If at first you don’t succeed, spend and spend again.
That seems to be the Obama administration’s motto as it contemplates a new round of stimulus spending – a sequel to February’s American Recovery and Reinvestment Act, the staggering, $787-billion stimulus package that so far has delivered little in the way of economic recovery.
To be sure, the administration is publically talking down the possibility of a second stimulus, at least for now. The Financial Times reported last week that “administration officials think further stimulus might eventually be needed but they do not want to have this fight now.”
One can hardly blame them. Some $56 billion of the original stimulus package have been spent to date, and the results are far from encouraging. Against President Obama’s assurance that the “stimulus package is working exactly as we had anticipated,” no less an administration figure than Vice President Biden wandered off script during a television appearance last weekend and admitted that the administration had “misread how bad” the economy is.
That is putting it mildly. By almost any significant measure of economic recovery, the Obama stimulus has been a high-cost flop. The pertinent question about yet another stimulus package is not when it will be needed, but rather, Can the country really afford it?
The Jobless “Recovery”
The chief selling point of the February stimulus was its alleged ability to create jobs. In pitching the stimulus package this January, President Obama promised that it would either save or create between 3 million and 4 million jobs by 2010, including some 600,000 jobs by this summer. Those jobs, moreover, would be created “across a wide range of industries.” True, job losses would remain a problem in the short term. But the president’s economic advisers also indicated that, by their calculations, unemployment would peak at eight percent, and then start to fall.
Not one of these predictions has fared well. The administration’s hopeful job numbers notwithstanding, the economy has shed more than two million jobs since Obama took office, and the losses have continued through the summer. In June alone, some 460,000 private-sector jobs were lost.
Nor has unemployment peaked. On the contrary, it is expected to climb to 10 percent by the end of this summer and 11 percent by 2010, numbers that, according to economist Nouriel Roubini, are “well above historical standards for even severe recessions.”
Such modest job growth as has occurred, meanwhile, has been anything but wide ranging. Analysts note the “only areas that showed any growth in employment were the already bloated sectors of education and health care.”
Warning against an excessively grim reading of the economic picture, Obama officials still insist that the stimulus has “saved” some 150,000 jobs. But as Harvard economist Greg Mankiw has pointed out, that is hardly a reliable statistic. “You can measure how many jobs are created between two points in time,” Mankiw notes. “But there is no way to measure how many jobs are saved.” Thus, the only indicator that speaks favorably about the stimulus is, at best, artificial and unverifiable.
It Keeps Growing, and Growing…
The stimulus may not be increasing jobs, but something is growing as a result of the massive government spending: the budget deficit. The Congressional Budget Office projects that the deficit will rise to $1.7 trillion in 2009, making it the equivalent of 12 percent of the country’s gross domestic product. According to the CBO, those would be “the largest deficits as a share of GDP” since World War II.
The cause of the ballooning deficit is no mystery. The CBO notes that it “results primarily” from the February stimulus package and the Troubled Asset Relief Program, the administration’s bank stabilization program. It’s not yet clear what the long-term effect of the deficits will be, but some economists are predicting a series of ripple effects, including rising inflation and interest rates, that may further stall economic growth.
The deficit problem has been confirmed by administration figures, though unofficially. Laura Tyson, a member of President Obama's Economic Advisory Panel, recently acknowledged that the projected budget deficit has exceeded the administration’s forecasts and will further worsen the economy. Tyson also noted that the economy was now in worse shape than when the February stimulus was passed – a sharp indictment of the president’s stewardship of an economy whose slump he has tried to blame squarely on his predecessor. (Naturally, Tyson was quick to point out that she was not voicing the official administration position.)
Of Mice and Millions Misspent
No aspect of the stimulus been has been more contentious than the millions of dollars it has directed toward political pet projects, earmarks, and infrastructure investments of questionable economic consequence.
Indeed, the non-simulative uses of the stimulus are now the stuff of appalling legend. Watchdog web sites like Stimuluswatch.org keep a running tab on the more dubious destinations of the stimulus funds, from the $99,600 for “doorbells” in Laurel, Mississippi, to the $500,000 dog park in Chula Vista, California, to the $18 million for the Latino Cultural Center in Dallas, Texas. “Can’t you just hear the economy humming along once these projects get off the ground?” asks the Manhattan Institute’s Steven Malanga.
All of this wasteful spending has made for better politics than economic recovery. Republicans, for all their woes, have had a field day mocking the worst excesses of the stimulus bill. Last week, for instance, outraged cries went up when the Obama administration revealed that as much as $16.1 million from the stimulus program is going to save the San Francisco Bay Area habitat of, among other things, the endangered salt marsh harvest mouse – just one of the 50 marine and coastal habitat restoration projects undertaken by the National Oceanic and Atmospheric Administration using $167 million from the stimulus. Those projects may or may not be worthwhile, but it’s hard to see how they serve the stimulus’s intended purpose of reviving the economy.
Doubling Down on Failure?
With the failings of the current stimulus manifest, a second stimulus seems difficult to justify. Yet there is still reason to fear that the administration will double down on what increasingly looks like failure. Despite the harsh economic verdict on the stimulus, President Obama has revealed himself to be an unwavering believer in the power of the government to rejuvenate the economy. When asked in a recent interview about rising skepticism of the stimulus, he maintained that “there’s nothing that we would have done differently.”
For the growing number of Americans concerned about the administration’s fiscal policies, that is cause for alarm. The nation’s $787-billion experiment in Keynesian economics has been tried and – for now at least – found wanting. The last thing the country would seem to need in these dark economic times is another stimulus to continue the “recovery.”