How the Obama Administration is able to report accelerating job growth in a stagnant economy.
THE BUNGLING CARICATURE of economics and resource management known as Obamanomics reminds one of Inspector Clouseau in the old Pink Panther movies. You can count on Obamanomics to misread all the clues as it flies about wreaking havoc in every direction. It is the hopelessly inept crime stopper who creates more damage than the criminal he pursues.
On July 14, Vice President Joe Biden and the CEA's Christina Romer updated the nation on a major discovery in the long-running Great Recession. They reported that the government had "created or saved" approximately three million jobs since February of last year -- a period of time in which the U.S. economy had a net loss of 2.35 million jobs.
As usual, Biden and Romer, the trusty lieutenants, were three or four steps behind their supremely self-confident leader in sifting through the evidence and drawing the most wrong-headed conclusion. Only days earlier, President Barack Obama said in Racine, Wisconsin, that the economy "would have been a lot worse" and the unemployment rate would have soared to "12, or 13, or 15" percent, had it not been for the intercession of the $862 billion stimulus package.
With the president doing the counting, the administration has "created or saved" as many as 8.5 million jobs, or almost triple the number of jobs cited by his vice president and the chair of the Council of Economic Advisers. We may ask ourselves: How could Biden and Romer have overlooked a few million additional jobs? Wasn't that a little careless on their part? And why aren't the rest of us feeling the extraordinary jolt that would surely attend so much job creation?
You may credit the administration with creating or saving all those additional jobs if you subtract the current rate of unemployment (9.5%) from the putative 15% unemployment rate cited by the president as what could have been without the stimulus. That is a difference of 5.5%. Multiplied by the size of the labor pool (154 million people), this calculation moves a total of 8.5 jobs into the fanciful "created or saved" column (a metric that can be neither proved nor disproved because it is pure supposition).
But why not go all the way? Why not credit the Obama administration -- as the president himself is increasingly inclined to do -- with stopping the unemployment rate from skyrocketing to 24.9%, which is where it stood when Franklin D. Roosevelt took office during the darkest days of the Great Depression?
Eight months ago, I wrote a column in this space, entitled "Lies, Damned Lies and Job Creation." At this time (late 2009), the administration claimed only to have "created or saved" 650,000 jobs. I jokingly suggested that the administration might just well take credit for "creating or saving" 22.9 million jobs -- that being the number of jobs that might otherwise have been destroyed in a full-scale depression of the same magnitude as the one in the early 1930s. From a Team Obama perspective, I pointed out, the beauty of this argument was that it left so much untapped downside potential. The unemployment could re-double -- to 20% -- and the administration would still be within the 24.9% bogey which would entitle them to say -- "Think about how much worse things would be if we didn't add another trillion dollars or more to the national debt." They could go on and on -- in President Obama's words at the time -- determined to "spend our way out of this recession."
Apparently, my words -- even if spoken in jest -- did not fall on deaf ears. In Racine, Obama opined:
Now, every economist who has looked at it has said that the Recovery (Act) did its job. It put the brake on the collapse of the economy. We avoided a Great Depression. We are now growing again. The problem is, number one, it's hard to argue sometimes, things would have been a lot worse. Right?…
So part of the challenge in delivering this message about all that the Recovery Act accomplished is that things are still tough, they just aren't as bad as they could have been. They could have been a catastrophe. In that sense, it worked.
Let us overlook the fact that the first sentence is flat-out wrong -- a whopping falsehood. There are other problems with what might be called the Wilson/Obama Hypothesis (I am giving myself a little credit here) that caused Biden and Romer to stop well short of the president in their estimate of jobs "created or saved."
First of all, there is the small matter that the president and his economic team did not sell the stimulus bill on the basis that it would keep unemployment below 15 or 25%. Instead, they warned that unemployment could go as high as 9% without the stimulus and they predicted that it would stay at 8% or less with the stimulus. This wasn't one of those fine moments -- like Babe Ruth pointing to center just before hitting a home run over the center field wall -- when a promise turned into a walloping reality.
Secondly, Romer and her team of economists want to make at least a pretense of being scientific in evaluating the supposed benefits of the stimulus. As the Wall Street Journal noted in its editorial ("Three Million Imaginary Jobs") on July 15:
All of these White House jobs estimates are based on the increasingly discredited Keynesian spending "multiplier," which according to White House Economist Larry Summers means that every $1 of government spending will yield roughly $1.50 in higher GDP. Ms. Romer thus plugs her spending data into the Keynesian computer models and, presto, out come 2.5 million to 3.6 million jobs, even if the real economy has lost jobs. To adapt Groucho Marx: Who are you going to believe, the White House computer models, or your own eyes?
In order to justify the president's there-but-for-the-grace-of-me claim of creating or saving enough jobs to keep the unemployment rate from jumping to 15%, the official White House jobs estimate would have to multiply the multiplier. That would cause even the most dyed-in-the-wool Keynesian economist to gag. However, simply by sticking to a multiplier of 1.5-to-1, the White House may go on claiming to have created or saved an ever-increasing number of jobs. It needn't stop for however long it continues to "invest" hundreds of billions of dollars of taxpayers' money in a wide assortment of politically favored enterprises and causes -- everything from solar panels and windmills to sending money to cities and states to shore up public sector payrolls and pensions.gt;
Whether anyone will believe the administration is another matter. According to a recent Pew/National Journal poll, only 23% of the public thinks that "Barack Obama's economic policies" have led to improved economic results while 64% think that they have failed -- including 29% who think that the president's policies has led to worse results and another 35% who think that they have had little or no effect.
According to classical economics, as refined and updated by Milton Friedman, the "Austrian" economists and others, every public job that is created by additional public spending is a private job that is destroyed somewhere else. When the government announces to great fanfare that it will build more bridges or highways, there is no net job creation, because all that happens is a diversion of resources from the private sector to the public sector. There may be more bridge builders and highway workers; at the same time, however, there will be fewer hoteliers, accountants, advertising executives, and others supported by the dynamics of free enterprise. Still worse, because politicians rather than self-interested and closely aligned consumers and business people are making the buying and selling decisions, more money goes to unproductive uses, which in turn leads to a lack of growth, a loss of income, and the destruction of both wealth and jobs.
John Maynard Keynes -- the patron saint of all those in favor of increased government intervention in the marketplace -- spoke of the importance of "animal spirits." He wrote: "If Enterprise is afoot, wealth accumulates whatever may be happening to Thrift; and if Enterprise is asleep, wealth decays whatever Thrift is doing."
Ironically, what is so noticeable in the current economic environment -- created by an excess of government intervention in more and more aspects of the nation's economic life -- is the total absence of Enterprise with a capital "E." It has gone to sleep. People (and businesses) have lost confidence in their ability to build a better future for themselves and for future generations. That is the real tragedy associated with Obamanomics. People are all too aware of the horrible record of socialistic or statist governments.
As no less an authority than Karl Marx said, "History repeats itself, first as tragedy, and second as farce."
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