Obama Stimulus Jobs: Hope & Hype Vs Reality

If you believe the Administration’s math each stimulus job cost the government $222,000.

It’s a Washington tradition.  Release information the President doesn’t want anyone to notice on Friday evening, especially before  a three day weekend.

On Friday evening before the July 4 weekend the White House Council of economic Advisers published a report with the pompous and imperious title shown here.

We’ll comment on the report after a bit of background.

Part of the hype leading up to Congressional enactment of the stimulus in 2009 was a set of wildly optimistic predictions by the same Council of Economic Advisers [CEA] promising millions of new jobs and a maximum unemployment rate of 8% that would quickly fall back to a normal level.  Did they research each sector of the economy to determine how many jobs would be created by a given expenditure, such as a million dollars to widen a road or a billion dollars to retrofit government buildings with green stuff?  No.  That would have required real work and would have taken too long.

The political need was for an instant dose of perceived expertise to lull Congress and The People into acquiescence. Thus the CEA contrived a document based on economic assumptions and models, purporting to determine that $800 billion in extra borrowing and spending would raise GDP by a certain, predictable amount, and the increase in GDP would in turn cause employers to “create or save” a certain, predictable number of jobs.

The CEA bottom line promise was that by the end of 2010 there would be 3.7 million more jobs than there were at the beginning of 2009.

The grim reality of hindsight finds their predictions disastrously wrong.  As the chart above shows the actual number of jobs at the end of 2010, after two years of stimulus spending was even less than they had predicted without a stimulus.  As of May, 2011 we were still 6.6 million jobs short of the with-a-stimulus prediction for last December.

In its lastest report CEA claimed that with the stimulus the economy had lost between 2.4 and 3.6 million fewer jobs than would have been lost without it.  Did they reach this conclusion through meticulous research of each sector of the economy to discover how many jobs employers created as a result of each of the expenditures in the stimulus? No again.  CEA simply applied the same economic assumptions and models in reverse!  They concluded that by borrowing and spending the stimulus:

…raised the level of GDP as of the first quarter of 2011, relative to what it otherwise would have been, by between 2.3 and 3.2 percent.

Based on that theoretically higher GDP than “would have been” they concluded that:

…as of the first quarter of 2011, the [Stimulus] has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million [jobs.]

The report says these theoretical gains in GDP and jobs came at a cost so far of $666 billion.  But CEA avoided the final calculation begged by this data, dividing the cost by the number of jobs.  We did the math and found that based on CEA’s data each of these theoretical jobs, if indeed they exist, cost the taxpayers between $185,000 (for 3.6 million jobs) and $277,500 (for 2.4 million jobs).

Let’s split the difference and call it $222,000 per job.  If these jobs paid the current average wage of about $50,000 per year this would seem to be less than an optimum return on what the President insists on calling “investments.”

The government could have simply reimbursed employers for the salaries of 3.6 million employees at $50,000 each, for two years and saved $306 billion!