The unemployment rate has hit 10.2 percent. All those laid-off Americans must be wondering why Christina Romer and Jared Bernstein still have jobs.
Romer and Bernstein, economic advisers to the Obama administration, warned back in January that, unless Congress enacted the $787 billion stimulus package, the unemployment rate would hit 9 percent by 2010. The stimulus would prevent this disaster, they promised, causing the unemployment to level off at 8 percent and then fall.
This can’t be simple incompetence; Romer and Bernstein are too smart. Nor was the extent of the crisis unknowable at the time. None other than stimulus-worshipper Paul Krugman called the team’s predictions “kind of optimistic.” That leaves fabrication: The administration sold the stimulus to the public on false pretenses.
The odds that the stimulus package would “create or save” millions of jobs, per the administration’s promises, were never good. The government is borrowing enormous amounts of money to pay for the stimulus. That money should be funding job creation in the private sector. Instead, it is going to shore up insolvent spendthrift state governments, to expand Medicaid and unemployment benefits, and to lay the groundwork for an aid-dependent green-energy sector that is going to drain the nation’s resources for years to come.
The argument for the stimulus rested on the assertion that, without government spending, capital would ride out the crisis sitting on the sidelines. But as economist Eugene Fama and others have argued, it is highly unlikely that the government is finding more productive uses for that $787 billion than the private sector would have. Every day brings a new report vindicating Fama’s argument. If we divide the number of dollars spent by the number of jobs the White House claims were saved or created, the result is a cost of $160,000 per job. And there are plenty of reasons to be skeptical of the administration’s claims. In California, thousands of teachers’ jobs “saved” by the stimulus were never in danger of elimination.
Republicans have every right to point this out. However, the party should resist the temptation to make too much of the unemployment numbers. Unemployment is high because the economy is still weathering the fallout from the financial crisis. Government policies, primarily the heedless promotion and subsidization of residential real estate, contributed mightily to the crisis. But Fannie Mae and Freddie Mac preceded Obama, and the “affordable” housing agenda was a bipartisan failure — though Obama could certainly be faulted for throwing good money after bad with his first-time home buyers’ tax credit.
America’s private sector is resilient, and it will bounce back. Laying too much of the blame at Obama’s feet risks setting him up to take the credit for the comeback when things inevitably improve. Republicans’ arguments should focus on the long term. Obama’s decision to double-down on the nation’s bad housing bet risks reinflating the real-estate bubble. The new taxes associated with his health-care and energy bills will dampen growth and weaken the recovery. The debt he is piling up has unnerved our creditors, and his spending sprees are distorting the allocation of resources in our economy.
There are some arguments to make about the short run. Government can promote economic growth and job creation, but the Obama administration is not interested in structuring tax policy so that it encourages hard work and investment. Health-care policy can be reformed in a way that lowers premiums, cuts costs, and leaves more money available for wages, but the Obama administration is not interested in creating an interstate marketplace for health insurance.
Government can provide a social safety net for workers, but the Obama administration has taken the concept to absurd extremes. The president just signed yet another extension of unemployment benefits, stretching the eligibility period to nearly two years in some states. The bill funds the additional benefits by extending a payroll tax on employers that was scheduled to expire at the end of the year. In other words, the administration is simultaneously providing incentives for workers not to work and for employers not to hire them.
The administration was careful not to label the extension a “second stimulus” — the word has become a punchline. People are grasping the idea that it has failed to deliver what was promised. For that, we should thank Romer and Bernstein. Their misleading employment estimates — so at odds with today’s reality — have done the noble work of discrediting this noxious form of false advertising.