Thursday, October 8, 2009

Stimulus Spending Worsens Unemployment

Give us money, and we’ll give you jobs. That was the promise President Barack Obama made when he asked Congress for a $789 billion stimulus bill back in January. The cash, the administration said, would create millions of jobs over the next two years.

Since April 2009, the administration spent roughly $90 billion, or 18 percent of the total stimulus spending, on top of $62 billion in tax relief. During that time, the unemployment rate grew from 8.9 percent to 9.8 percent. And according to the Bureau of Labor Statistics, job losses accelerated in September. As we see here, the current unemployment rate is already far above the 8.8 percent the administration said the rate would top out at next year without a stimulus.

Some economists, including Paul Krugman, have argued that the problem with President Obama’s plan is that it doesn't spend enough. Hence, they think that a second stimulus is needed. Yet it is hard to argue that we already need another stimulus when less than a quarter of the money has been spent.

Other economists are arguing that the money is not being spent fast enough. Indeed, at this rate, the economy is likely to have recovered before most of the stimulus money has been spent.

Um, question: If a recovering economy will bring back the jobs, why increase our national debt? Just asking.

From the article is the conclusion:

Putting aside the question of whether the stimulus is too small or being spent too slowly, what too many stimulus advocates overlook is that to spend money, the government needs to either borrow, tax, or print it (or combine these). Money taxed or borrowed from the private sector is money that firms cannot spend on goods or employees. The government’s slice of the pie gets bigger by making the rest of the pie smaller. This may explain in part why the stimulus has not translated into declining unemployment.

You can find the original article here, complete with chart.

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