaise, what-have-you, that it deserves to be revisited with a pitch-perfect intro by Mr. Olbermann:

 

Hurricane Irene as Economic Stimulus

Oh, dear. Oh, dear. No matter how many times economists debunk the broken window fallacy, not a natural disaster goes by that journalists don’t try to cheer us up by saying “at least it will stimulate economic growth.” This time it’s Josh Boak (no relation!), the economics reporter (!) at Politico, who was “educated at Princeton and Columbia.” And Sunday afternoon he posted this story:

Irene: An economic blow or boost?

The power outages and shuttered airports may stop the engines of commerce for several days, but Hurricane Irene might have provided some short-term economic stimulus as billions of dollars will likely be spent to repair the damage to the East Coast over the weekend.

Cumberland Advisors Chairman David Kotok saw the storm as likely jolting employment in construction, an industry paralyzed by the bursting of the real estate bubble in 2008.

“We are now upping our estimate of fourth-quarter GDP in the U.S. economy,” he said in an email Sunday. “Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

Kotok expects GDP growth — which limped along at less than a percentage point for the first half of the year — to exceed 2 percent in the last three months of the year and potentially reach 3 percent.

Mark Merritt, president of crisis-management consulting firm Witt Associates, said the hurricane should provide a bump in economic activity over the next few months.

“After a disaster, there’s always a definite short-term increase,” Merritt said. “There will be furniture bought, homes repaired, new carpet, new flooring, all the things affected by flooding.”

The story quotes no economist, who might have pointed out that the destruction of homes, businesses, and other property cannot actually be good for the economy. As economist Sandy Ikeda summed it up last year, the argument is that “paying $100 to replace a broken window somehow creates more prosperity than having an intact window and spending that $100 on something else.” He goes on to ask, as many economists have: If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities?

As Frederic Bastiat explained the “broken window fallacy,” a boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

In the comic strip “Pearls Before Swine,” the nefarious Rat used the destruction-as-stimulus argument to defend his client’s blowing up downtown:

But that’s a comic strip. Journalists should do better. Please, call one of these economists. They can tell you that destruction is destructive. When property is destroyed, people have less wealth. The money they had been saving for a new business or a new computer or a college education, now they have to spend it on rebuilding what they had. That is not “a bump in economic activity.”

Is Obama Really Going to Propose Another Keynesian Stimulus?

Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.

Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank (though it is understandable that many people – including me, I’m embarrassed to admit – initially assumed it was true since he did write that the 9-11 terrorist attacks boosted growth).

 But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.

And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.

We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.

The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.

Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.

In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” - but that’s Obama-speak for higher taxes, and we know that’s a damper on job creation and new investment.

As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.

This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.