On April 8th, Peter Coy over at BusinessWeek had the strangest reaction to the Labor Department’s announcement that the U.S. economy generated 162,000 jobs in March.
Here’s why: The positive jobs report reduces the political urgency for fixing the U.S. economy. If voters and lawmakers decide the economy is healing on its own, it becomes harder to justify more infrastructure spending, aid to stressed states, extended unemployment insurance, and the like. Even before the report, the Administration had begun to focus on smallish fixes like the $14 billion HIRE Act, which encourages hiring of the unemployed, and new measures to discourage foreclosures. “Stimulus has become a dirty word in Washington,” says Augustine Faucher, macroeconomics director of Moody’s Economy.com (MCO).
That’s understandable, but it could be a problem if the economy begins to sputter. The nonpartisan Congressional Budget Office estimates that as of the end of 2009, last year’s $787 billion stimulus package had created 1.4 million to 3 million full-time-equivalent jobs that wouldn’t have existed otherwise. In other words, the recession would have been even worse without it. Now that stimulus is going away; by September, 70% of the funds will have been spent, the government estimates.
So basically, if the economy starts recovering, then there will be no second stimulus. How sad.
Never mind, by the way, that, as Heritage Foundation’s Brian Riedl noted two weeks ago, CBO never even bothered to check how many jobs were “created or saved” in the post-stimulus economy. They just assumed that what they had predicted would happen, did actually happened.
This is like a weather forecaster saying that the high yesterday was 65 degrees, because that is what had been predicted – even though it actually never topped 50 degrees.
Now, CBO director Doug Elmendorf has finally conceded that they never actual examined this stimulus bills’ affect on the economy. Responding to a questioner following a recent speech, he admitted that the CBO’s jobs count was “essentially repeating the same exercise” as their initial projections. When asked if this means their jobs projections would have ignored any failures of stimulus spending to perform as CBO predicted, Mr. Elmendorf responded “that’s right.” (Exchange begins at 38:20.)
Riedl’s whole post is worth reading again and again and again. Here.