Dueling Stimulus Studies: Will Washington's Spending Really Create Jobs?
Updated September 16, 2009
North Carolina’s stimulus czar (no, not his real title, but don’t we deserve a czar?) Dempsey Benton insists that the federal stimulus plan is going to save or create 105,000 jobs in our state by spending $6.3 billion over the next three years. In fact, he says, 30,000 jobs are already here, not including those "saved" by stimulus funds that are being used to shore up the state budget.
But another analysis by noted economist Arthur Laffer which was performed for the Civitas Institute, a conservative think tank, concludes the stimulus will actually cost North Carolina 67,000 jobs over the next ten years.
So what gives?
The Laffer study includes the common sense fact that the infusion of money isn’t manna from heaven. It has to come from someone. As the old saying goes, "The government cannot give to anyone anything that it does not first take from someone else."
The statistical backup boils down to showing how a bigger government sector is associated with a smaller private sector. As a key section in the Laffer report explains, “...the costs of accepting federal dollars from the American Recovery and Reinvestment Act of 2009 will be a long-term drain on the private sector. The ARRA Act of 2009 will increase the government expenditure wedge from 49.2% to 52.4% for an overall 3.3% increase. This increase will reduce the growth in real net business output by 2.5% which translates to a reduction of 1.7 million jobs nationally and between 51.1 thousand and 66.9 thousand additional jobs lost in North Carolina during the time that ARRA funds are being spent."
In other words, while stimulus spending will result in enormous expansions in government (as well as in taxpayer debt), it's unlikely to produce real economic growth elsewhere. In fact, the Laffer study indicates that a private sector decline is the probable long-range outcome.
Can you believe either study? One point in Laffer’s favor are numbers from the Employment Security Commission, which reports that 54,000 jobs have been lost in the six months since the stimulus became law in February. That’s a hard, net number after counting jobs gained and lost in the economy.
A recent report in the McClatchy newspapers stated that North Carolina stimulus-funded highway projects had a payroll of almost $3 million through July. But according to the Employment Security Commission, highway construction pays average annual wages of $29,000. Since most of these projects didn't break ground until July, one might assume that most of that $3 million was paid in July. But that's a dubious assumption since more likely, that figure represents money added up over several months. In any event, it all breaks down to about 1250 jobs in construction, a pittance. So where are the other 28,800 jobs claimed by the administration?
Of course, we can’t really charge that Dempsey Benton is lying. After all, he didn’t claim that the jobs were all actually new. The mantra is "created or saved," remember?
In actuality, there isn't a way to quantify how many jobs have been "saved" because we don’t really know how many really would have been cut without the stimulus. In the words of Democratic Senator Max Baucus of Montana, "You created a situation where you cannot be wrong. If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct." (Wall Street Journal 6/9/09).
Yep, our stimulus czar is a foxy bureaucrat indeed – as are his counterparts throughout the country who occupy similar positions in their respective states.
The bottom line is that the Laffer report is long range and jobs might not be lost immediately because so much of the stimulus money is being borrowed from Beijing and Riyadh and won’t have to be repaid with higher taxes or higher inflation for years. It’s one reason respected investor Mohamed El Erian calls the current situation a "sugar high."
But have no doubt, the money will have to be repaid, and that payback day is coming – for ourselves, our children, and our grandchildren – all of whom will suffer higher taxes and reductions in other government services, all to pay for a massive program that is unlikely to do anything that the private sector (along with a bit of prudence in government spending) couldn’t have done for itself.
Not to worry. Aptly demonstrating her firm grasp on shortsightedness, Governor Perdue responded by stating that she "will deal with the hereafter hereafter."
Isn’t that how we got into this economic mess to begin with?
