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September 28, 2009

Stimulus Not Offsetting Job Losses

Earlier this month the Obama administration released their estimate of the impact of the fiscal stimulus on job creation and retention. Their estimate of roughly one million jobs created or retained created quite a bit of stir among critics of the stimulus. I believe the administration’s estimates are fair and accurate. Indeed, if they have erred in their predictions, it is in understating job impacts. It is important that economists charged with forming policy preserve their analytical integrity and this is a fine example of that. Even so, the outlook on the stimulus is not necessarily rosy. Understanding how estimates are made and what the stimulus means in the long run is not as simple as it seems.

The truth is, there is no “data” in the world that can tell you simply what is happening in the economy. Job numbers ebb and flow, industries relocate and incomes vary across regions and groups of people for a variety of reasons. It requires analysis to understand how these interactions work. Economists, like virtually all scientists use mathematical models to tease out cause and effect. It is hard enough with controlled experiments. It is much more difficult if you have to rely on the real world – without controlled experiments. Economists would know a lot more about recessions if we could convince some folks to sign up for a random recession trial (come to think of it, California and Michigan just might be doing that for us).

The stimulus can (and is) creating and saving jobs, even as we continue to suffer employment declines. Pure data tells all of us the world is stationary and flat. It takes a bit of math to know otherwise.

The administration’s economists rely upon models of the economy that account for stimulus spending. According to the administration something like a million jobs can be traced to the stimulus. While this is good news, it surely isn’t good enough news. There’s a dark cloud on the horizon.

The million jobs created by the stimulus weren’t enough to offset total job losses in the economy. Further, these new jobs have materialized slowly, reminding us why large scale fiscal stimulus efforts were largely written off two generations ago. But these observations aren’t the real problem. The concern is not how many jobs have been created, but how few.

The stimulus thus far has returned somewhere between $50 and $65 billion in tax relief (you all have noticed those fatter paychecks each week right?). This alone should have created more than a half million jobs. That means that less than 10 percent of the spending side (which will eventually be more than $500 billion) has hit the streets. The recession is now over. If we continue to spend the stimulus at this rate we have a real problem. Without any additional rebound the stimulus alone will account for 7-10 million additional jobs. That type of job creation sounds tantalizing. It is also impossible. What it will give us is inflation.

Link to this commentary: https://commentaries.cberdata.org/45/stimulus-not-offsetting-job-losses

Tags: stimulus, jobs and employment


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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