The biggest government spending surge ever bought us the weakest jobs recovery in 80 years.
After three months of moderately strong job growth the establishment media had been crowing that the economy was no longer an election issue, improving President Obama’s shot at a second term. But then the Labor Department released a disappointing jobs report for March. Employers created only 121,000 new jobs.
The first chart compares job losses and gains during the last four recessions and recoveries. [Continued below the chart]The current cycle is the worst for jobs since the Great Depression. There have been eleven recession-recovery cycles since the end of World War II, 67 years ago. In every case except the current recovery all lost jobs were replaced within 50 months. By this time in the recovery of the 1980s there were 6.4 million more jobs than there had been before the recession started. Today, there are 5.2 million fewer jobs than in 2008. If job growth continues at the March rate it will take until 2016 to replace the rest of the jobs that were lost in 2008 and 2009.
President Obama’s first political success, less than a month after his inauguration in 2009 was a staggering increase in government spending and debt, hailed by the media as brilliant economics that would cut the recession short and “put America back to work.” Obama said his “economic stimulus” would, in his words, “immediately jumpstart job creation and long term growth.”
So far, the “jumpstart” has been in the creation of unsustainable borrowing and debt. The next chart compares government spending during the current recession/recovery cycle with the three previous cycles. [Continued below the chart]The academic justification for a huge spending increase is the old Keynesian theory of “counter-cyclical” government intervention to “increase aggregate demand” in the marketplace. Keynesian economic theory is especially attractive to politicians of the liberal/progressive persuasion because it gives them an excuse to do what they always want to do anyway, expand government.
As the chart shows, it turns out that a massive spending surge is not a proven economic strategy that has been used successfully in the past. The last time it was tried was in the early 1930s and it utterly failed to shorten the Great Depression. The chart shows only the most recent four recessions, but Obama’s spending surge is the largest ever. There was nothing like it during any of the previous post-war recessions, and it coincides with the weakest jobs recovery since the Labor Department started using the current statistical methods in 1946.
The Keynesian fallacy is the assumption that the economic outcomes that are measurable, especially government spending, are the only ones that matter. What is not measurable are the losses to the economy when government uses its taxing and borrowing power to divert resources from investments that would have been chosen by entrepreneurs, small businesses and corporations to government projects chosen by the political elite. There is no way to identify or quantify the job creation from business start-ups and expansions that would have occurred if the trillions Obama borrowed for extra government spending had instead been invested by the private sector.
Keynesians simply ignore the experience of previous recessions when, without massive government intervention, the private sector recovered and jobs were created much more rapidly.
The Keynesians, who never seem to notice the flaws in their theories, are already laying the groundwork for another tsunami of government spending when the next recession hits. Astoundingly, their explanation for the failure of Obama’s spending binge to create as many jobs as were created in any of the ten previous recoveries is that his unprecedented increase in government borrowing and spending wasn’t enough!