The policy cupboard is bare. Despite more than two years of Big Government "solutions," unemployment hovers north of nine percent and growth remains lethargic -- so our president has fashioned a bold, "new" policy inititative. More spending:
Hurricane Irene persuaded President Obama to cut short his vacation on Martha's Vineyard, where he worked on the job creation plan he'll unveil after Labor Day. Most of the president's plan for jobs is still being developed -- except for one idea he's been pushing hard and pushing in public, reports CBS News White House correspondent Wyatt Andrews.
"Let's rebuild America," the President said in a recent speech. The President wants to spend big on the nation's roads and bridges, starting with a two-year, $109 billion spending package that's been stalled between the House and the Senate -- but which he argues -- will put tens of thousands of people back to work quickly. But the roads bill is controversial, because its not all paid for -- and would involve new borrowing.
CBS News quotes Mark Zandi -- an economist who advised John McCain's presidential campaign, and who's cautioned against raising taxes on anyone in a floundering economy -- to lay out the economic rationale for another twelve-figure federal "stimulus" expenditure:
Some economists say it's worth it. When Moody's studied the 2009 stimulus package, infrastructure spending rated high. For every dollar spent, $1.44 was returned to the economy. "Infrastructure projects have a large bang for the buck because they employ a lot of people, they require a lot of material and inputs, so a lot of economic activity is generated by those projects," said Mark Zandi, chief economist at Moody's.
Harvard economist Robert Barro is growing impatient with Keynesian economics and the constructed "multipliers" its advocates cite as vindication for their claims:
The administration found the evidence it wanted—multipliers around two—by consulting some large-scale macro-econometric models, which substitute assumptions for identification. These models were undoubtedly the source of Mr. Vilsack's claim that a dollar more of food stamps led to an extra $1.84 of GDP. This multiplier is nonsense, but one has to admire the precision in the number.
There are two ways to view Keynesian stimulus through transfer programs. It's either a divine miracle—where one gets back more than one puts in—or else it's the macroeconomic equivalent of bloodletting. Obviously, I lean toward the latter position, but I am still hoping for more empirical evidence.
Barro's Wall Street Journal op/ed critiqued the administration's position on expanding unemployment benefit and food stamps programs, which they view as boons to the economy. He did not specifically address infrastructure spending. On that front, I'll return to a June column authored by Barro's fellow Harvard economist, and former top economic advisor to President Reagan, Martin Feldstein. Feldstein argued that targeted infrastructure spending does, in fact, represent one of the best stimulants to a sluggish economy -- but that Obama and Congressional Democrats gummed up their 2009 "Recovery Act" with so much waste and pork that they sabotaged their own effort:
In fact, each dollar of extra deficit added much less than a dollar to GDP. Experience shows that the most cost-effective form of temporary fiscal stimulus is direct government spending. The most obvious way to achieve that in 2009 was to repair and replace the military equipment used in Iraq and Afghanistan that would otherwise have to be done in the future. But the Obama stimulus had nothing for the Defense Department. Instead, President Obama allowed the Democratic leadership in Congress to design a hodgepodge package of transfers to state and local governments, increased transfers to individuals, temporary tax cuts for lower-income taxpayers, etc. So we got a bigger deficit without economic growth.
This president and his Congressional allies have already shown us what a failed, extravagantly expensive stimulus looks like. They projected a worst-case unemployment rate of eight percent if their "fix" were implemented. They failed. They promised unprecedented transparency and accountability. They failed. They promised that oodles of "shovel-ready projects" would fuel our federally-bankrolled economic comeback. They failed. Look at it this way: Even if one gluttenously consumed Obama's home-cooked jobs figures, the 2009 stimulus was an object lesson in government inefficiency. Again, according to Obama's in-house economists' own trumped up figures, each job allegedly "saved or created" ended up costing taxpayers nearly $300,000. Jeffrey Anderson frames things well:
...The government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the “stimulus,” and taxpayers would have come out $427 billion ahead.
Having squandered any credibility they may have possessed, Democrats are poised to demand another greedy bite at the apple, and plan to savage Republicans for declining to play along with their scheme. Consider the context: Last week, Barack Obama earned the dubious distinction of Mr. Four Trillion, less than three years into his presidency. This ignominious accomplishment came just weeks after he unwillingly claimed the mantle of President Downgrade. The United States is running out of time to avert a debt calamity, and President Obama is insisting on higher spending and higher taxes. If that resonates with you as a path to growth, recovery, and solvency, you know what to do. If not, November 6, 2012 will offer a clear alternative.
UPDATE - President Obama's latest pick to be his top economic advisor was convinced that Cap and Trade would be a grand jobs creator:
The White House announced Monday morning that Obama will nominate Princeton University economics professor Alan Krueger as chairman of the White House's Council of Economic Advisers. Within minutes of the announcement, Republican National Committee Research Director Joe Pounder flagged 2009 remarks Krueger gave during his tenure as an assistant secretary at the Treasury Department in which he touted the benefits of a cap-and-trade system for greenhouse gas emissions. “New WH Chief economist: ‘The proposed cap-and-trade program holds the promise of creating new industries and jobs,’” Pounder said on Twitter Monday.
Cap and Trade regimes kill jobs, sock all consumers with a huge de facto tax increase, and -- oh, by the way -- don't even achieve their own reputed ends. And there's this. But full speed ahead, says Obama's new economic sherpa. Obama 2012: More of the same.
(UPDATE II - For what it's worth, the very sensible Megan McCardle calls Kreuger "an excellent choice.")