The American Recovery and Reinvestment Act is now five years old. Known affectionately as his “stimulus” it was President Obama’s first legislative triumph, attracting high praise and hosannas from the media.
But today, stimulus advocates are on defense, trying to justify an additional trillion dollars in federal debt. During a campaign style media event to announce a new round of infrastructure grants the President said:
These are competitive grants that we created as part of the Recovery Act, also known as the stimulus, which actually worked despite what everybody claims.
One has to wonder, what’s Obama’s definition of “worked”? For five years we’ve endured the results of this audacious experiment, testing the Keynesian Economic theory that:
- The government can generate prosperity by spending mountains of borrowed money on the priorities of the governing elite, and,
- the resulting debt doesn’t matter.
At the beginning of 2009 America was in the depths of a severe recession, and the new Obama Presidency invoked the Emanuel Doctrine. The new President and his supporters in Congress launched a frenzied P.R. campaign promoting an urgent, “stimulus,” a trillion in extra spending on top of the already bloated federal budget to create millions of jobs. The obsequious Washington Press Corps hailed the new President’s “bold action.” A parade of “experts” regaled us with claims of “shovel ready pr0jects” that would ramp up and start hiring within days if the stimulus became law.
The Stimulus was rammed through Congress on a straight party line vote on the 20th day of the new Administration, before it’s final version was written. Obviously, no Congressman or Senator read its thousand pages before voting.
To help sell the stimulus the President’s economic team published a report, “The Job Impact of the American Recovery and Reinvestment Plan,” with optimistic predictions for employment and GDP growth if the stimulus was enacted. This chart compares their core jobs prediction with what actually happened.In January 2009, the month the Job Impact report was published, there were 134 million jobs in America. The report predicted that without a stimulus there would be 133.9 million jobs at the end of 2010, or, with the stimulus 137.5 million jobs at the end of 2010.
As the chart shows the stimulus utterly failed to deliver the surge of jobs they predicted. As the chart shows there were seven million fewer jobs at the end of 2010 than the report predicted. There were 3 million fewer jobs than the no-stimulus prediction!
The Job Impact report included several job creation projections by sector including:
“…30% [1 million] of the jobs created will be in construction and manufacturing, even though these industries employ only 15% of all workers”
The next chart compares their prediction with what actually happened to the construction and manufacturing sectors.Instead of growing by a million new jobs as the Obama team promised, Construction and manufacturing had lost two million jobs by the end of 2010. As of January 2014 there are still 1.1 million fewer construction and manufacturing jobs than there were when the stimulus was enacted at the beginning of 2009.
The Bottom Line
The Keynesian fallacy is based in part on the assumption that economic activity that is visible and readily quantifiable, especially government spending, is the only activity that matters. What are not visible and quantifiable are the losses to the economy when government uses its power to divert resources from investments that would have been chosen by entrepreneurs, small businesses and corporations to government projects chosen by politicians and the politically connected.
The economy is hobbled by additional invisible, non-quantifiable barriers. In anticipation of yet to be clarified ObamaCare costs and regulations, small businesses (fewer than fifty employees) are reluctant to expand even if they have the capital. No government agency tracks and counts private decisions to not invest or expand. But that doesn’t mean those decisions aren’t being made. In fact the charts above proves they’ve been made for five years.
Astoundingly, many on the left, including progressive hero Paul Krugman, hold that the economy is weak because Obama’s record-shattering escalation in borrowing and spending wasn’t enough! They simply ignore the record of previous recessions when, without government intervention, there was robust private sector recovery and job creation.