Cartoon: Bernanke's Printing Press

"The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost."

Ben Bernanke November 21, 2002

Obamamonics

Actually, Obamanomics already has failed. It didn’t work for Hoover and Roosevelt. It didn’t work for Bush. It isn’t working in Europe. And now it’s failing for Obama.

It doesn’t matter what you call it or when the policies are imposed, expanding the size and scope of government is bad for prosperity. So the real question is when will the establishment press finally admit that Obamanomics has failed?

The unemployment numbers released today certainly will not be easy to spin. Here’s the chart I periodically update, showing the actual unemployment rate compared to what the White House claimed would happen if we flushed $800 billion down the Washington rathole.

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The Infamous Bernstein-Romer Chart

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CBO on the Stimulus

Change Attributable to ARRA, GDP change (percent)
		Low Estimate	High Estimate
2009	Q1	0.1	0.1
2009	Q2	0.8	1.3
2009	Q3	1.2	2.4
2009	Q4	1.4	3.3
2010	Q1	1.7	4.1
2010	Q2	1.7	4.5
2010	Q3	1.5	4.2
2010	Q4	1.1	3.6

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Did the Stimulus Work?

A recent paper by Alan Blinder and Mark Zandi claims that if not for the response of the federal government, the unemployment rate would be 15.7 percent, far higher than the current 9.5 percent. The press quickly reported that this vindicated the Obama stimulus plan. But the fact is that most of the positive effects cited in their paper came not from the stimulus but from stabilizing actions of the Federal Reserve, the FDIC, and TARP...

The Romer-Bernstein paper has often been cited as saying that if the package passed, the unemployment rate would peak below 8 percent in the middle of 2009 and would decline to below 7.5 percent by now. Obviously this has not happened. The administration, along with Blinder and Zandi, argue that it is not fair to conclude that this proves the package was a failure since Romer and Bern-stein underestimated the severity of the recession and that unemployment was already 8.2 percent in the first quarter of 2009, higher than the assumed peak.

I am sympathetic to their argument and Chart 1 corrects for their complaint by raising their estimate of where unemployment started in their experiment. The lowest line provides the original estimate of the path of unemployment provided by Romer and Bernstein on January 9, 2009. The second line replicates the Romer and Bernstein path, but raises the initial unemployment rate from their assumed 7.5 percent to 8.2 percent. This was the actual average of the unemployment rate in the first quarter of 2009, the period in which the stimulus was passed. The third line provides a more extreme alternative by raising the initial unemployment rate to the 9.3 percent average of the second quarter 2009. The first modification fully compensates for their objection while the second modification more than compensates for their concern...

Our policy problem today is that the bill that was actually passed into law was both so expensive and so badly flawed that it gives the whole concept of macroeconomic stimulus a bad name.

read the entire article

What Stimulus Impact?

If any of that were remotely close to being true then, as a matter of simple accounting, rising federal spending would have shown up as a huge offset to falling GDP in 2009, and also as a major component of the modest increase in GDP growth in early 2010. On the contrary, the table below shows that the increase in federal nondefense spending contributed only two-tenths of one percent (0.2) to the change in GDP in 2009. That was no better than 2008 when the Recovery Act did not exist. If nondefense spending had not increased at all in 2009 (unlike 2008) then GDP would have fallen 2.8% rather than 2.6% — scarcely the difference between a recession and a “second Depression.” If nondefense federal spending had not increased at all in 2010, the economy still would have grown at a 3.6% pace in the first quarter, 2.1% in the second. Cutbacks in state and local spending were a trivial damper on GDP growth last year, contrary to recent speculation, and real state and local spending rose significantly in this year’s second quarter (unlike the first).

This is just an exercise in crude Keynesian accounting, not economics. Yet it nonetheless makes the stimulus bill look like a huge waste of money. The reason Keynesian accounting is no substitute for economics is that governments can only spend other peoples’ money. To claim that such spending is a net addition to “aggregate demand” is to ignore those other people — namely, current and future taxpayers.

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Walter Williams on Recessions and Stimulus

Walter Williams writes:

Let's think about President Obama's failed economic stimulus program. Before getting to the nitty-gritty of why stimulus packages fail, let's look at the failed stimulus program of Obama's hero, Franklin Delano Roosevelt. FDR's Treasury Secretary, Henry Morgenthau, wrote in his diary: "We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!"...

The Great Depression did not end until after WWII... "The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. Ironically, our work shows that the recovery would have been very rapid had the government not intervened." Professors Cole and Ohanian argue that FDR's economic policies added at least seven years to the depression.

Where do the trillion-plus dollars come from that Congress and Obama are spending in an effort to stimulate the economy? How about Santa Claus, or maybe the Tooth Fairy? If you said, "Come on, Williams, you're being silly! The only way government can spend a dollar is to tax or borrow it," go to the head of the class. In the case of a tax, one should ask what would that taxpayer have done with the dollar had it not been taxed away. He would have spent it on something that would have created a job for someone. If the government hadn't borrowed the dollar, it might have been invested in some project that would have created a job. When government taxes, borrows and spends, it shifts unemployment from one sector to another. Of course, the sector that benefits tends to be a political favorite of the shifter.

Between 1787 and 1930, our nation has seen both mild and severe economic downturns, sometimes called panics, that have ranged from one to seven years. During that interval, no one considered it to be the business of the federal government to try to get the economy out of a depression because there was no constitutional authority to do so. It took Hoover, FDR and a frightened and derelict U.S. Supreme Court to turn what might have been a three- or four-year sharp downturn into a 15-year meltdown.

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State Budget Problems

Think states have made deep spending cuts? You ain't seen nothing yet.

States have been struggling with huge budget gaps since 2008, but this year could be worse as federal stimulus funds wind down.

Until now, stimulus money spared governors and state lawmakers from making some of the most brutal budget cuts. But with this lifeline running out, officials are looking at making significant cutbacks to public services, particularly schools and health programs.

"The stimulus funds have staved off what could have been even deeper cuts," said Todd Haggerty, policy associate at the National Conference of State Legislatures. "You're seeing states now are coming to that point where they will have to make additional cuts or find new sources of revenue for fiscal 2011 and that will continue in fiscal 2012."

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Economists: Stimulus No Impact

The recovery is picking up steam as employers boost payrolls, but economists think the government's stimulus package and jobs bill had little to do with the rebound, according to a survey released Monday.

In latest quarterly survey by the National Association for Business Economics, the index that measures employment showed job growth for the first time in two years -- but a majority of respondents felt the fiscal stimulus had no impact.

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The Problem With Good Intentions

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Unemployment 10.2%

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Cartoon: Stimulus

Cartoon: Stimulus 2

Cartoon: Economic Stimulus

Yesterday, Obama took time out of his first presidential trip to Moscow to defend the $787 billion stimulus package, arguing that the measure was the right medicine at the right time. "There's nothing that we would have done differently," he told ABC News.

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My thoughts: Stimulus spending never works because of the lags involved. The theory is flawed as well.

read this article

The Stimulus: A Critique

A majority of Americans now give President Obama's handling of the economy a negative rating and many economists and city officials are concerned that Obama's gargantuan stimulus effort has not given the expected quick boost to the economy. Some argue this is because funds have been slow in coming due to bureaucratic red tape meant to ensure that the money spent will not be wasted. Jared Bernstein, chief economist for the office of Vice President Joe Biden (who knew that the Vice President needed a chief economist?), is quoted as saying "We're hitting the right balance between speed and oversight." Unfortunately for the American public, sound economics teaches that, regardless of how fast the money is spent or how much oversight is provided by bureaucrats, the money doled out by the stimulus plan will be wasted and will have a detrimental impact on the economy in the long term, because that is the nature of profligate government spending...

The moral of the story is that we are right to be concerned that the Obama stimulus plan will not stimulate economic progress and will not usher in the next age of prosperity. Government spending merely directs scarce factors of production away from their most productive uses. Taxation, government borrowing, and monetary inflation all produce negative economic consequences. Real economic expansion is the product of wise entrepreneurs using capital that is funded by real savings. Such economic progress results in more goods that can be purchased for lower prices. As we are seeing play out before our eyes, the only thing that government stimulus plans stimulate is capital consumption and fewer goods available for higher prices — not a recipe for economic recovery.

read the entire essay

My thoughts: Remember Thomas Sowell's dictum that: "The first law of economics is scarcity, and the first law of politics is to disregard the first law of economics."

American Recovery and Reinvestment Act Logo

President Obama announced today that his administration will begin stamping an emblem on projects funded by the economic stimulus package so that people can easily recognize the effects of the American Recovery and Reinvestment Act.

All projects will be stamped with the ARRA logo (short for the American Recovery and Reinvestment Act) and lists the recovery.gov website on the emblem. “We’re also making it easier for Americans to see what projects are being funded with their money as part of our recovery. So in the weeks to come, the signs denoting these projects are going to bear the new emblem of the American Recovery and Reinvestment Act,” Obama said. “These emblems are symbols of our commitment to you, the American people -- a commitment to investing your tax dollars wisely, to put Americans to work doing the work that needs to be done. So when you see them on projects that your tax dollars made possible, let it be a reminder that our government -- your government -- is doing its part to put the economy back on the road of recovery.”

read the article

My thoughts: FDR had his Blue Eagle, Obama has found his symbol.

Only 3,999,940 Jobs to Go

President Obama said Tuesday that the country already is "seeing shovels hit the ground" on the first infrastructure repair project funded through the Transportation Department's share of the $787 billion stimulus bill.

Transportation Secretary Ray LaHood said, "The work begins today in Montgomery County, Maryland, where a work crew is starting on a project to resurface Maryland State Highway 650 -- a very busy road that has not been fully repaired in 17 years."

The resurfacing contract is going to a Pennsylvania-based family-owned company, America Infrastructure, LaHood said.

He said the project will support 60 jobs. "And that's how we're going to get the country back on its feet," LaHood added.

read the CNN story

Obama's Budget Hypocrisy

In January 2009: Congressional Budget Office projects
FY2009 budget deficit $1,186 billion
FY2013 budget deficit $257 billion

In February 2009: Office of Management and Budget projects
FY2009 budget deficit $1,750 billion
FY2013 budget deficit $533 billion

Obama pushes the package of a $787 Billion "Stimulus" Bill

source CBO and OMB

My thoughts: Wow. The FY 2009 deficit will be the same size as the FY2000 budget. Obama has the audacity to lecture the country on "fiscal responsibility." Obama needs to step away from the Kool-Aid now.

Cartoon: Hayekian Hangover

Cartoon: I Am Just a Bill

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