Wagener: Revisiting the stimulus package

On Friday, the Obama administration announced that 640,000 jobs had been created or saved by the stimulus package. Almost immediately, this number came under attack from critics of the program claiming that many of those jobs were not online and that millions of jobs had been lost since Congress approved it last February.

This emphasis on the number of jobs “lost” or “saved” as a consequence of the controversial stimulus package has become a common strategy of politicians, even though any economist would dismiss such a measure as meaningless without the use of clear definitions. To really assess the program’s effect, we must decide how we define jobs and decide whether to emphasize short-term gains or long-term prospects.

After all, if, for example, the stimulus package “saved” three million minimum wage jobs but sacrificed two million high-paying jobs, the country might well be worse off despite these net “savings.”

Unfortunately, the wage level of the jobs in question is just one detail politicians have seen fit to omit from discussions of fiscal policy options. The other key detail is the nature of the job: public or private.

From the perspective of the individual, of course, the nature of their employer is beside the point; in tough times a worker simply wants to have a job and a steady source of income. The long-term health of the economy, however, depends heavily on the sector of employment. Since government jobs depend upon the taxes levied upon private industry and thus do not themselves stimulate the economy, it is unwise to create incentives for millions to vote to increase the size of government, an act that is in direct opposition to society’s long-term interests. After all, even if one believes that millions more government jobs are needed to remedy social ills, tens of millions of private sector jobs must be created to pay for them if we’re to avoid permanent deficit spending.

However, as we attempt to judge President Obama’s stimulus package, it is important to keep a few caveats in mind. The use of unprecedented levels of deficit spending undoubtedly helped end the depression resulting from the financial crisis, despite Republican claims to the contrary. Last quarter, for instance, saw unexpectedly large economic growth. Moreover, the fiscal stimulus package was one of few options to increase the gross domestic product in the short-term; the government could not and still cannot use conventional monetary policy to pull the country out of the depression, as interest rates are already near zero and have been for over a year.

In addition, the net effect of the stimulus was undoubtedly a short-term boost to GDP. Hundreds of billions more dollars are set to be spent over the next year, making continued GDP growth above the benchmark 3 percent — the level believed to stimulate employment growth — likely for the next several quarters. From this perspective, the stimulus has been at least a partial success: although much of the funding was used to retain government employees, private employment is likely to increase at least as much as government employment is as a consequence of the stimulus.

Still, the Obama administration and the Democrat-dominated Congress can be faulted for the slow pace with which the package has been rolled out, and the way they have chosen to spend the money. Although the Administration has had eight months to spend $787 billion, less than 40 percent of the stimulus package has been spent. Worse, the package is plagued by earmarks, such as the millions of dollars set to go to firms Al Gore has invested in, a potential impropriety not even the pro-Obama New York Times failed to note. Almost 14 billion dollars have been earmarked for transfer payments to senior citizens, the group least affected by the depression and most likely to benefit from the current deflation; this represents a transparent attempt to buy support from America’s most frequent voters.

In addition, critics are right to worry about the expense of the package. The federal government is running a $1.4 trillion deficit this year, and Obama’s current budget plan calls for an approximate doubling of the national debt by the end of the decade. In the long run, this increase in the national debt will hurt GDP growth, as the Democrats’ own Congressional Budget Office has warned.

The economy needed a shot in the arm, but lawmakers must remember that every shot in the arm to benefit today’s citizens comes directly from the pockets of tomorrow’s citizens. In the long-term, the United States will need to use restraint or face dire consequences. Those prescribing more fiscal shots, touting their immediate effects, and looking only at the short-term, would do well to remember this.

Trevor Wagener is a junior in Pierson College.

Comments

  • Anonymous

    Interesting, Trevor, but I am disappointed you didn’t address the fears that the stimulus and deficit job “creation” may lead to a worse depression in the long term. There are very legitimate concerns that the U.S. economy has harder times ahead.

  • Joe

    ron pauL 2012