Economic study: Stimulus “destroyed/forestalled” 1 million private sector jobs

posted at 9:39 am on May 18, 2011 by Bruce McQuain
[ Economics ]   

Economists Timothy Conley and Bill Dupor have issued a study about the American Reinvestment and Recovery Act, also known as the “Stimulus” – approximately a trillion dollars borrowed and spent ostensibly to create and save millions of jobs and keep the unemployment rate below 8%.

We’ve known for months, each and every time the unemployment numbers come out, that it failed miserably to keep unemployment below 8%.

Conley and Dupor give the short “bottom line” version of their study’s result:

Our benchmark point estimates suggest the Act created/saved 450 thousand government-sector jobs and destroyed/forestalled one million private sector jobs.

Those jobs which were “destroyed/forestalled” fell into a 4 sectors that the economists studied:

The large majority of destroyed/forestalled jobs are in a subset of the private service sector comprised of health, (private) education, professional and business services, which we term HELP services.

[…]

[O]ur estimates are precise enough to state that we found no evidence of large positive private-sector job effects. Searching across alternative model specifications, the best-case scenario for an effectual ARRA has the Act creating/saving a (point estimate) net 659 thousand jobs, mainly in government. It appears that state and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases (Fig. A) rather than directly boost private sector employment (e.g. Fig. B).

Here are the two figures from the study:

What you see here is exactly what most critics of the plan claimed would happen – states used the money on government and not stimulating private job growth.

Result? States forestalled their budget reckonings and unemployment, except in the private sector, continued on past 8% into the 10% area.

Of course, it appears that the architects of the ARRA never really thought this through nor did they anticipate how sending money to the states would be used.

As John Hinderaker at Powerline asks:

Does President Obama understand this? I very much doubt it. When he expressed puzzlement at the idea that the stimulus money may not have been well-spent, and said that “spending equals stimulus,” he betrayed a shocking level of economic ignorance.

The answer to the question is a profound and telling “no”. And yes, he’s betrayed a shocking level of economic ignorance throughout his presidency:

Upon acquisition of ARRA funds for a specific purpose, a state or local government could cut its own expenditure on that purpose. As a result, these governments could treat the ARRA dollars as general revenue, i.e. the dollars were effectively fungible.

In essence, it was used to save government jobs through a few easily accomplished accounting tricks. The desired private stimulus (assuming there really was such a desired use), never came to pass. An opportunity for state governments to review and downsize government to more efficient and appropriate levels was forestalled.

And the recession ran on.

More of the Obama record to highlight in the 2012 election.

Missing in action?

Sheriff Joe.

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Bruce McQuain blogs at Questions and Observations (QandO), Blackfive, the Washington Examiner and the Green Room.  Follow him on Twitter: @McQandO

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