The stimulus effect
How much unemployment can we blame on the Obama administration? Economist Rob Shapiro dug into some Bureau of Labor Statistics data and came back with the best numbers I’ve seen on the subject. He separated job losses into two buckets: Those that happened before the stimulus, which was Obama’s major effort to deal with joblessness, and those that happened after the stimulus.
That’s Ezra Klein. Here’s Shapiro’s findings, which seem to be a pretty good case for Keynesian economics and the stimulus:
From December 2007 to July 2009 – the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy – private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans’ watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 – 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs.
I agree with Klein – it’s difficult to lay all those job losses at the feet of the Bush administration. The collapse came quickly and no policy in the world could have staved it off in time. Then again, perhaps the administration should have seen it coming long before it got to that point.
Similarly, it’s hard to give the stimulus credit for all the jobs saved. The TARP program which bailed out the banks may be equally responsible for staunching the flow, however bad a taste it may have left in our collective mouths.
So what’s the counterpoint to this? The economy still hasn’t bounced back, for one. But is that because we’ve had too much stimulus or too little? Has the stimulus even had that much to do with employment numbers in the private sector? It certainly has in the public sector. I don’t think there’s an easy answer to any of this. Klein also points to Shapiro’s policy prescription:
First, create jobs by expanding an Administration initiative already in place: Deep cuts in the payroll tax for employers who expand their workforce. Second, shore-up the weak housing market and stabilize falling home prices with a long-overdue, new initiative: A loan program for homeowners with mortgages in trouble, modeled on federal student loans, to bring down foreclosure rates. Third, prepare tens of millions of Americans for the jobs the economy will begin to create once it’s back on track: Provide grants to community colleges to fund free computer training for any American adult who walks in and asks for it. And fourth, put in place some long-term deficit reduction to head off higher interest rates when the economy does begin to expand again.
Thoughts?
Also, economists Mark Zandi and Alan Blinder recently released a paper estimating that without the bank bailouts and stimulus, “GDP in 2010 would be about 6 ½ percent lower, payroll employment would be less by some 8 ½ million jobs and the nation would now be experiencing deflation.” Basically, that we would have gotten twice the recession we did get.Report
I think that there’s an interesting linkage between this post and the prior one about free markets. Where does demand come from? How does a society create jobs?
As I understand it, the case for free trade between nations rests on the idea that the increase in wealth is sufficient to compensate the losers in both nations for their loss. Now, obviously the Walton clan has become fabulously wealthy by using Chinese manufacturing to drive down the cost of a whole range of goods. But I am not persuaded that our political system is structured in a way that those who have lost their jobs due to Wal-Mart are being made whole.
So, if free trade between nations is resulting in increased total wealth in America, but that wealth is going solely to the top fraction of 1% of the population (and looking at wage stagnation for the last 40 years, there seems to be some solid evidence for this viewpoint), then the broader question is who is this economic/political system for?
Are the majority of Americans actually benefiting from the trade rules between this country and China? Increasingly I am coming to believe that we are returning to a more feudal system, where a tiny minority of very wealthy create a political and economic system that perpetuates their wealth and power.Report
@Francis, Francis old boy, it’s not the very wealthy who benefit when you can buy clothing, and other goods at historically low prices. Now I have no great affection for Wal-mart, but they have been very effective at producing low prices for consumers and that is far from nothing. I mean it’s not like the smaller retailers that W-Mart displaced were paying their employees good wages either.Report
@North, The wage stagnation is a product of the ‘sticky wages’ effect. It’s about the factors of production achieving an equilibrium after being out of balance.
It would make it a lot easier to deal with if it were caused by free trade.Report
@North, Two things about Walmart, yes they helped reduce prices on materials, but they also helped reduce wages more than the benifit of cheap materials for all workers. Another thing, I don’t know about taxes where you live, but we have personal income taxes in Louisiana and before Walmart, most of the businesses were locally owned and paid taxes on profits. I bet those billionaires don’t pay as much as before.Report
@dexter45, I honestly don’t enjoy defending Wal-Mart, I’m more of a Target guy. I’m sorry, Dexter, but I’m finding it hard to believe that you believe the significant reduction in prices to -all americans in the country- are less than the reduction in wages to the comparatively miniscule retail workforce that saw their wages drop (It’s not like they were living large on their wages prior to Wal-Mart).
On the tax issue it’s possible that there’s some sort of net tax decrease but I honestly doubt it. Perhaps there was a transfer of sorts, lesser local taxes and greater federal ones? Is this net change a negative one? And if there has been a negative change is it great enough to justify the venom the company has accrued? I doubt it.Report
@North, I do believe that Walmart’s style of business has done more than hurt the “miniscule retail force”. I think that the outsourcing Walmart has done hurt many people. Somebody was making the widgets in America before the Asian sweatshops. According to a CNN article from Augest 2006 the mean worker wage has dropped two percent compared to inflation. And that was before the meltdown. As for the Waltons paying their fair share of numbers, I can be convinced, but I need to see numbers.Report
As to Shapiro’s plan, tell me the cost of 1, 2 and 3 and then tell me how he plans to reduce the long-term deficit. Then I may have thoughts.
That is always the problem with these grand economic formulations: there is basically a bunch of handwaving and mumbo jumbo, but not much detail.Report
Yeah, let’s do another ‘stimulus’ package, hell unemployments only about 17%, and while we’re at it let’s force bankers to lend money to deadbeats, and hey why don’t we create another bubble in school loans, or make Gummint Motors produce a ‘green’ car…ha,ha,ha!
You left wingers are just geniuses in ecomics…I mean it turned out so well in the USSR. ha,ha,ha!Report
@Robert Cheeks, And you “real” cons (if your assertions about Bush not being a real con are true) can’t even persuade one party to listen to your ideas even after 30 years of failures Bob. What’s that say about conservatives?Report
@North, The question might be better posed as: “What’s that say about the American voter?”
The majority of American voters, I think, are the victims of a pernicious psychopathology derived from an immanentization rooted in the Enlightenment. If, as Voegelin suggests, existential representation functions in concert with the idea of a social “transcendental representation” where gummint represents the divine order of the cosmos. Originally that ‘god’ was represented as the Christian God. But now the Logos has been replaced by the “ideology of history.” And, as you know, Northie, that dog ain’t huntin.’
The true ‘conservative’ is not decieved by the sundry progressive ideological distortions, nor the modern Gnosticism found in the line-of-meaning in Bohme, Schelling, Schleiermacher, and Hegel and the associated distortions found in modernity that result in the above mentioned immanentization.
The ‘Conservative’ then is the last citizen pointing back to the classical Greeks, Aquinas, Augustine, the American founders, and those, particulary, Von Schelling and Kierkegaard, who
recognize and experience man’s proper “ontic structure and its relation to the world-immanent order of being.”Report
@Robert Cheeks, Ah, well I suppose it would inevitably come around to it being the masses at fault, not the orators. I’d heard it asserted before that the paleos pined for a time when the religious masses suffered and worshipped in equal large measure while a small elite mused on the wonders of the ancient world between bouts of religious war and plague. Being of pleb stock myself I prefer all the enlightenment things myself. I’ve no doubt the Logos, if she’s lurking out there, agrees. If not, I’ll tender an apology in the hereafter. Again if the Logos is as nice as she’s been made out to be I’m sure she’ll be receptive.Report
@North, I do what I can.Report
@North, you see, it’s never about the power or the validity of the ideas, it’s about the delusions and vacuity of the audience for those ideas.Report
Bruce Bartlett provides links on this entire stimulus thing.
But, jeez, we’re still debating FDR and what worked then.
http://capitalgainsandgames.com/blog/bruce-bartlett/1782/fiscal-stimulusReport
> Then again, perhaps the administration should have seen
> it coming long before it got to that point.
I’d argue that this, perhaps, could do without the “perhaps” 🙂
> Similarly, it’s hard to give the stimulus credit for all the
> jobs saved.
Oh, absolutely.
From the Klein piece: “There’s a fair question as to whether another set of policies could’ve led to faster job growth over the last year or so.”
I’d argue no. Or to be precise, I’d argue that the point is somewhat moot.
We’ve learned not a hell of a lot since 1986. Removing market interventions pulls the bottom out of that market. The market busts, we rescue it, and we try again. We’re erecting successive houses of cards on the dollar.
The problem is, there’s a barrier to entering into the boom-and-bust markets. You need enough liquid capital to play the game to get yourself a seat at the table. So generally the people who sit down in the game are already doing fairly well. When the market is on the upswing (often due at least partially to market interventions), they gain the advantage of having extra capital. When the market busts, the tail end of the pack gets eaten alive, but the frontrunners escape with the money they earned while they were profiting off of false pricing, *and* they get bailed out.
Note: this isn’t some sort of moral judgment on the rich, just a structural observation. If I could have jumped over that barrier to entry, I’d be playing that game too (although I wouldn’t be so disingenuous to claim that something else was going on).
The whole “rich get richer” trend of the 1990-2010 period is because we keep setting up new games that bust more people and move more of the cash to smaller and smaller sets of winners. That’s great if you’re running a poker tournament, but a crappy way to run an economy.
Right now, it’s fundamentally the case that $1000 means something structurally different to two groups of people. In 2006, the top 0.01% earned 976 times more than the bottom 90%.
That’s just crazy numbers. The differentiation between the CEO and the worker bee is similarly out of whack.
That level of inequality cannot be explained by meritocracy. It’s a structural defect. The system has evolved into a state where it makes some rich people get a lot richer, and everyone else go broke.
As long as we’re monkeying around with trying to fix the economy by moving giant buckets of cash around, we’re exacerbating that problem. Some of the rich will get a very large portion of that money, and everyone else will get less than what they’re in hock for, deficit-wise.
We need to change the incentive structure, take large chunks of money *out* of the equation. Raise taxes, cut the deficit. Reduce liquidity. Slow the economy down on purpose. It’s been out of control for over 30 years, the question is do we apply the brakes and get us down to a speed that is sustainable without blowing the engine, or do we keep trying to play with this out-of-control jet car while it is in motion?Report
My personal opinion is that Klein is rather short-sighted and ignorant.
I think the credit tightening has a lot to do with the joblessness of the recovery. There’s a lot of work around that has been permitted for three years or more that still isn’t being manned. A lot of that is on roll-backs, six months at a time, and the No. 1 reason is financing.
Cuts in the payroll tax? Not going to make a big difference. The net effect is that productivity is temporarily increased. They’re not going to clear the bench over that. It might impel some companies that are thinking about hiring soon to do so sooner rather than later, but it’s not going to compel a company that isn’t hiring into hiring.
Housing market? No, I see that as just wrong-headed. The problem wasn’t that there weren’t enough people with houses; it was that there were too many people with houses that couldn’t afford a house.
That’s changing though. I saw a place for $40,000 that I’m going to take a look at next week.
Drop the prices to about a third of where they’re at, and people will buy.
Further, the only reason that prices haven’t already dropped that far is because these people don’t really care to sell their houses. And these other people don’t really care too much for paying the asking price.
Give it some time.
Prepare tens of millions of Americans for the jobs the economy will create? No. That sounds like some eerie alternate universe. These people already had jobs. They know how to do jobs. They need a job to go do. So, if we line people up on a wall and teach them to say, “Would you like fries with that?” then the unemployment issue will simply dry up and go away.
Deficit reduction? That would be fantastic, were this not an inappropriate time (ie a recession).
I think the bottom line is that there are significant changes which have occurred, and it’s going to take some time for the waves to roll through the system. How much time? I don’t know.Report
The Zandi-Blinder paper has been much-criticized with respect to its methodology. And Shapiro’s “findings” are quite crude by comparison – essentially just picking a dividing point that maximizes the results in his party’s favor.
I’m a Democrat btw – just one who’s agnostic about the effect of this, or any, stimulus bill.Report
Stimulus vs. austerity is a false dichotomy. The additional spending in the ARRA was improperly directed and timed to produce stimulus. Could a better timed and directed bill have created more stimulus? Unquestionably. Could a better timed and directed bill have passed the Congress? Doubtful.
To a great degree the attempts at returning to the status quo ante by the late Bush and the early Obama Administrations have been in vain. We have enormous excess capacity in home construction, automobile manufacturing, finance, and healthcare. They’re tying up resources the economy needs desparately to right itself. Stimulating them is counter-productive.Report
@Dave Schuler, Hi Dave. Enjoy the OTB podcasts.
I wonder by what measure you determine that the capacity is excess (not that I challenge that it is, certainly in housing construction and finance), and moreover why in the short run stimulating demand (perhaps other than in housing construction, bet perhaps even there) for those capacities that we have now isn’t the right policy, given unemployment and the barriers and time necessary to redirect energies and achieve new competences. I realize this has an element of kicking the can down the road, but it’s not at all clear to e=me what the new industries that will employ people are going to be, or how long the life adjustments people are going to need to make to them are going to take in order to bring it all online to the point where we are fully employed, if that happens at all. I definitely take your point that the stimulus was too specifically aimed at particular industries in many cases. A more general boost demand would have pushed things along in a way that might have allowed for some the kind of sifting you’re calling for; tax cuts (in the form of rebate checks) might have been good for that, but there was concern that people had become too spending averse, out of the paradox of thrift already, not to mention indebtedness, by that point for it to be reliable (I guess). Matthew Yglesias’ focus on monetary policy of late I think is likewise rooted in some of the same understandings that you’ve mention, as well.
In any case, those are my my thoughts in reaction. I appreciate your concrete analysis of these issues on the podcast. I mean to get over to your blog more, so I’m glad to know where a link is now.Report
@Michael Drew, Just want to stress, I take very seriously the problem that our industries and human capital are distorted due to subsidies and other problems such as education/training and unsustainable relocation/planning, and that there needs to be room for adjustment. I guess I’m wondering, do you think that can be addressed in the context of a stimulus- or otherwise policy-induced recovery in existing capacity, perhaps in turn thru amended long-term policy post- (or during ) recovery, or do you see a halted economy as a unique and irreplaceable opportunity to allow for natural adjustment in industry that shouldn’t be addressed through policy, whatever that means for the length of the torpor associated with natural adjustment?Report
@Dave Schuler, So then what do we stimulate? Let’s say we leave the real estate market to its fate (and all that entails, construction, etc.). Where do stimulus dollars go – other than to state and local governments – where they might have a really stimulative effect?Report
@E.D. Kain, in addition to stimulus, one also must avoid creating a problem.
For example, if everyone in the country who made less than $30k/year got mailed a check for two thousand dollars, this would create a bit of a stimulus… additionally, it’d create a number of editiorials written from the perspective of the good son in the prodigal son parable.
“So, those of us who worked hard, went to school, got good grades, stayed in school, got good grades, got a job, worked hard, got a promotion… we never got so much as a goat for us and our friends???”
But sending a check for two grand to John Kerry wouldn’t result in stimulus.
All that to say: it’s a lot easier to screw things up than to fix them. Doing nothing, at least, doesn’t screw things up worse.Report
@Jaybird,
That isn’t necessarily so. Doing nothing can in fact screw things up worse.
Not deciding is a choice because time is a factor.Report
@ThatPirateGuy, never let a commie-dem stimulate anything.Report
@ThatPirateGuy, you’re comparing “doing nothing” to “some ideal plan that could only be passed by a despot but never by a Congress that needs to wet its beak, a Senate that needs to prepare for the next election, and a President who needs to throw red meat to the base.”
I’m comparing “doing nothing” to “what we’re likely to get, taking all of the above into account”.
Again: I agree that there are some oddball theoretical things that would work.
They won’t make it into committee, let alone out of it.Report
@Jaybird,
I certainly didn’t intend to.
I am one of those people who thinks that the sausage we got was better than the starving we would have gotten. Viva screwed up compromised half measures.Report
@ThatPirateGuy, really?
Because I look at the dog’s breakfast we were served and how it decided that the best way to treat heroin withdrawal was more heroin.
Eventually we will run out of money for more heroin.
Our choice is between going through withdrawal with some savings or without them.Report
@Jaybird, hear, hear!Report
@Robert Cheeks,
An occasion when Jaybird, Bob, and I are all in agreement?
I think the Universe will now explode 🙂Report
@Pat Cahalan, Well, two fingers of Maker’s Mark this evening on sharing a political perspective. And, it’s interesting that it’s the “…(gummint)evvv me alone ” position.Report
@Pat Cahalan,
More along the lines of, “There’s nothing you can do, here. Move along.”
I mean, I don’t object to the theory of government intervention into the economy, per se. I disagree with the particular idea that in this given economic state (our economy is largely built on smoke and mirrors) the government ought to be building more mirrors or blowing more smoke up people’s behinds.
I’m down with building roads, nuclear power plants, bridges, a new air traffic control system. But just taking a giant bucket of money and throwing it on the burning money pile doesn’t seem like good policy.
It’s the Left’s equivalent of the border fence. “We must do *something!*
We don’t “must do anything”. We *might* do some particular somethings for all sorts of reasons.Report
@Pat Cahalan,
“I’m down with building roads, nuclear power plants, bridges, a new air traffic control system. But just taking a giant bucket of money and throwing it on the burning money pile doesn’t seem like good policy.”
Fred Clark makes a good point that “throwing money” at our crumbling infrastructure could REDUCE the deficit here and here). We NEED to fix our roads and bridges urgently. Why not now?
(Those “deficit hawks” that defend every military project ever and/or the Bush tax Cuts are hypocritical a–holes. I trust the above are not one of those?)Report
@Jaybird, just so we are clear, that parable doesn’t support your position.
In the parable, the father states that the good son’s resentfulness is unfounded, that all the son’s good, hard work had its own rewards. (While the lost son suffered through hunger and menial labors, the good son benefited from all his father had to offer.) Graciousness dictated that something special be done for the son who was thought to be lost and could potentially be redeemed.
I think the father would have likely been pleased with merely knowing that his prodigal son was now safe and well fed – stimulative effects and negative editorials be damned.Report
@62across, hey, I didn’t say it was written from the perspective of Jesus.
I said it was written from the perspective of the good kid.Report
I definitely take your point that the stimulus was too specifically aimed at particular industries in many cases.Report