For anyone who’s wondering what the president can do to save our economy, I would like to recommend a few articles from today’s newspapers. The first one is from Caroline Baum at Bloomberg. She rightfully reminds readers that if the president had a plan, he wouldn’t have waited so long to put it in place.
Let’s face it: If the president had a plan to create jobs, he wouldn’t have kept it under wraps until now. Why take flak from Republicans and heat from the public if you have what it takes to turn the economy and labor market around? Barack Obama doesn’t have a plan to create jobs.
She also reminds everyone that it’s not his job to create jobs.
The government’s role is to provide an environment in which the private sector will create them. That should be his goal.
For weeks, the White House has been hyping the president’s speech to a joint session of Congress. I suspect it will be full of pomp and circumstance signifying nothing (with apologies to Will Shakespeare). Obama will offer some warmed-over “stimulus,” including aid to the states, extended unemployment benefits, temporary tax breaks and infrastructure spending; mortgage relief for homeowners; and perhaps regulatory relief for business. The price tag, according to those briefed on the speech: $300 billion.
The second article is from the Wall Street Journal: ”Why the Stimulus Failed.” It’s a good summary of two recent papers by my colleague Garret Jones and my former colleague, now AEI staffer Dan Rothschild.
One of the major patterns Messrs. Jones and Rothschild uncovered was that the top-down stimulus was poorly targeted. In one redolent example, a federal contractor said he was told to use smaller, nonstandard tiles that are harder and more expensive to install in order to increase the cost of the project. That way, the government could claim the money was moving out the door faster. The famous Milton Friedman line about government ordering people to dig with spoons to employ more people comes to mind.
In another case study, a budget shortfall forced a mid-size city to lay off 185 public workers—but the city received a $4 million stimulus grant to improve municipal energy efficiency. The manager of a construction company received funds for “the last thing on our list; and truthfully, the least useful thing.” It happened to be a crane and a forklift.
It ends with a clear summary of the hard reality of Keynesian economics: It’s hard for the government to create jobs for real.
The lesson of such on-the-ground knowledge is that the stimulus was a lost opportunity. In practice it became a shotgun marriage between an economic theory justified by computer models and 40 years of liberal social priorities (clean energy, Medicaid expansions and the rest). This produced the 9.1% unemployment we now have.
The economy would have benefitted far more if the government had instead improved the incentives for people and businesses to invest, produce and grow. The President probably won’t mention any of this, but it does explain why he has to give his latest speech.
The whole thing is here.