The word on the street, according to the Washington Post, is that the White House has put the kibosh on a second stimulus plan and is now considering a temporary suspension of the payroll tax, which is a great idea supported by many business owners.
The second stimulus idea gained traction earlier this week when the outgoing head of the president’s Council of Economic Advisers, Christina Romer, gave a farewell speech at the National Press Club urging Congress to pass a second stimulus package. This from the person who argued that the first stimulus package was necessary to keep the unemployment rate below 8 percent. Congress passed it in February of 2009, and by October of 2009 unemployment had risen to 10.2 percent. No wonder the administration is backing away from another stimulus just as this week’s unemployment numbers stayed stalled at 9.6 percent. They know it won’t work.
I’m reading Arthur Brooks’s excellent new book, The Battle: How the Fight between Free Enterprise and Big Government Will Shape America’s Future. (Thank God he hasn’t made a goofy “Young Guns” style video to promote it.) In it, Brooks takes a look at the first stimulus package and what it did to create jobs:
The fact is, the [first] stimulus package has been a remarkable failure when it comes to creating new jobs. The Obama administration claims that the stimulus spending created or saved 640,329 jobs by the last quarter of 2009. Given the $275 billion from the stimulus devoted to programs to create jobs, that means every new job costs the American taxpayer $429,000. According to Census Bureau numbers, in 2008 the median wage for full-time jobs was $37,115. With benefits, let’s round this up generously to $50,000. If the stimulus money were being spent as efficiently as private-sector money is, the stimulus should have created nearly 5.5 million jobs.
According to figures at the administration’s own Web site, recovery.gov, of that $275 billion originally allocated for job creation, as of today, only about half has been spent--$139 billion.
The administration claims that the $139 billion in stimulus money spent so far has created 749,597 jobs, which means the cost of creating each new job has been $185,432 per job. Using Brooks’s estimate of $50,000 median wage for a full-time job, that $139 billion spent should have created 2.7 million jobs by now, rather than 749,000. Why on earth would anyone enact a second stimulus bill when the first one hasn’t been spent yet--and the little that has been spent has been wasteful and inefficient?
"The only sure-fire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less," Romer said in her speech, according to the Post. For most Americans, spending more taxpayer money to increase demand and create jobs just doesn’t pass the smell test, given what we know about the spending under the first stimulus package, how few jobs it created, and at what cost per job. At least she got the “tax less” part right--especially for small businesses--and if the administration were smart, it would stop listening to free-spending economists like Romer and Paul Krugman and instead listen to strapped business owners asking for relief from the payroll tax.
Part of the problem here is that no one trusts economists right now--most of whom didn’t see any of this coming. Here’s how Post columnist Dana Milbank summed up Romer’s final speech in four points: “She had no idea how bad the economic collapse would be. She still doesn't understand exactly why it was so bad. The response to the collapse was inadequate. And she doesn't have much of an idea about how to fix things.” No wonder people don’t trust government economists to get us out of this. The president promised this week he’d be turning his attention to the economy--which he should, now that he’s finished with the mosque, Mideast peace, the anniversary of Katrina, and redecorating the Oval Office. My suggestion is that he listen to a few business owners instead of economists.