Possible Economic Recovery Tied to Obama Stimulus Package?

Well the BLS (Bureau of Labor Statistics) has released its monthly jobless claims report. In May, nonfarm payroll employment fell by 345,000, increasing the national unemployment rate to 9.4%.

Despite being the highest unemployment faced in this country in about 25 years, there is a little good news. Last month's jobless report --which is actually the measurement of the job loss in April--showed nonfarm payroll falling by 504,000. A difference of 159,000 jobs "saved" in a one month period.

All that stimulus must be the reason! Try again.

First off, what is a stimulus package supposed to accomplish? Well, as the name indicates it is suppose to stimulate or excite to greater activity, in economic terms at least. By definition as an equilibrating mechanism the stimulus should work instantaneously, but often they don't. This is exactly the case with the President's stimulus package which he signed into law back in February.

As it stands about $44 billion, out of $135 billion, has been paid out since the the bill was made law. From Recovery.gov.


Click on image to enlarge.

With trillions vaporized over the past months, it is difficult for a reasonable mind to fathom the concept that spending a mere $44 billion has actually "primed the pump" and caused the beginnings of an economic turnaround.

This brings me to this little golden nugget of information provided by the CBO (Congressional Budgetary Office). I am sure that over the coming days there might be an argument, or not, concerning the effects of the stimulus package on the beginnings of this "recovery." However this report actually highlights the lag effect of the stimulus spending and is an attempt to convince Beltway dwelling pols to speed up access to money so the turnaround can "begin.".

Although, I find it highly ironic that the jobless report is indicating the start of economic recovery without much assistance, if any at all, from the stimulus package. And here they are trying to get money out the door more rapidly. All in the name of starting a recovery, which is evidently happening on its own. On to the CBO report.

These first two PDF slides are quite enlightening about the attitude of policy makers and pols in the Beltway as the debate raged from mid-December to mid-February about what to do.






More specifically, it's the last sentence of each of these slides that really highlight the fear and angst that was raging in Washington over the looming economic catastrophe. Keyword to all of this is "perception." This opened the door for Mr. Never Let a Crisis Go to Waste and his cronies to get their flawed economic policies pushed through Congress like a greased pig.

Now the economic arguments that we will eventually hear from stimulus supporters probably will sound something like this, "Well this turnaround was obviously caused by the AARA and the money it has provided." "Obama's plan is creating or saving jobs!" Again, not exactly.

Slide 4 of 15 tells a little bit different story.



Out of the 24% of the stimulus money allocated for FY 2009, the largest portion of money, 32% to be exact, is going to entitlement programs. More than likely a necessary evil presently, but hardly a stimulant for economic recovery. As you can see this trend also continues from 2009-11 and only gets larger. But, how much to date has actually been spent on "shovel-ready" projects?

Slide 8 of 15.


This chart indicates that to date, less than $10 billion has been spent on infrastructure projects which were going to be the staple for job growth. CNN Money reported in late April that of the $75 billion Congress had made available, about $14.5 billion had been spent, mostly on Medicaid.

To my knowledge, there is no evidence that rampant spending on any sort of entitlement or social programs spur economic growth. With this in mind, then reasonably, there isn't any evidence supporting the claim that Obama stimulus package has stimulated the job growth. Quite to the contrary, if it has stimulated anything it is spending, period.

The strange part to all of this is if I am wrong and stimulus packages do work, it seems that the supposed recovery period we are in right now was spurred by former President Bush's infusion of almost a trillion dollars of liquid capital into the banking and financial communities. How is that for irony?

On a final note, supply-side economist Larry Kudlow, in a National Review Online blog post, makes a poignant argument that if we are in the beginnings of recovery, some serious thought needs to be given to de-TARPing.

Related articles:

NY Times-Joblessness Hits 9.4%, but Slowing Losses Raise Hopes

Innocent Bystanders-The May Unemployment Numbers are Here, and Worse Than Predicted

Fox News-For some good comedy, read what the Vice President had to say about the administration's plan to "speed-up" the economic recovery. If you guessed spending more money, you win the $64 dollar prize.

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Bad policy and the politics of fear: The New New Deal

   (photo from Wall Street Journal)

So this is the new change ushered in by Obama's mandate? Repeated reminders that "he won" followed by a hyper-partisan, lavish, Democratic retreat in Virginia -- during a time when our economy is supposedly on the verge of a catastrophe mind you. The speech itself amounted to nothing more than a sarcastic-laced, glib and polarizing pep-rally by President Obama. He used his slot to reinforce what has been the Democrat approach all along and that is, of course, spending -- any kind of spending. Obama obviously stopped short of any details about the items in the bill and how exactly the government proposed to come up with the money. He should really take Bill Clinton's advise in the future.

It became apparent that once the Republicans were not on board and the American public saw a one sided bill so crammed with goodies that few seriously mistook for anything less than an orgy of mass government spending, he resorted to the very thing he railed against for nearly two years on the campaign trail. He trumped up fear. He took to the airwaves about it. He addressed Congress about it. And he made sure along with VP Biden that the American people got the bleakest picture imaginable. He used terms like "catastrophe," "devastation," "grave consequences" and "serious threats" if Congress did not act now in passing the proposed bill. He painted a picture that the Republicans were escalating the dangers by refusing to play ball.

So this is the New New Deal? Well if it is, it is a far cry from "The only thing we have to fear...is fear itself!"

And despite the Presidents repeated calls for bipartisanship and a refreshing hands-on approach, he allowed his House Democrats to write the bill and fill it full of waste. The result was a hallmark of sorts that illustrates wonderfully to the American people exactly what is wrong with our government. Obama could have interjected and allowed for cuts in payroll taxes and corporate taxes. But, he didn't and he allowed an already despised Congress to hijack the bill and run it through to the Senate.

Instead, Mr. Obama chose to let House Democrats write the bill, and they did what comes naturally: They cleaned out their intellectual cupboards and wrote a bill that is 90% social policy, and 10% economic policy. (See here for a case study.) It is designed to support incomes with transfer payments, rather than grow incomes through job creation.

This is the reason the bill has run into political trouble, despite a new President with 65% job approval. The 11 Democrats who opposed it in the House didn't do so because they want to hand Mr. Obama a defeat. The same is true of the Senate moderates of both parties working to trim their $900 billion version. They've acted because they can't justify a vote for so much spending for so little economic effect. You know a piece of legislation is in trouble when even its authors begin to deny paternity, as economist Martin Feldstein has recently done. (Wall Street Journal: "The Stimulus Tragedy")

Recessions have historically lasted 16 - 18 months. Depending on the severity, government has acted to spend where there are shortfalls and apply tax relief to consumers and businesses. This isn't something new or unique to Obama's presidency. But he is choosing to handle it much differently than anytime before.

Not very long ago President Reagan inherited a far greater mess. When he came into office in '81 there was double digit inflation and unemployment. The interest rates were over 20 percent. He didn't change this and turn the economy around by endorsing social spending/engineering projects that are designed only to create patronage and offer something to point to during reelection time. In fact, he would be appalled by the very idea, and would probably announce every name responsible for the pork to the press.

Another thing he didn't do was try to scare the public into near hysteria in order to enact his policies. When so many saw eminent collapse and were predicting the end of the American dream -- namely President Carter and the majority of Washington pundits (sound familiar?)-- Reagan only saw America's strength and believed in its spirit. He cut taxes, he lowered the marginal rates and made it possible for people to invest and buy. He restored confidence in the American system. He led. He didn't bother with grave diagnosis or broadcasting the dark and stormy weather. How can you have time for both?

He was optimistic. That was his vision for recovery. Simplistic? Lack of imagination? Hardly. He freed the American people from the heavy hand of government, removed its restraints and got out of their way. Reagan created ways to raise incentive for innovation, competition and production. All things he knew were needed for success and prosperity in our American system. He understood this when few even believed it.

Now, that is what you call a real stimulus package.

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